<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1999
Registration No. _________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------
ALLQUEST.COM CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Delaware 6162 76-0615762
(State or other jurisdiction (Primary Standard Classification (I.R.S. Employer
of incorporation) Code Number) Identification No.)
</TABLE>
------------------------------
AllQuest.com Corporation
6110 Pinemont
Houston, Texas 77092
(713) 353-0400
(Address and telephone number of Registrant's principal executive offices)
------------------------------
JIM C. HODGE
CHAIRMAN OF THE BOARD
ALLQUEST.COM CORPORATION
6110 PINEMONT
HOUSTON, TEXAS 77092
(713) 353-0400
(Name, address and telephone number of agent for service)
------------------------------
Please send copies of all communications to:
JACK A. SELMAN
SELMAN & MUNSON, P.C.
111 CONGRESS AVENUE, SUITE 1000
AUSTIN, TEXAS 78701
(512) 505-5955
FAX (512) 505-5956
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
-----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED (1) BE OFFERING PRICE PER AGGREGATE REGISTRATION
REGISTERED UNIT OFFERING PRICE FEE
---------- ------------------ ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock (1)....................................... 1,400,000 $6.00 $8,400,000 $2,797
Underwriter's Warrants................................. 140,000 $0.01 $ 1,400 $ --
Common Stock Within Underwriter's Warrant (2).......... 140,000 $7.20 $1,008,000 $ 302
TOTAL...................................... $3,099
</TABLE>
- -------------------
(1) Estimated solely for the purpose of computing the amount of the registration
fee.
(2) No portion of the offering price is attributable to the Underwriter's
Warrants.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-B
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS BY CAPTION
- --------------------------------- ---------------------------------
<S> <C> <C>
1. Front of Registration Statement Front Cover Page of Registration Statement
and Outside Front Cover Page of and Front Cover Page of the Prospectus
Prospectus...................................
2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages
Cover Pages of the Prospectus................
3. Summary Information and Risk Factors......... Prospectus Summary; Risk Factors; The Com-
pany and its Business; Selected Financial Data
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Determination of the Offering Price, Description
of Securities; Underwriting; Risk Factors
6. Dilution..................................... Dilution; Risk Factors
7. Selling Security Holders..................... Not Applicable
8. Plan of Distribution......................... Front Cover Page; Underwriting
9. Legal Proceedings............................ Legal Proceedings
10. Directors, Executive Officers, Management; Principal Stockholder
Promoters and Control Persons................
11. Security Ownership of Certain Principal Stockholder, Management
Beneficial Owners and Management.............
12. Description of Securities.................... Description of Securities; History of Security
Placements
13. Interest of Named Experts and Counsel........ Not Applicable
14. Disclosure of Commission Disclosure of Commission Position on
Position on Indemnification for Indemnification for Securities Act Liabilities
Securities Act Liabilities...................
15. Organization within Last Five Years.......... Not Applicable
16. Description of Business...................... Prospectus Summary; Rick Factors; Use of
Proceeds; The Company and its Business;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Management; Principal Stockholders; Financial
Statements
17. Management's Discussion and Analysis......... Management's Discussion and Analysis
18. Description of Property...................... The Company and its Business
19. Certain Relationships and Certain Relationships and Related Transactions
Related Transactions.........................
20. Market for Common Equity and Risk Factors; Description of Securities and
Related Stockholder Matters.................. Shares Eligible for Future Sales
21. Executive Compensation....................... Management
22. Financial Statements......................... Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure..................... Not Applicable
</TABLE>
i
<PAGE> 3
[Logo]
PROSPECTUS
ALLQUEST.COM CORPORATION
Up to 1,400,000 Shares of Common Stock
AllQuest.com Corporation ("AllQuest" and with its subsidiaries the
"Company"), is offering up to 1,400,000 shares of its Common Stock in connection
with the reorganization of Allied Mortgage Capital Corporation ("Allied") into a
wholly owned subsidiary of AllQuest (the "Common Stock"). The offering price of
the shares is $6.00 per share (the "Purchase Price").
Employees, officers and directors of AllQuest and Allied shall have a
non-transferable priority right to subscribe to the Common Stock ("Subscription
Rights") prior to November ___, 1999 (the "Subscription Offering").
Concurrently, and subject to the Subscription Rights, the Company is offering
the Common Stock not subscribed for in the Subscription Offering to the general
public to whom a prospectus is delivered (the "Public Offering").
AllQuest has applied to have the Common Stock listed on the "SmallCap
Market" of the NASDAQ Stock Market System under the symbol "LOAN." Although
there can be no assurance that AllQuest will satisfy the criteria for listing on
the NASDAQ Stock Market System, AllQuest expects to meet these criteria. Prior
to this offering there has not been a public market for the Common Stock, and
there can be no assurance that an active and liquid trading market for the
Common Stock will develop or that purchasers will be able to sell their shares
at or above the Purchase Price.
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE SALES CENTER AT (512)
320-6099 AND ASK FOR A CHOICE INVESTMENTS, INC. REPRESENTATIVE. Sale of Common
Stock will only be made in connection with this Prospectus.
------------------
FOR A DISCUSSION OF MATERIAL RISKS RELATING TO THIS OFFERING,
SEE "RISK FACTORS."
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Estimated Underwriting
Fees, Commissions Estimated Net Offering
Purchase Price and Other Expenses(1) Proceeds to AllQuest(2)
-------------- ---------------------- -----------------------
<S> <C> <C> <C>
Minimum Per Share $6.00 $0.68 $5.32
Maximum Per Share $6.00 $0.59 $5.41
Total Minimum $6,000,000 $680,000 $5,320,000
Total Maximum $8,400,000 $824,000 $7,576,000
</TABLE>
(1) Consists of estimated costs to AllQuest, including an estimated fee
payable to Choice Investments, Inc. ("Choice"or "Underwriter") for
acting as underwriter assisting in the distribution of shares of Common
Stock in the offering. Choice has been paid a financial advisory fee of
$25,000 and upon closing of the offering will be paid a fee equal to
6.0% of the aggregate Purchase Price of the Common Stock sold in the
offering. The maximum underwriting fees and commissions to be received
by Choice and any selected dealers will be $529,000. See "Plan of
Distribution - Marketing and Underwriting Arrangements." The estimated
expenses of the offering, excluding marketing fees, commissions and
related expenses, is approximately $295,000. Such expenses include fees
and expenses of attorneys, accountants, printers and filing fees with
state and federal agencies. Actual expenses, and thus net proceeds, may
be more or less than estimated amounts. See "Use of Proceeds."
(2) Net offering proceeds may vary from the estimated amounts, depending on
the number of shares issued and actual expenses incurred.
AllQuest has engaged Choice as financial advisor and underwriter to
consult, advise and assist in the distribution of shares of Common Stock, on a
best efforts basis. If necessary, Choice will manage the selected broker-dealers
to assist in selling stock in the offering. Choice must sell the minimum number
of 1,000,000 shares of Common Stock if any are to be sold. Choice is required to
use only its best efforts to sell the maximum number of 1,400,000 shares of
Common Stock offered.
AllQuest must receive an original stock order form together with full
payment of $6.00 per share for all shares for which subscription is made, at
AllQuest's Stock Sales Center which is located at 5900 Balcones Drive, Austin,
Texas (the "Sales Center") by 4:00 p.m., Austin, Texas time, on November ___,
1999. Subscription funds will be placed in an Escrow Account with Compass Bank,
N.A. and will earn interest from the date of receipt until completion or
termination of the offering. AllQuest reserves the right to withdraw this offer
and close the offering prior to November ___, 1999 upon the sale of at least
1,000,000 shares. If a minimum of 1,000,000 shares of the Common Stock have not
been sold by the termination of this offering, all funds received from
subscribers will be promptly refunded, with interest. In the event of an
oversubscription, the shares of Common Stock will be allocated pro rata among
the subscribers in the Subscription Offering and if any shares remain thereafter
on a pro rata basis among the subscribers in the Public Offering, in each case
based on the amount of their respective subscriptions. No person, together with
associates of or persons acting in concert with such person, may purchase more
than $500,000 of the total number of shares of Common Stock offered in the
offering. The minimum purchase is 100 shares. The purchase limitations described
herein are subject to increase or decrease at the sole discretion of AllQuest.
CHOICE INVESTMENTS, INC.
The date of this Prospectus is _______________, 1999.
<PAGE> 4
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act for the shares of
Common Stock being offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits.
For further information about the Company and the Common Stock offered, see the
registration statement and the exhibits thereto. Statements contained in this
prospectus regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and, in each instance where a
copy of a contract or other document has been filed as an exhibit to the
registration statement, reference is made to the copy so filed, each of those
statements being qualified in all respects by that reference. A copy of the
registration statement and the exhibits may be inspected without charge at the
Commission's offices at Judiciary Plaza, 450 Fifth Street, Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the Public Reference Room of the Commission, Washington, D.C.
20549 upon the payment of the fees prescribed by the Commission. The public may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as AllQuest, that file
electronically with the Commission. As a result of this offering, we will become
subject to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and we will file period reports, proxy statements and
other information with the Commission. Upon approval of the common stock for
quotation on the NASDAQ SmallCap Market, the Company's reports, proxy and
information statements and other information may also be inspected at the
offices of NASDAQ Operations, 1735 K Street, N.W., Washington, D.C. 20006. The
Company intends to furnish its stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim financial information.
No dealer, salesman or any other person has been authorized to give any
information which is not contained in this Prospectus or to make any
representation in connection with this offering other than those which are
contained in the Prospectus, and if given or made, such information or
representation must be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities which are offered hereby to any person
in any jurisdiction where such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implications that there has been no change in the
affairs of the Company or the facts which are herein set forth since the date
hereof.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE COMMON STOCK, INCLUDING OVERALLOTMENT, ENTERING STABILIZATION
BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY
BIDS.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE
IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ
IN ACCORDANCE WITH RULE 103 OF REGULATION M.
<PAGE> 5
[MAP TO COME]
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) found
elsewhere in this Prospectus. All information in this Prospectus unless
otherwise indicated, assumes no exercise of any outstanding warrants.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors."
THE COMPANY
AllQuest was recently formed under the laws of Delaware for the purpose
of becoming a holding company to own all of the outstanding capital stock of
Allied. Immediately following the offering, the only significant assets of the
Company will be the capital stock of Allied and the net proceeds from the
offering. See "Use of Proceeds."
ALLIED MORTGAGE CAPITAL CORPORATION
The Company, through its subsidiary Allied, is a dynamic retail
mortgage banker/broker engaged in the business of originating, selling and
brokering mortgage loans. Management believes it is the largest affiliated
branch mortgage banker/broker in the United States. The Company originated over
$2.3 billion in loans in fiscal 1999, making it one of the larger non-depository
retail originators in the United States.
A broad array of residential mortgage products are delivered by the
Company from an innovative platform using the Company's nationwide network of
branches and a sophisticated Internet presence. As of June 30, 1999, the Company
had approximately 1,200 loan originators operating out of 381 retail branches in
49 states. In addition, the Company has built relationships with operators of
leading Internet mortgage web sites including Intuit's QuickenMortgage(TM), The
LendingTree(TM), Microsurf and the Company's own site at Alliedhomenet.com. The
Company also implements a wide variety of marketing strategies to enhance its
production of mortgage loans, including direct mail, telemarketing and alliances
with builders, realtors and other professionals. The Company's residential
mortgage products are targeted primarily to quality borrowers. The Company
operates as both a mortgage banker (underwriting, closing and funding loans) and
a mortgage broker (selling the loan products of over 700 different lenders). The
Company believes that its large loan origination volume and hybrid banker/broker
structure enable it to consistently offer its customers favorable pricing on a
broad range of mortgage products and provide convenient, high-quality customer
service.
Since being founded in 1991, Allied has focused on building origination
volume by establishing a retail origination network through expanding its branch
network and, recently, through relationships with operators of Internet mortgage
web sites. The Company believes that its operating structure provides an
effective platform to continue to grow its origination volume.
- Expansion of Branch Network. The Company's origination volume
has grown from $62 million in fiscal 1994 to $2.3 billion in
fiscal 1999. Since 1994, the Company has opened 381 new
branches in 49 states. Since December 31, 1998, the Company
has opened 117 new branches. Unlike many of our competitors
who build through acquisitions, the Company's loan originators
were directly recruited and hired by the Company.
- Penetration of the Internet Mortgage Business. The Company's
objective is to become a leading provider of mortgage products
through the Internet in addition to its conventional mortgage
business. It has established strategic relationships with
operators of leading
1
<PAGE> 7
Internet mortgage web sites, including Intuit's
QuickenMortgage(TM), LendingTree(TM) and Microsurf and its own
site at Alliedhomenet.com. For fiscal 1999, the Company
originated over $30.9 million in mortgage loans generated over
the Internet. The Company has made significant investments of
time and resources in building a very usable electronic
commerce site.
- Building Alliances. The Company will also build its business
through establishing alliances with builders, brokers,
realtors and other professionals who have access to potential
residential mortgage customers. Two efforts of the Company
currently underway include a relationship with an H&R Block
franchisee operating over 500 branches and a proposed venture
by the Company to assist homeowners selling their homes
without the assistance of a broker.
The Company earns revenues from the sale of loans and related servicing
rights in the secondary market for cash payments and interest earned and
servicing fees received on loans held prior to their sale.
The Company's corporate office is located at 6110 Pinemont, Houston,
Texas 77092, and its telephone number is (713) 353-0400.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered............................. 1,400,000 shares of Common Stock to be issued and sold by
the Company ("Common Stock").
Common Stock Outstanding Before
Offering(1)..................................... 4,000,000(3)
Common Stock To Be Outstanding After
Offering(1)..................................... 5,400,000(3)
Use of Proceeds................................. To obtain additional capital to support expansion of the
Company's retail loan origination activities and for general
working capital purposes.
Proposed NASDAQ Symbol(2).............. LOAN
</TABLE>
- ---------
(1) Unless otherwise indicated, references in this Prospectus to Common
Stock Outstanding Before and After this Offering do not include
issuance of up to 140,000 shares of Common Stock issuable upon exercise
of the Underwriter's warrants.
(2) NASDAQ symbols do not imply that a meaningful or sustained trading
market for the securities will develop.
(3) Assuming the reorganization of Allied as a subsidiary of AllQuest. See
"Reorganization and Termination of S Corporation Status."
RISK FACTORS
The securities offered hereby involve a high degree of risk and
immediate and substantial dilution. See "Risk Factors" and "Dilution."
2
<PAGE> 8
SELECTED FINANCIAL DATA
The selected data presented below under "Selected Statement of
Operations Data" and "Selected Balance Sheet Data" for, and as of the end of
each of the years in the two-year period ended June 30, 1999, are derived from
the financial statements of Allied Mortgage Capital Corporation, which financial
statements have been audited by KPMG LLP, independent certified public
accountants. This selected historical financial data should be read in
conjunction with and is qualified by reference to the financial statements of
Allied Mortgage Capital Corporation and the related notes thereto included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
SELECTED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Income:
Gain on sales of loans ....................... $6,069,908 $3,271,341
---------- ----------
Expenses:
Personnel .................................... 2,218,458 689,594
General and administrative ................... 3,043,919 1,760,990
Interest expense, net of interest income ..... 53,343 81,318
Occupancy .................................... 255,329 94,912
Other ........................................ 489,366 204,850
---------- ----------
Total Expenses ....................... 6,060,415 2,831,664
---------- ----------
Net income ............................................ $ 9,493 $ 439,677
========== ==========
</TABLE>
OPERATING DATA(1):
<TABLE>
<S> <C> <C>
Production volume - brokered $2,172,059,838 $1,052,837,169
Production volume - retail 158,019,752 102,496,098
-------------- --------------
Total production volume $2,330,079,590 $1,155,333,267
============== ==============
Average principal balance per loan, wholesale and retail $ 102,408 $ 98,001
</TABLE>
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of June 30
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash $ 1,657,031 $ 1,472,314
Mortgage loans held for sale 16,944,667 17,890,764
Furniture and equipment 484,767 14,751
Other assets 2,082,737 877,926
----------- -----------
Total assets $21,169,202 $20,255,755
=========== ===========
Warehouse notes payable $16,603,486 $16,980,499
Accounts payable and other accrued expenses 4,221,980 3,081,417
----------- -----------
Total liabilities $20,825,466 $20,061,916
=========== ===========
Stockholders' equity $ 343,736 $ 193,839
=========== ===========
</TABLE>
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(1) The financial data provided under the heading "Operating Data" has been
provided by management of the Company and has not been derived from the
financial statements audited by KPMG LLP.
3
<PAGE> 9
RISK FACTORS
The securities offered hereby involve a high degree of risk.
Prospective investors should carefully consider, among other things, the
following risk factors before a decision is made to purchase any Common Stock.
THE COMPANY MUST BE ABLE TO MANAGE ITS GROWTH EFFECTIVELY; HISTORICAL GROWTH
RATES ARE NOT LIKELY TO REFLECT FUTURE GROWTH
The Company has experienced rapid growth since its formation in 1991.
The Company's revenues have grown from approximately $215,000 in fiscal year
1994 to $6.1 million in fiscal year 1999, and its workforce has grown from 28
employees to 1,443 employees during the same period. The Company intends to
continue to grow by adding new loan originators, opening new branches, creating
new loan origination platforms by building alliances, making strategic
acquisitions and expanding the Internet origination capabilities. There can be
no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations as they expand. Future growth will
also impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain and integrate additional
employees, including management. The Company's failure to manage growth
effectively, or inability to recruit, maintain and integrate additional
qualified employees could have a material adverse effect on business and results
of operations. In addition, due to the rapid growth, the Company's historical
growth rates are not likely to accurately reflect future growth rates or growth
potential. Management cannot assure that the Company's future revenues will
increase or that the Company will continue to be profitable.
DEMAND FOR MORTGAGES CAN BE SIGNIFICANTLY AFFECTED BY AN ECONOMIC SLOWDOWN OR
RECESSION
Demand for mortgages will be adversely affected by periods of economic
slowdown or recession which may be accompanied by rising interest rates,
decreasing demand for consumer credit, declining home sales, declining real
estate values and declining ability of borrowers to make loan payments. 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 those loans could be higher under adverse
economic conditions than those currently experienced in the mortgage lending
industry in general. A material decline in the volume of sales of residential
real estate could also have a material adverse effect on the Company's business
and results of operations.
Rising interest rates, which typically accompany an economic slowdown,
may also adversely affect demand for refinancings. Since January 1995,
significant declines in interest rates have produced significant levels of
refinance activity, in general, and for the Company in particular. If interest
rates stabilize or rise even moderately, the Company's refinance loan
4
<PAGE> 10
origination volume is likely to be adversely affected. Management estimates that
during the year ended June 30, 1999, approximately 60% of the Company's mortgage
loan origination volume were refinancings of first mortgage loans.
THE COMPANY DEPENDS ON ITS ABILITY TO SELL LOANS AND SERVICING RIGHTS IN THE
SECONDARY MARKET TO A LIMITED NUMBER OF INVESTORS
The Company currently sells substantially all of the loans it
originates to independent whole loan or bulk loan buyers and sells the
accompanying servicing rights to approved servicers. The premium income
generated from these sales represents a primary source of revenues and earnings.
Further, the Company is dependent on the cash generated from sales of mortgages
and servicing rights to fund the Company's future loan closings and repay
borrowings under the Company's warehouse credit facility. The prices for which
the Company is able to sell its loans vary from time to time and may be
materially adversely affected by several factors, including, without limitation,
the following:
- any reduction in the number of potential buyers of loans;
- any increase in the amount of similar loans available for
sale;
- conditions in the secondary market;
- increased prepayments of, or defaults under, loans in general;
- the types and volume of loans being sold by the Company;
- the level and volatility of interest rates; and
- the quality of loans previously sold by the Company.
The prices for which the Company is able to sell mortgage servicing
rights vary from time to time and may be materially adversely affected by a
number of factors, including the general supply and demand for mortgage
servicing rights and changes in interest rates. Servicing rights for a
particular loan category originated with higher interest rates tend to have a
lower value than those originated with comparatively lower interest rates.
A reduction in the size of the secondary market for the types of loans
funded by the Company may adversely affect the Company's ability to sell loans
and servicing rights in the secondary market, and accordingly adversely impact
the Company's profitability and ability to fund future loan closings. Any
decrease in the prices paid to the Company upon the sale of its loans or
servicing rights could materially adversely affect the Company's business and
results of operations.
5
<PAGE> 11
WE DEPEND ON OUR WAREHOUSE FINANCING FACILITY IN ORDER TO FUND LOANS
The Company funds substantially all of its loans through borrowings
under the Company's warehouse financing facility and, to a lesser extent,
through internally generated funds and other short-term borrowings. The Company
repays its borrowings with the proceeds received from sales of loans and
servicing rights. The Company's warehouse financing facility provides it with an
aggregate of $16 million of credit, is renewable annually and expires in May
2000. If the Company is unable to maintain, renew or replace its warehouse
financing facility on adequate terms or is unable to increase its warehouse
financing facility, its business and results of operations could be materially
adversely affected. If the Company cannot successfully maintain its existing
warehouse financing facility or replace them with a comparable financing source,
the Company may be required to curtail its loan origination activities, which
would have a material adverse effect on its business and results of operations.
In addition, if the Company's profit on sales of mortgage loans and servicing
rights fails to cover its cost of borrowing, it may experience net losses.
The Company's warehouse financing facility requires the Company to
comply with various operating and financial covenants. Two of these covenants
require the Company to maintain a minimum net worth and a maximum debt leverage
ratio. In fiscal 1999, the Company made distributions to its stockholders in an
amount that caused its net worth to fall under the minimum net worth requirement
and also resulted in the Company failing to comply with the maximum debt
leverage ratio for June 30, 1999 and subsequent months. The financial
institution that provides the warehouse financing facility has granted the
Company forbearance on such covenant violations, but has also reduced the
warehouse financing facility from a maximum of $23 million to $16 million and
required the Company to meet the net worth requirements by November 30, 1999 and
maintain a maximum debt to equity ratio of 20 to 1. As of August 31, 1999, the
Company estimates that $461,000 of additional capital would be necessary to meet
the net worth requirement. The completion of a minimum offering will provide the
Company with sufficient capital to meet the current net worth requirements of
the warehouse financing facility lender. If this offering is not completed by
November 30, 1999 and the net worth requirement has not been met, the Company
will seek to raise the necessary capital through other means including the sale
of stock to the Existing Stockholders. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition-Liquidity and Capital
Resources."
VOLATILE INTEREST RATES MAY AFFECT THE VALUE OF LOANS HELD FOR SALE
The value of the Company's loans is based, in part, on market interest
rates, and the Company may be adversely affected if interest rates change
rapidly or unexpectedly. If interest rates rise after the Company fixes a price
for a loan but before it sells the loan in the secondary market, the value of
that loan will decrease. Although the Company typically knows approximately how
long it will keep a loan after funding, there may be unexpected delays which
could increase the Company's interest rate exposure. The Company does not use
hedging strategies to provide protection against interest rate risks. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Disclosure About Market Risk."
6
<PAGE> 12
DILUTION
With a public offering price of $6.00 per share for the sale of the
shares offered hereby, purchasers of the shares will incur immediate dilution of
approximately $4.53 per share in net tangible book value in a maximum offering
and $4.93 per share in net tangible book value in a minimum offering.
THE COMPANY FACES RISKS RELATED TO ITS ACQUISITION STRATEGY
An element of the Company's growth strategy is to expand its operations
through selective acquisitions of independent mortgage brokers and bankers.
Since substantial competition exists for acquisition opportunities in the
mortgage industry which could result in an increase in the price of, and a
decrease in the number of, attractive acquisition targets, the Company may not
be able to successfully acquire attractive targets on terms that it deems
acceptable. In addition, the Company cannot assure that it will be able to
obtain the additional financing it may need for its acquisition program on terms
that it deems acceptable. Acquisitions may also involve a number of special
risks, including adverse short-term effects on results of operations, dilution
resulting from issuances of common stock, diversion of management's time, strain
on financial and administrative infrastructure and unanticipated legal
liabilities. The Company cannot assure that it will be able to overcome these
acquisition risks.
THE COMPANY DEPENDS ON ITS KEY PERSONNEL
The Company's future success depends to a significant extent on the
continued services of its senior management, particularly its President, Jim
Hodge. The loss of the services of Mr. Hodge or other key employees could have a
material adverse effect on business and results of operations. The Company does
not maintain "key person" life insurance for any of its personnel.
CONFLICTS OF INTEREST
Jim Hodge, the president of the Company, is also a stockholder, officer
and director of both a corporation that leases the Company its principal office
and a separate corporation that purchases some of the mortgage loans from the
Company and provides other ancillary services to the Company. In the future,
mortgage loans will be sold by the Company to the corporation controlled by Mr.
Hodge. Because of Mr. Hodge's conflict of interest, the lease of the principal
office to the Company and the sale of mortgage loans to Mr. Hodge's other
corporation may benefit those corporations and Mr. Hodge at the expense of the
Company. See "Management- Certain Transactions."
AMC is a co-borrower with the Company on the Company's $16 million
residential warehouse line of credit. That line of credit is also guaranteed by
Mr. Jim C. Hodge who is an officer, director and stockholder of both entities.
Under the terms of the line of credit, the lender
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<PAGE> 13
has agreed to make advances to either AMC or the Company provided that such
advance is secured by residential mortgage loans. Since the Company and AMC are
jointly and severally liable under the line of credit, a default by either AMC
or the Company would subject the other party to the remedies provided in the
loan agreement, including the potential foreclosure of loans held by the
Company. In the event of default by AMC, both the Company and Mr. Hodge, as a
guarantor, could be liable for any amounts outstanding.
THERE IS COMPETITION FOR QUALIFIED LOAN ORIGINATORS
The Company depends on its loan originators to generate customers by,
among other things, developing relationships with consumers, real estate agents
and brokers, builders, corporations and others, leading to repeat and referral
business. Accordingly, the Company must be able to attract, motivate and retain
skilled loan originators. In addition, the Company's growth strategy
contemplates hiring additional loan originators. The market for skilled loan
originators is highly competitive and historically has experienced a high rate
of turnover. Competition for qualified loan originators may lead to increased
costs for such loan originators. If the Company is unable to attract or retain a
sufficient number of skilled loan originators or even if it is able to retain
loan originators but its costs increase, the Company's business and results of
operations could be adversely affected.
THE COMPANY FACES COMPETITION IN THE MORTGAGE INDUSTRY
The Company faces competition in the business of originating and
selling mortgage loans. Low barriers to entry result in a steady stream of new
competitors entering the traditional mortgage market and the Internet mortgage
market. In addition, the nature of the mortgage industry is changing as mortgage
products become more commodity-like in nature due to, among other factors, price
and visibility on the Internet. Mortgage companies must offer a broad range of
attractively priced products to remain competitive. The Company competes with a
wide range of other mortgage lenders, including other mortgage banks, commercial
banks, savings and loan associations, credit unions, insurance companies and
other finance companies as well as Internet mortgage web sites. Many of these
competitors or potential competitors are better established, substantially
larger and have more capital and other resources than the Company. If the
Company expands into additional geographical markets, it will face competition
from consumer lenders with established positions in those markets. In the
future, the Company may also face competition from government-sponsored
entities, such as Fannie Mae and the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Competition may lower the rates the Company can charge
borrowers, thereby potentially lowering the amount of premium income on future
loan sales and sales of servicing rights. Increased competition may also reduce
the volume of loan originations and loan sales. The Company cannot assure that
it will be able to compete successfully in this evolving market.
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A PORTION OF THE COMPANY'S GROWTH IS DEPENDENT UPON THE INTERNET
A portion of the Company's growth is dependent on its ability to
originate loans on the Internet. The Company's Internet success will depend, in
part, on the development and maintenance of the Internet's infrastructure and
consumer acceptance of it as a distribution channel for mortgages. In order to
grow loan volume on the Internet, the Company is dependent on relationships with
operators of Internet mortgage web sites to capture some of the on-line mortgage
growth. However, the Company's ability to significantly increase the number of
loans it originates over the Internet and to continue to originate loans
profitably through the Internet remains uncertain. In addition, some of the
Company's agreements with Internet mortgage web sites can be terminated with
notice by either party. The Company's business and results of operations may be
materially, adversely affected by the termination of these agreements.
THE COMPANY RELIES SIGNIFICANTLY ON GOVERNMENT SPONSORED AND FEDERAL MORTGAGE
PROGRAMS
The Company's ability to generate revenue through the sale of mortgages
is largely dependent upon the continuation of programs administered by Fannie
Mae, Freddie Mac and others which facilitate the issuance of mortgage-backed
securities. A portion of the Company's business is also dependent upon the
continuation of various programs administered by the Federal Housing
Administration and the Veterans Administration. Any discontinuation of, or
significant reduction in, the operation of those programs or the Company's
ability to participate, directly or indirectly, in such programs could have a
material adverse effect on the Company's operations.
THERE ARE ADDITIONAL RISKS ASSOCIATED WITH NON-PRIME MORTGAGE BUSINESS
Lenders in the non-prime mortgage banking industry make loans to
borrowers who have impaired or limited credit histories or higher debt-to-income
ratios than traditional mortgage lenders allow. For the year ended June 30,
1999, 29.5% of the Company's loan production consisted of non-prime mortgage
loans, but the Company only funded 5.4% of such production. Dependence on this
class of borrowers, and exposure to the greater risks inherent to non-prime
mortgage loans, may increase if the Company determines to increase its focus on
these loan programs. The non-prime mortgage banking industry is a riskier
business than the conforming mortgage business because product offerings for
non-prime mortgages frequently change which may make selling a non-prime loan in
the secondary market more difficult. If non-prime lending becomes a more
significant part of the Company's business, its failure to adequately address
these and other related risks could have a material adverse effect on its
business and results of operations.
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<PAGE> 15
YEAR 2000
As with all financial service businesses, the Company's operations
depend almost entirely on computer systems. Some 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 at the corporate
office, on a stand-alone basis, is currently Year 2000 compliant. The Company
has internally developed a variety of software programs that run our website,
including Allied Web Wizard. Although such software was designed to be Year 2000
compliant, the Company has not completed its testing of the software for
compliance. The Company anticipates that it will complete this testing by
October 31, 1999. 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 our facilities. The Company has
requested and received compliance certificates from these vendors to certify
their Year 2000 readiness. The Company has received compliance certificates from
substantially all of these vendors.
The operations of a few of the Company's business partners and
suppliers may be affected by Year 2000 complications. The failure of these
organizations to ensure that their systems are Year 2000 compliant could have an
adverse effect on the Company's business, resulting in some 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, but is not limited to:
- inability of branch offices to process information;
- interruption of communications between the branches,
corporate office and outside third parties;
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<PAGE> 16
- slowdown in online applications due to a general failure of
the Internet;
- delays in 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 it does not believe that it will incur significant
costs for such purposes in the foreseeable future. Because the Company's loan
portfolio 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 results of operations or cash flow. However, if
the Company discovers any unexpected Year 2000 errors or defects in our internal
systems, it could incur substantial costs in making repairs. The resulting
disruption of our operations could seriously damage the Company's business.
THE COMPANY MAY BE REQUIRED IN CERTAIN CIRCUMSTANCES TO RETURN PROCEEDS OBTAINED
FROM THE SALE OF LOANS
When the Company sells a loan to an investor, it is required to make
certain representations and warranties regarding the loan, the borrower and the
property. If any of these representations or warranties are not true, the
Company may be required to repurchase the loan from the investor or indemnify
the investor for any damages caused by the breach of such representation or
warranty or in some cases a first payment default. In connection with some
non-prime loan sales, the Company may be required to return a portion of the
premium paid by the investor for the loan if the loan is prepaid within the
first year after its sale. If, to any significant extent, the Company is
required to repurchase loans, indemnify investors or return loan premiums, it
could have a material adverse effect on business and results of operations.
THE COMPANY MAY EXPERIENCE QUARTERLY FLUCTUATIONS IN EARNINGS
The Company's quarterly revenues and net earnings have fluctuated in
the past and are expected to fluctuate in the future as a result of a number of
factors, including the following:
- size and timing of sales of loans and servicing rights;
- size and timing of acquisitions and internal expansion;
- the level and volatility of interest rates; and
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<PAGE> 17
- the volume of mortgage loan originations.
A delay in closing a sale of loans or servicing rights would postpone
recognition of premium income on these sales to a subsequent quarter.
Unanticipated delays in closing a sale of loans or servicing rights could also
increase the Company's exposure to interest rate fluctuations by lengthening the
period during which variable rate borrowings under its warehouse credit
facilities are outstanding. If the Company is unable to profitably sell a
sufficient number of loans or servicing rights in a particular reporting period,
its revenues for that period would decline, which could result in lower net
earnings or a loss reported for that period. In addition, the Company's
quarterly earnings will be affected by the generally lower initial profitability
of newly opened branches compared to mature branches and the timing of
acquisitions and the recognition of costs associated with those acquisitions.
These factors, among others, make it possible that in some future quarter the
Company's results of operations may be below the expectations of securities
analysts and investors, which could have a material adverse effect on the price
of the Company common stock.
THE MORTGAGE INDUSTRY IS HIGHLY REGULATED
The Company's business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities which impose
numerous requirements and restrictions on its operations. Some of the laws which
regulate consumer lending activities are the:
- Truth-in-Lending Act;
- Equal Credit Opportunity Act;
- Fair Credit Reporting Act of 1970;
- Real Estate Settlement Procedures Act;
- Fair Debt Collection Practices Act;
- federal and state statutes and regulations of, and
examinations by, the Department of Housing and Urban
Development ("HUD") pursuant to the Home Mortgage Disclosure
Act;
- state usury laws; and
- state licensing laws.
These rules and regulations, among other things, impose licensing
obligations on the Company; establish eligibility criteria for mortgage loans;
prohibit discrimination; require credit reports on loan applicants; regulate
assessment; regulate collection, foreclosure and claims
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<PAGE> 18
handlings, investment and interest payments on escrow balances and payment
features; mandate various disclosures and notices to borrowers; and may fix
maximum interest rates, fees and mortgage loan amounts.
Failure to comply with these requirements can lead to civil and/or
criminal liability, loss of approved status, demands for indemnification or loan
repurchases from buyers in the secondary market, rights of rescission for
mortgage loans, class action lawsuits and administrative and enforcement
actions.
In addition, members of Congress, government officials and political
candidates from time to time have suggested the elimination of or further
limitation on the mortgage interest deduction for federal income tax purposes
based on borrower income, type of loan or principal amount. Some of the
Company's loans are made to borrowers for the purpose of consolidating consumer
debt or financing other consumer needs. The competitive advantages of tax
deductible interest, when compared with alternative sources of financing, could
be eliminated or seriously impaired by this government action.
Although the Company believes that it is currently in compliance in all
material respects with applicable federal, state and local laws, rules and
regulations, it cannot assure that it is, or will be, in full compliance with
current laws, rules and regulations; that more restrictive laws, rules and
regulations will not be adopted or promulgated; that existing laws and
regulations will not be interpreted in a more restrictive manner, which could
make compliance substantially more difficult or expensive; or that new laws
reducing or eliminating some of the benefits of purchasing a mortgage will not
be enacted. If the Company is unable to comply with those laws or regulations or
if new laws limit or eliminate some of the benefits of purchasing a mortgage,
the Company's business and results of operations may be materially adversely
affected. For a more detailed discussion on governmental regulation, please
refer to "The Company and Its Business- Government Regulation."
IF IN THE FUTURE THE COMPANY DECIDES TO SECURITIZE AND/OR RETAIN THE SERVICING
RIGHTS OF ITS LOANS, THE COMPANY WOULD BE SUBJECT TO ADDITIONAL RISKS THAT IT
DOES NOT CURRENTLY FACE
The Company currently does not securitize the loans that it originates,
but rather sells them to the secondary market. However, in the future if the
prices offered in the secondary market for loans are significantly lower than
what the Company could receive through securitization, it would consider
securitizing its loans. If the Company began securitizing its loans, it would be
subject to numerous additional risks, including:
- decreased operating cash flow;
- conditions in the general securities and securitization
markets;
- the need to obtain satisfactory credit enhancements;
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<PAGE> 19
- retention of credit enhancing residual interests; and
- increased potential for earnings fluctuations.
The Company also does not retain the servicing rights to the loans it originates
(except for a short period of time before the loan is sold in the secondary
market), but rather sells the servicing rights at the same time it sells the
loan. However, the Company may consider retaining the servicing rights to its
loans if it believed the loan value was significantly greater than secondary
market buyers were then willing to pay. If the Company started retaining the
servicing rights to its loans, it would be subject to numerous additional risks,
including:
- decreased operating cash flow; and
- the potential of having to write down the value of the
servicing rights through a charge to earnings, particularly as
a result of changing interest rates and alternative financing
options which lead to increased prepayments.
If the Company determined to securitize and/or retain the servicing rights to
its loans, and the Company did not adequately address the above mentioned and
other related risks, it could have a material adverse effect on the Company's
business and results of operations.
THE PRACTICE OF HAVING LENDERS PAY MORTGAGE BROKERS IS CURRENTLY BEING LITIGATED
Numerous lawsuits seeking class certification have been filed against
mortgage lenders alleging that certain direct and indirect payments to mortgage
brokers by those lenders violate the Real Estate Settlement Procedures Act
("RESPA"). These lawsuits have generally been filed on behalf of a purported
nationwide class of borrowers and allege that various forms of direct and
indirect payments to mortgage brokers are referral fees or unearned fees
prohibited under RESPA, or that consumers were not informed of the brokers'
compensation, in violation of law. Several federal district courts construing
RESPA in these cases have reached conflicting results. In the only appellate
decision addressing the issue to date, the United States Court of Appeals for
the Eleventh Circuit in CULPEPPER V. INLAND MORTGAGE CORPORATION reversed the
lower court's summary judgment in favor of the lender defendant on the grounds
that the lender had failed to establish that the indirect payment in the form of
a "yield spread premium" made to a broker in a particular transaction was not a
referral fee prohibited by RESPA. The case was remanded to the district court
for further proceedings. HUD, acting upon Congress' direction, issued a policy
statement in January 1999 setting forth its position that the legality of lender
payments to mortgage brokers depends on a case-by-case analysis that takes into
consideration all direct and indirect compensation received by the mortgage
broker to determine whether (1) goods or facilities have been actually furnished
or services performed for the compensation paid, and (2) the compensation is
reasonably related to the value of the goods or facilities actually furnished or
services actually performed.
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The Company receives various forms of direct and indirect payments from
lenders for loans it brokers. If the pending cases on lender payments to brokers
are ultimately resolved against the lenders, it may cause an industry-wide
change in the way independent mortgage brokers are compensated. In addition,
future legislation, regulatory interpretations or judicial decisions may require
the Company to change its broker compensation programs or subject the Company to
material monetary judgments or other penalties. Any changes or penalties may
have a material adverse effect on the Company's business and results of
operations. For a more detailed description of government regulation, please
refer to "-The Mortgage Industry is Highly Regulated."
EXISTING OFFICERS AND DIRECTORS WILL CONTINUE TO CONTROL THE COMPANY
Upon the closing of a maximum offering, the Company's officers and
directors, together with entities affiliated with them, will beneficially own
approximately 74% of the outstanding common stock of the Company. As a result,
if acting together, these stockholders will have the ability to control the
outcome to all matters requiring stockholder approval including:
- the election and removal of directors;
- amendments to the Company's charter; and
- any merger, sale of all or substantially all of the Company's
assets or other major corporate transactions.
Such control could discourage others from initiating potential merger,
takeover or other change of control transactions. As a result, the market price
of the Company's common stock could be adversely affected. For a more detailed
description of the Company's management team and their ownership of common
stock, please refer to "Management" and "Principal Stockholders."
ADDITIONAL SHARES MAY BE SOLD IN THE FUTURE
After the closing of a maximum offering, the Company will have
outstanding 5,400,000 shares of common stock and will have reserved an
additional 140,000 shares of common stock for issuance pursuant to the
Underwriter's warrants. All of the shares of common stock to be sold in this
offering will be freely tradable without restriction or further registration
under the federal securities laws unless purchased by the Company's
"affiliates," as that term is defined in Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). The remaining shares of outstanding
common stock, representing approximately 4,000,000 of the outstanding common
stock upon completion of this offering, will be "restricted securities" under
the Securities Act, subject to restrictions on the timing, manner and volume of
sales of those shares.
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<PAGE> 21
The Company cannot predict if future sales of its common stock, or the
availability of its common stock for sale, will adversely affect the market
price for its common stock or its ability to raise capital by offering equity
securities. For a more detailed description of additional shares that may be
sold in the future, please refer to "Shares Eligible for Future Sale."
YOU WILL BE INVESTING IN A HOLDING COMPANY
The Company will be a holding company, the principal assets of which
will initially be the shares of the capital stock of Allied. As a holding
company without independent means of generating operating revenue, the Company
will depend on dividends and other payments from Allied to fund its obligations
and meet its cash needs. The Company's expenses may include salaries of its
executive officers, insurance, professional fees and service of indebtedness
that may be outstanding from time to time. Financial covenants under loan
agreements of Allied or its subsidiaries, or provisions of the laws of the
states where Allied or its subsidiaries are organized, may limit Allied's
ability to make sufficient dividend or other payments to permit the Company to
fund its obligations or meet its cash needs, in whole or in part. By virtue of
the Company's holding company status, its common stock will be structurally
junior in right of payment to all existing and future liabilities of Allied and
its subsidiaries.
THE COMPANY'S ANTI-TAKEOVER PROVISIONS COULD HAVE ADVERSE EFFECTS
The Company's certificate of incorporation (the "Amended Certificate")
and bylaws (the "Amended Bylaws") contain anti-takeover provisions that could
have the effect of delaying or preventing changes in the Company's management,
even if such changes would benefit our public stockholders. The Company's
charter documents provide for (1) a classified board of directors pursuant to
which directors are divided into three classes, with three-year staggered terms,
(2) the ability of the Company's board of directors to issue up to 9,460,000
additional shares of common stock and 5,000,000 additional shares of preferred
stock and to determine the price and the terms (including preferences and voting
rights) of those shares without stockholder approval, (3) stockholder action to
be taken only at a special or regular meeting and (4) advance notice procedures
for nominating candidates to the board of directors. The foregoing provisions
could:
- have the effect of delaying, deferring or preventing a change
in control of the Company;
- discourage bids for the Company's common stock at a premium
over the market price; or
- adversely affect the market price of, and the voting and other
rights of the holders of, the Company's common stock.
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THERE ARE RESTRICTIONS ON THE COMPANY'S ABILITY TO PAY DIVIDENDS
The Company currently does not intend to pay dividends. In addition,
since the Company is a holding company, its ability to pay dividends is
dependent upon the earnings and cash flow of Allied and its subsidiaries.
Additionally, under the warehouse financing facility, the ability for Allied to
pay cash dividends is limited by requirements that we maintain a minimum net
worth and a maximum leverage ratio and that Allied obtain the approval of the
warehouse financing facility lender.
NO PRIOR PUBLIC MARKET FOR SECURITIES; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this offering, there has been no public market for the
Company's securities. Although the Company intends that its securities will be
quoted on the NASDAQ Market System ("NASDAQ") there can be no assurance that the
Company's securities will be designated for quotation on NASDAQ 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
offering, 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.
ARBITRARY DETERMINATION OF OFFERING PRICE
The public offering price of the Shares has been arbitrarily determined
by negotiations between the Company and the Underwriter. Among the factors
considered in determining the offering price were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the general
condition of the securities market. However, the offering price of the Shares
does not necessarily bear any relationship to the Company's assets, book value,
earnings, or any other established criterion of value.
NASDAQ AND LOW STOCK PRICES
The trading of the Company's stock on NASDAQ is conditioned upon the
Company meeting certain asset, capital and surplus, earnings and stock price
tests, among other requirements. If the Company fails any of these tests, the
Common Stock may be delisted from trading on NASDAQ. The effects of delisting
include the limited release of the market prices of the Company's securities and
limited news coverage of the Company. Delisting may restrict investors' interest
in the Company's securities and materially adversely affect the trading market
and prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatility of stock prices and possible delisting, low price stocks are subject
to the additional risks of additional federal and state regulatory
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requirements and the potential loss of effective trading markets. In particular,
if the Common Stock were delisted from trading on NASDAQ and the trading price
of the Common Stock was less than $5.00 per share, the Common Stock could be
subject to Rule 15c2-6 under the Securities Exchange Act of 1934, as amended,
which, among other things, requires that broker/dealers satisfy special sales
practice requirements, including making individualized written suitability
determinations and receiving any purchaser's written consent prior to any
transaction. If the Company's securities were delisted and the trading price was
less than $5.00 per share, the Company's securities also could be deemed penny
stocks under the Securities Enforcement and Penny Stock Reform Act of 1990,
which would require additional disclosure in connection with trades in the
Company's securities, including the delivery of a disclosure schedule explaining
the nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Company's securities and the ability of purchasers in
this offering to sell their securities in the secondary market.
POTENTIAL EXPENSES ARISING FROM INDEMNIFICATION OF OFFICERS AND DIRECTOR
The Articles of Incorporation and Bylaws of the Company provide for
indemnification of each director and officer or former director or officer or
any person who may have served at the request of the Company as a director or
officer of another corporation in which the Company owns securities or is a
creditor. Such provisions eliminate, with certain exceptions, the personal
liability of the directors to the Company and the Company's stockholders for
monetary damages as a result of a breach of fiduciary duty, making it more
difficult to assert a claim and obtain damages from a director in the event of a
breach of his or her fiduciary duty. The Company will indemnify against
reasonable costs and expenses incurred in connection with any action, suit or
proceeding to which any of the individuals described above were made a party by
reason of his or her being or having been such a director or officer, unless
such director has been adjudicated to have been liable for negligence or
misconduct in his or her corporate duties. As of the date of this Prospectus,
the Company is not aware of any existing or pending litigation involving a
director that will require indemnification by the Company. To the extent the
Company is required to expend funds to indemnify officers and directors, there
could be a materially adverse effect on the financial condition of the Company.
Notwithstanding the foregoing indemnification provisions of the
Company's Articles of Incorporation and Bylaws, the Company has been informed
that, in the opinion of the Commission, indemnification for liabilities arising
under the Securities Act is against public policy and is therefore
unenforceable.
LACK OF UNDERWRITING HISTORY
This is the first public offering in which Choice Investments, Inc. has
participated. Prospective purchasers of the Shares of Common Stock offered
hereby should consider the limited experience of Choice Investments, Inc. in
evaluating this offering.
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FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The Company believes that this Prospectus contains forward-looking
statements, including statements regarding, among other items, the Company's
future plans and growth strategies and anticipated trends in the industry in
which the Company operates. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of the
factors described herein, including, among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Prospectus will in fact
transpire or prove to be accurate.
REORGANIZATION AND TERMINATION OF S CORPORATION STATUS
From its organization through the date of this Prospectus, Allied was
treated for federal income tax purposes as an S corporation and was treated as
an S corporation for certain state corporate income tax purposes under certain
comparable state laws. As a result, Allied's historical earnings since 1992 have
been taxed directly to Allied's stockholders at their individual federal and
state income tax rates, rather than to Allied. On the date of the Exchange,
pursuant to the terms of the Plan and Agreement of Reorganization (the
"Reorganization Agreement"), the existing Allied stockholders, Kathy Hodge and
Jamey J. Hodge (the "Existing Stockholders"), will exchange all of the stock of
Allied that they beneficially own or otherwise control to the Company in
exchange for an aggregate 4,000,000 shares of Common Stock, which will
constitute all of the stock of the Company outstanding prior to this Offering.
As a result of the Exchange, the Company and Allied, which will be a
wholly-owned subsidiary of the Company, will be fully subject to federal and
state income taxes, and the Company will record a deferred tax liability on its
balance sheet. The amount of the deferred tax liability to be recorded as of the
date of termination of Allied's S corporation status will depend upon timing
differences between tax and book accounting. During each of the years ended June
30, 1998 and 1999, Allied has made S corporation dividends and distributions to
the Existing Stockholders in the aggregate amounts of approximately $513,000 and
$195,000, respectively.
Prior to the Exchange, Allied will declare a distribution to the
Existing Stockholders in an amount equal to a portion of its undistributed S
corporation earnings. As of June 30, 1999, such amount is currently estimated to
be approximately $46,000. Such distributions will be payable out of the proceeds
of this Offering, all of which is intended to reimburse the Existing
Stockholders for, or satisfy, approximate tax liabilities associated with S
corporation earnings.
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CAPITALIZATION
Set forth below is the consolidated capitalization of Allied at June
30, 1999, and the pro forma consolidated capitalization of the Company at the
minimum and the maximum of the offering, after giving effect to the Exchange
offering and based on other assumptions set forth in the table.
<TABLE>
<CAPTION>
Company - Pro Forma
Based Upon Sale of
------------------------
1,000,000 1,400,000
Shares Shares
Allied at $6.00 at $6.00
Historical(2) Pro Forma(1) Per Share Per Share
------------- ------------ --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Notes Payable $16,603 $16,603 $16,603 $16,603
======= ======= ======= =======
Stockholders' Equity:
Preferred Stock ($0.01 value)
Authorized - 5,000,000 shares;
none to be outstanding -- -- -- --
Common Stock ($10 par value - historical;
$0.01 par value - pro forma)
Authorized - 15,000,000 shares; 100, $ 1 $ 40 $ 50 $ 54
4,000,000, 5,000,000 and 5,400,000
shares, respectively to be outstanding
Additional paid-in capital 333 294 5,269 7,856
Retained earnings 9 9 9 9
Total stockholders' equity $ 343 $ 343 $ 5,328 $ 7,919
------- ------- ------- -------
Total capitalization $16,946 $16,946 $21,931 $24,522
======= ======= ======= =======
</TABLE>
- --------
(1) Assumes the closing of the Plan and Agreement of Reorganization and the
issuance of 4,000,000 shares of AllQuest to the existing stockholders
of Allied. See "Reorganization and Termination of S Corporation Status
for Allied."
(2) This financial data is derived in part from, and should be read in
conjunction with, the audited Financial Statements and Notes of the
Company presented elsewhere in this Prospectus.
USE OF PROCEEDS
The primary purposes of this offering are to obtain additional capital
to support expansion of the Company's retail loan activities, add working
capital and create a public market for the Common Stock and facilitate future
access to public markets. The net proceeds from the sale of the Common Stock in
the offering, based on the minimum and maximum, are estimated at $5.3 million
and $7.6 million, respectively.
20
<PAGE> 26
AllQuest will invest approximately $500,000 of the net proceeds in
Allied to increase its capitalization and will retain the remaining net proceeds
as its capitalization. AllQuest intends to use a portion of the net proceeds
retained by it to temporarily enhance its warehouse credit facility by funding
residential mortgage loans underwritten by Allied (the "Temporary Warehouse
Facility"). The Company anticipates that the additional capital raised through
the completion of this offering will allow it to increase the amount of
warehouse credit available to it from third party lenders. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources." The Temporary Warehouse Facility
would then be replaced by the new or expanded warehouse credit facilities
provided by these third party lenders. The Temporary Warehouse Facility would be
secured by mortgage loans held for sale by Allied and would have other terms
similar to its existing warehouse credit facility. The interest rate on the
Temporary Warehouse Facility would be at LIBOR plus 2.5% on prime mortgage loans
and LIBOR plus 3% on subprime mortgage loans held for sale. Based upon a minimum
and maximum offerings, the amount available for the Temporary Warehouse Facility
would be $4.7 million and $7.0 million, respectively. The Company will use a
portion of the proceeds to pay, as soon as practicable after the closing of this
offering, the approximately $46,000 S Corporation Distribution. See
"Reorganization and Termination of S Corporation Status." The remainder of the
proceeds will be invested on an interim basis in short- and intermediate-term
securities. These funds would be available for general corporate purposes which
may include expansion of operations through acquisitions of other mortgage
businesses, financial service organizations, related Internet businesses and
diversification into other related and unrelated businesses, or for investment
purposes. In addition, the funds may be used to infuse additional capital to
Allied when and if appropriate.
While the foregoing represents the Company's present intention with
respect to the use of the offering proceeds, capital requirements or business
opportunities, none of which are currently anticipated, could cause management
to elect to use proceeds for other general corporate purposes. Notwithstanding
the foregoing, the Company reserves the right to use the proceeds in any manner
authorized by law.
DIVIDEND POLICY
The Company has never declared or paid a dividend on its Common Stock
(except that prior to the Exchange, Allied made S Corporation distributions to
the Existing Stockholders), and management expects that the substantial portion
of the Company's earnings, if any, for the foreseeable future will be used to
expand loan origination capabilities. The decision to pay dividends, if any, in
the future is within the discretion of the Board of Directors and will depend
upon the Company's earnings, its capital requirements, financial condition and
other relevant factors such as loan covenants or other contractual obligations.
See "Risk Factors--Dividend Policy."
21
<PAGE> 27
MARKET FOR COMMON STOCK
There will be 4,000,000 issued and outstanding shares of Common Stock
of the Company after the Exchange. There are no outstanding options granted by
the Company except for the warrants issued to Choice as a part of this offering.
After the Exchange, there will be two holders of record of such outstanding
shares.
There is no existing market for the Common Stock of the Company, and no
assurance can be given that an established and liquid trading market for the
Common Stock will develop. Depending on the number of shares sold, it is
expected that following the offering, the Common Stock will be traded in the
over-the-counter market and the Company has applied to list the Common Stock on
the "SmallCap Market" of the NASDAQ Stock Market System under the symbol "LOAN."
However, there can be no assurance that the Company will meet NASDAQ Stock
Market System listing requirements for SmallCap stocks, which include a minimum
market capitalization, at least three market makers and at least 400
stockholders. At the close of the offering, the Company, assisted by Choice,
will use its best efforts to encourage and assist at least three market makers
to establish and maintain a market for the Common Stock and to list the Common
Stock on the NASDAQ Stock Market System, although there can be no assurance that
it will succeed in doing so.
The development of a public market that has the desirable
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of a sufficient number of willing buyers and sellers at any
given time, over which neither the Company nor any market maker has any control.
Accordingly, there can be no assurance that an active or liquid trading market
for the Common Stock will develop, or that if such a market develops, it will
continue. To the extent permissible under applicable laws, the Company will use
its best efforts to assist in the matching of persons who wish to purchase and
sell the Company's Common Stock. There can be no assurance, however, that
purchasers and sellers of the Company's Common Stock can be readily matched and
investors should, therefore, consider the potentially illiquid and long-term
nature of the securities offered in the offering. Furthermore, there can be no
assurance that purchasers will be able to sell their shares at or above the
Purchase Price.
DILUTION
The Company will have after the Exchange 4,000,000 shares of Common
Stock outstanding having an aggregate net tangible book value of $343,000, or
approximately $0.09 per share. Net tangible book value per share consists of
total assets less intangible assets and liabilities, divided by the total number
of shares of Common Stock outstanding.
After giving effect to a sale of 1,400,000 shares of Common Stock, the
pro forma net tangible book value of the Common Stock at June 30, 1999 would be
$7.9 million, or approximately $1.47 per share. This represents an immediate
increase in pro forma net tangible book value of $1.38 per share to the Existing
Stockholders and an immediate dilution of $4.53 per
22
<PAGE> 28
share to the purchasers herein. The following table illustrates the dilution
which investors participating in this offering will incur and the benefit to
current stockholders as a result of this offering:
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
-------- --------
<S> <C> <C>
Public offering price per share(1) $6.00 $6.00
Net tangible book value per share before offering(2) $0.09 $0.09
Increase per share attributable to Shares offered hereby $0.98 $1.38
Pro forma net tangible book value per Share after offering $1.07 $1.47
Dilution of net tangible book value per Share to purchasers in $4.93 $4.53
this offering(3)
</TABLE>
- -------------------
(1) Represents the estimated public offering price per share of Common
Stock before deductions of underwriter fees and commissions and
estimated expenses of the offering.
(2) Assumes no exercise of Warrants by Underwriter. See "Plan of
Distribution - Marketing and Underwriting Arrangements."
(3) Dilution is determined by subtracting net book value per share after
the offering from the amount of cash paid by a new investor for a share
of Common Stock.
Assuming the minimum offering, the following table summarizes the
number of shares purchased from the Company as of June 30, 1999, the total
consideration paid and the average price per share paid by the investors
purchasing new shares and by existing stockholders:
<TABLE>
<CAPTION>
Percent Percent of Total Average
Shares of Total Consideration Consideration Price Per
Purchased Shares Paid Paid Share
--------- -------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
New investors
Minimum Offering 1,000,000 20% $6,000,000 96% $6.00(1)
Existing stockholders 4,000,000 80% $ 250,000 4% $0.06
--------- ---- ---------- -----
Totals 5,000,000 100% $6,250,000 100.0%
========= ==== ========== =====
</TABLE>
- ------------
(1) Consideration paid is the Purchase Price before deduction of fees paid
to underwriter and offering expenses.
(2) Assumes no exercise of warrants by Underwriter. See "Plan of
Distribution - Marketing and Underwriting Arrangements."
(3) Assumes the closing of the Plan and Agreement of Reorganization and the
issuance of 4,000,000 shares of AllQuest to the existing stockholders
of Allied. See "Reorganization and Termination of S Corporation
Status."
23
<PAGE> 29
Assuming the maximum offering, the following table summarizes the
number of shares purchased from the Company as of June 30, 1999, the total
consideration paid and the average price per share paid by the investors
purchasing new shares and by existing stockholders:
<TABLE>
<CAPTION>
Percent Percent of Total Average
Shares of Total Consideration Consideration Price Per
Purchased Shares Paid Paid Share
--------- -------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
New investors
Maximum Offering 1,400,000 26% $8,400,000 97% $6.00(1)
Existing stockholders 4,000,000 74% $ 250,000 3% $0.06
--------- ---------- ----
Totals 5,400,000 100% $8,650,000 100%
========= ==== ========== ====
</TABLE>
- ------------
(1) Consideration paid is the Purchase Price before deduction of fees paid
to underwriter and offering expenses.
(2) Assumes no exercise of warrants by Underwriter. See "Plan of
Distribution - Marketing and Underwriting Arrangements."
(3) Assumes the closing of the Plan and Agreement of Reorganization and the
issuance of 4,000,000 shares of AllQuest to the existing stockholders
of Allied. See "Reorganization and Termination of S Corporation
Status."
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with Allied's
Financial Statements and Notes thereto and the other financial information
appearing elsewhere in this prospectus. In addition to historical information,
the following discussion and other parts of this prospectus 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 under "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
AllQuest is a holding company which after the Exchange will own all of
the capital stock of Allied and two other non-operating subsidiaries and has no
other material operations. References herein to the Company include AllQuest and
its subsidiary, Allied. The Company, through its subsidiary, Allied, operates as
a full-service mortgage banking company engaged in the origination and sale of
first mortgage loans secured by residential real estate, including online
mortgage services.
The Company's revenues are derived from the brokering of loans and the
origination and sale of loans. Brokered loans are funded through lending
partners and the Company typically does not take title to the mortgage.
Brokerage revenues are comprised of the mark-up to the lending partner's loan
price and collecting processing fees. These revenues are recognized at the time
a loan is closed. Originated and sold loans are loans that are funded through
the Company's own warehouse lines of credit and sold to mortgage loan
purchasers. Loan origination and sale revenues are comprised of proceeds in
excess of the carrying value of the loan, origination fees
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<PAGE> 30
less certain direct origination costs, other processing fees and interest paid
by borrowers on loans that the Company holds for sale. These revenues are
recognized at the time the loan is sold or, for interest income, as earned
during the period from funding to sale. The Company earns additional revenue
from its loan origination and sale operations as compared to brokered loan
operations because the sale of loans includes a servicing release premium.
As a result of the Company's limited operating history and its recent
growth, it will be necessary to implement new and expanded operational,
financial and administrative systems and control procedures to enable the
Company to expand, train and manage its employees and coordinate the efforts of
its underwriting, accounting, finance, marketing, and operations departments.
For example, the Company intends to implement both a new financial reporting
system and an internal loan production system by the end of 1999.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Years Ended June 30, 1999 and
June 30, 1998. Gain on sales of loans increased from $3.3 million for the year
ended June 30, 1998 to $6.1 million for the year ended June 30, 1999. This
percentage increase of approximately 86% is primarily the result of an increase
in the number of loan originations from 11,789 during the year ended June 30,
1998 to 23,152 during the year ended June 30, 1999. Aggregate loan volume
originated increased from $1.2 billion to $2.3 billion between the same periods.
The increase in loan originations was the result of increased marketing
activities and expansion of the Company's sales organization.
Interest income increased from $863,000 for the year ended June 30,
1998 to $1.1 million for the year ended June 30, 1999. This increase is
attributable to increased loan activity and recording of certain interest
transactions on a gross rather than net basis.
Personnel expenses increased from $690,000 for the year ended June 30,
1998 to $2.2 million for the year ended June 30, 1999. This increase was
directly attributable to the increased number of loan originations and an
investment in the expansion of the Company's sales organization during fiscal
1999. The number of loan officers increased from 541 to 724 between periods.
Salary and compensation as a percentage of revenues increased from approximately
21% to 37% accordingly.
General and administrative expenses increased from $847,000 for the
year ended June 30, 1998 to $2.1 million for the year ended June 30, 1999. This
percentage increase of approximately 153% reflected increased expenses related
to the origination of additional loans and the expansion of sales organization
locations.
Interest expense increased from $945,000 for the year ended June 30,
1998 to $1.1 million for the year ended June 30, 1999. This approximate 17%
increase in interest expense was the result of increased use by the Company of
its lines of credit to fund increased loan originations.
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<PAGE> 31
As a result of the foregoing, net income decreased from $440,000 for
the year ended June 30, 1998 to $9,000 for the year ended June 30, 1999. The
Company did not make a provision for income tax in fiscal 1998 or 1999 because
of its S Corporation status.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities increased from cash flow used of
$12.1 million for the year ended June 30, 1998 to cash flow generated of $1.0
million for the year ended June 30, 1999.
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 a warehouse line of credit,
proceeds from the sale of loans in the secondary market and internally generated
funds. Management believes that a larger equity base resulting from this
offering should increase the amount of credit available to the Company.
Adequate credit facilities and other sources of funding, which permit
the Company to fund the loans it originates, are essential to the Company's
ability to close loans. The Company borrows money to fund its loan closings and
repay these borrowings as the loans and the accompanying servicing rights are
sold. Upon the sale of loans and servicing rights and the subsequent repayment
of the borrowings, the Company's credit facilities become available to fund
additional loan closings. The Company has a warehouse financing facility which
provides the Company with up to $16 million of demand loans secured by loans
held for sale. Loans under the warehouse financing facility bears interest at
rates that vary depending on the type of underlying loan, and the warehouse
loans are subject to sublimits, advance rates and warehouse terms that vary
depending on the type of underlying loan and the ratio of the Company's
liabilities to its tangible net worth. In fiscal 1999, the Company had a
weighted average interest rate on debt warehouse outstanding of 7.68% on
warehouse debt outstanding, not including float on checks prior to the time they
clear its warehouse line account, compared with 8.75% in 1998. The warehouse
financing facility requires the Company to comply with various operating and
financial covenants. Such covenants include restrictions on the following:
26
<PAGE> 32
- changes in the Company's business that would materially and
adversely affect its ability to perform its obligations under
the facility;
- selling any asset other than in the ordinary course of
business; and
- maximum debt and distributions allowed.
Such covenants also contain requirements for minimum net worth balances
and maximum leverage ratios. The existing warehouse financing facility expires
on May 31, 2000.
In fiscal 1999, the Company made distributions to its stockholders in
an amount that caused its net worth to fall under the minimum net worth
requirement of its warehouse facility. This also resulted in the Company failing
to comply with the maximum debt leverage ratio for June 30, 1999 and subsequent
months. The financial institution that provides the warehouse financing facility
has granted the Company forbearance on such covenant violations, but has also
reduced the total warehouse financing facility from a maximum of $23 million to
$16 million and required the Company to meet the net worth requirements by
November 30, 1999 and maintain a maximum debt to equity ratio of 20 to 1. As of
August 31, 1999, the Company estimates that $461,000 of additional capital would
be necessary to meet the net worth requirements. As a part of the decrease in
the warehouse financing facility, the financial institution also decreased the
Company's warehouse financing facility for non-prime mortgage loans from $6
million to $1.5 million. The completion of the minimum offering will permit the
Company sufficient capital to meet the net worth requirements of the warehouse
financing facility lender. If this offering is not completed by November 30,
1999 and the net worth requirement has not been met, the Company will seek to
raise the necessary capital through other means including the sale of stock to
the Existing Stockholders.
As of June 30, 1999, the Company's borrowings under its existing
warehouse financing facilities decreased from $17.0 million in 1998 to $16.6
million as of June 30, 1999. The Company had a maximum of $6.0 million available
for additional borrowings as of June 30, 1999, but that amount has decreased as
the total amount of the warehouse financing facility has been decreased from $23
million to $16 million. At June 30, 1999, the Company's loans held for sale were
$16.9 million compared to $17.9 million at June 30, 1998. It is the Company's
practice to use available cash to reduce debt outstanding under the warehouse
financing facilities to reduce interest expense, increase usage of repurchase
lines and to use other programs.
Since its organization, Allied, the principal subsidiary of the
Company, has borrowed funds from other corporations owned by Jim Hodge and the
Existing Stockholders for working capital purposes, none of which are currently
outstanding. In addition, in fiscal 1999, one of these companies contributed a
net amount of $310,000 of real property, furniture and equipment to the Company
in satisfaction of accounts receivable and the majority stockholder contributed
a net amount of $335,000 of furniture and equipment to the Company as additional
capital. See "Management-Certain Transactions." Following this offering, the
Company does not expect to
27
<PAGE> 33
borrow additional funds from these affiliated entities, or any other entities
owned or controlled, either directly or indirectly, by Jim Hodge or the Existing
Stockholders. See "Management- Certain Transactions."
The Company anticipates employing a substantial amount of the net
proceeds of this offering as additional equity to commit to the funding of
mortgage loans and for the purpose of supporting increased lines of credit to be
used to fund such loans. Although the Company cannot be assured of the
availability of additional credit, the Company reasonably anticipates that the
availability of the net proceeds of this offering will result in an increase in
the availability of credit to the Company.
The commitment of additional capital and an increased credit amount
will permit the Company to fund or purchase a greater number of mortgage loans.
The ability of the Company to profit from such increased funding capability will
depend upon the Company's ability to originate additional loans or purchase
loans which generate fees, commissions and net interest income in the aggregate
which exceeds the Company's expenses. 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 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, the proceeds of this offering and other
financing, its credit facilities, as well as cash flow expected to be generated
from operations, are expected to satisfy the Company's cash requirements for the
foreseeable future, and principally will be applied to originate loans. The
Company is presently in discussions with various lenders for additional lines of
credit, and management believes that the increase in the Company's equity as a
result of this offering will enhance the Company's ability to obtain the
additional credit it will require to increase its servicing portfolio of
mortgage loans, and reduce borrowing costs. 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.
DISCLOSURE ABOUT MARKET RISK
Interest rate movements significantly impact the Company's volume of
closed loans. As such, interest rate movements represent the primary 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.
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<PAGE> 34
The Company originates mortgage loans and manages the market risk
related to these loans by pre-selling them on a best efforts basis to the
anticipated purchaser at the same time that the Company establishes the
borrowers' interest rates. If the Company can process loans within the
applicable purchasers' commitment timeframes the Company has no interest rate
risk exposure on such loans. However, if the Company cannot process the loan
within this timeframe and interest rates increase, the Company may experience a
reduced gain or may even incur a loss on the sale of the loan.
With the exception of pre-selling loans through best-efforts
commitments, the Company currently does not engage in any hedging activities.
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.
Because the Company pre-sells its mortgage loan commitments forward,
the Company believes that a 100 basis point increase or decrease in long-term
rates would not have a significant adverse effect on the Company's earnings from
its interest rate sensitive assets. The Company pays off the warehouse lines
payable when the loan is sold and as such would not be expected to incur
significant losses from an increase in interest rates on the line due to the
short timeframe that the line is drawn down.
In the future, if the Company does not pre-sell the mortgage
commitments, its market risk could change significantly.
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
proceeds from the financing will position the Company to realize 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 believes that the proceeds from the financing will
allow the Company to make the necessary investments in these technologies as
part of its working capital requirements.
29
<PAGE> 35
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 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. At this time, the Company has determined that this statement will have
no significant impact on its financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." This statement establishes standards
for the way public business enterprises report information about their operating
segments and requires them to report selected information about operating
segments, products and services, activities in different geographic areas, and
reliance on major customers. This statement affects only financial statement
presentation. Management has determined that the Company currently operates
primarily in the mortgage origination industry.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as deferred by
SFAS No. 137, is effective for all fiscal quarters beginning after June 15,
2000. 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, 1998, with earlier application
encouraged. At this time, the Company does not anticipate any impact from the
adoption of this standard.
30
<PAGE> 36
The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained 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 service businesses, the Company's operations
depend almost entirely on computer systems. Some 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 at the corporate
office, on a stand-alone basis, is currently Year 2000 compliant. The Company
has internally developed a variety of software programs that run our website,
including Allied Web Wizard. Although such software was designed to be Year 2000
compliant, the Company has not completed its testing of the software for
compliance. The Company anticipates that it will complete this testing by
October 31, 1999. 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 our facilities. The Company has
requested and received compliance certificates from these vendors to certify
their Year 2000 readiness. The Company has received compliance certificates from
substantially all of these vendors.
The Company will not have complete information concerning the Year 2000
compliance status of its branch offices until November 30, 1999. The Company's
current or future branch offices may incur significant expenses to achieve Year
2000 compliance. If the Company's branch offices are not Year 2000 compliant, it
may experience material costs to remedy problems, or they may face litigation
costs. In either case, Year 2000 issues could adversely affect loan origination
and processing from certain branches. As a result, the Company's business could
be seriously harmed.
The operations of a few of the Company's business partners and
suppliers may be affected by Year 2000 complications. The failure of these
organizations to ensure that their systems are Year 2000 compliant could have an
adverse effect on the Company's business, resulting in some 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.
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<PAGE> 37
The potential worst case scenario includes, but is not limited to:
- inability of branch offices to process information;
- interruption of communications between the branches, corporate
office and outside third parties;
- slowdown in online applications due to a general failure of
the Internet;
- delays in 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 it does not believe that it will incur significant
costs for such purposes in the foreseeable future. Because the Company's loan
portfolio 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 results of operations or cash flow. However, if
the Company discovers any unexpected Year 2000 errors or defects in our internal
systems, it could incur substantial costs in making repairs. The resulting
disruption of our operations could seriously damage the Company's business.
THE COMPANY AND ITS BUSINESS
GENERAL
The Company, through its subsidiary Allied, is a dynamic retail
mortgage banker/broker company engaged in the business of originating, selling
and brokering mortgage loans. Company management believes it is the largest
affiliated branch mortgage banker/broker in the United States. The Company
originated over 2.3 billion in loans in fiscal 1999, making it one of the larger
non-depository retail originators in the United States. A broad array of
residential mortgage products are delivered by the Company in an innovative
platform using the Company's nationwide network of approximately 1,200 loan
originators operating out of 381 retail branches in 49 states as of June 30,
1999, and the Company's relationships with operators of leading Internet
mortgage web sites including Intuit's QuickenMortgage(TM), The LendingTree(TM),
Microsurf and the Company's own site at Alliedhomenet.com. In addition, the
Company implements sophisticated marketing strategies to enhance its production
of mortgage loans, including direct mail, telemarketing and alliances with
builders, realtors and other professionals. The Company's residential mortgage
products targeted primarily to quality borrowers. The Company operates as
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both a mortgage banker (underwriting, closing and funding loans) and a mortgage
broker (selling the loan products of over 700 different lenders). The Company
believes that its large loan origination volume and hybrid banker/broker
structure enable it to consistently offer its customers favorable pricing on a
broad range of mortgage products and provide convenient, high-quality customer
service.
Since being founded in 1991, Allied has focused on building origination
volume by establishing a retail origination network through expanding its branch
network and, recently, through relationships with operators of Internet mortgage
web sites. The Company believes that its operating structure provides an
effective platform to continue to grow its origination volume.
- Expansion of Branch Network. The Company's origination volume
has grown from $62 million in 1994 to $2.3 billion in fiscal
1998. Since 1994, the Company has opened 381 new branches in
49 states. Since December 31, 1998, the Company has opened 117
new branches and has applications pending to open an
additional 100 branches. Unlike many competitors who build
through acquisitions, the Company's loan originators were
directly recruited and hired by the Company.
- Penetration of the Internet Mortgage Business. The Company's
objective is to become a leading provider of mortgage products
through the Internet in addition to its conventional mortgage
business. It has established strategic relationships with
operators of leading Internet mortgage web sites, including
Intuit's QuickenMortgage(TM), LendingTree(TM)and Microsurf and
its own site at Alliedhomenet.com. For fiscal 1999, the
Company originated over $30.9 million in mortgage loans
generated over the Internet. The Company has made significant
investments of time and resources in building a very usable
electronic commerce site.
- Building Alliances. The Company will also build its business
through establishing alliances with builders, brokers,
realtors and other professionals who have access to potential
residential mortgage customers. Two efforts of the Company
currently underway include a relationship with an H&R Block
franchisee operating over 500 branches and a proposed venture
by the Company to assist homeowners selling their homes
without the assistance of a broker.
The Company earns revenue from the sale of loans and related servicing
rights in the secondary market for cash payments and interest earned and
servicing fees received on loans held prior to their sale.
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MORTGAGE BANKING INDUSTRY
The mortgage banking business consists primarily of two businesses:
origination and servicing. Origination is the process of taking a loan from
application through underwriting and funding and either holding and servicing
the loan or selling the loan into the secondary mortgage market. Mortgage loans
are originated through three primary lending channels: retail, wholesale and
correspondent. Retail originators generate loans through direct contact with the
consumer. Wholesale originators buy application packages from independent
brokers who work directly with consumers. Correspondent lenders buy closed loans
from other originators. Retail originators generally consist of depository banks
and other lenders which market, fund and close their own loan products and
brokers who market the loan products of wholesale originators. Loan servicing
involves the collection of principal, interest and insurance payments,
processing prepayments and foreclosures and passing the payments through to
taxing authorities, insurance companies and investors for servicing fees.
Originators either retain servicing rights and collect servicing fees or sell
the servicing rights for cash payments in the secondary market. The mortgage
banking industry is the largest consumer debt related sector in the U.S. with
over $4.4 trillion in outstanding debt. In 1998, loan origination volume in the
U.S. reached a record high of $1.5 trillion, compared to $834 billion for 1997.
Demand for mortgage products in recent years has been favorably affected by low
interest rates, low unemployment rates, increasing wages, high consumer
confidence and strong housing starts and home sales.
In recent years, mortgage loans have become more commodity-like in
nature due to the similarity of product offerings, the large number of companies
selling mortgages and the wide availability of mortgage products and pricing
information. Pressures resulting from commoditization have led to increasing
consolidation in the industry as smaller participants cannot achieve the
economies of scale or offer the breadth of competitively priced products
required to compete effectively in the mortgage industry.
During the past two years, the Internet has been emerging as a major
source of mortgage originations. Industry analysts predict that Internet
mortgage loan originations will grow dramatically as borrowers recognize the
convenience and benefits of shopping for a mortgage from the comforts of home or
the office. Mortgage shopping on the Internet is expected to accelerate loan
commoditization. Capturing market share on the Internet will be dependent upon
access to consumers and consistently providing broad product offerings at the
lowest rates.
BUSINESS PLAN AND OPERATING STRATEGY
The Company's business objective is to be a leading retail originator
of mortgage products. The principal business strategy elements to support this
objective are:
- Concentrate on Retail Delivery of Mortgage Products. A focus
on the retail mortgage business has two principal benefits;
control over the loan origination process and direct access to
the consumer. By controlling the origination channel,
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the Company does not rely on third parties for loan production
volume. Direct access to consumers allows the Company's loan
originators to develop relationships with its customers which,
in turn, leads to increased customer loyalty and new customer
referrals. Direct consumer selling also provides a platform to
sell higher margin mortgage-related products and services. As
a retail originator, the Company is able to develop alliances
with consumers, real estate agents and brokers, homebuilders,
corporations, developers and professionals which creates
referral business. In addition, the Company has found that
loan servicers will purchase servicing rights from retail
originations at more favorable prices than servicing rights
from wholesale originations.
- Internet Expansion. The Company believes that the Internet
provides a unique medium to deliver mortgage services. In
connection with originating on-line mortgages, the Company
opened an Internet call center which is staffed by its own
Internet service representatives. The Company's Internet
service representatives receive on-line generated applications
and pre-qualified leads and work directly with the consumer to
originate the loan and sell mortgage-related services. To
further facilitate Internet business, applicants can use one
of the Company's 381 nationwide branches if they prefer to
meet directly with one of its employees. This is a service few
of the other Internet providers of residential mortgage
products can provide.
- Empower the Company's Employees With Incentive Based
Compensation. The Company has a compensation system designed
to motivate its employees to maximize loan volume,
productivity and profitability. This compensation system
creates a variable cost structure which is adaptable to
changes in retail origination volume. Each of the Company's
loan originators is compensated entirely by commissions earned
on loans originated. In addition, loan originators are
generally responsible for most of their operating expenses,
including health insurance and other benefits, computers and
marketing materials. As a result, the Company's loan
originators manage their own branches and have the incentive
to maximize revenue (in which the Company shares). In
addition, the Company's underwriters and processors are
compensated, in part, on the quality of their work product and
on the number of files that they underwrite or process.
- Maintain Superior Customer Service. The Company believes that
providing superior customer service is and will continue to be
a key to product differentiation in today's price sensitive
market. The Company delivers this differentiated service
through a team of highly-skilled management, loan originators
and operating staff with many years of industry-related
experience. The Company also strives to deliver differentiated
customer service by continually streamlining the mortgage
process to make obtaining a mortgage loan more convenient and
dependable.
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- Offer Low Prices on a Broad Array of Products. The Company's
banker/broker structure provides its loan originators access
to the products and pricing of over 700 lenders throughout the
U.S. As a high-volume mortgage banker, the Company is able to
consistently provide loan originators with competitive prices
on an array of products by matching or beating the prices
available to loan originators by other lenders, as well as
provide its loan originators with in-house underwriting
capabilities, better execution and reliable service, including
fast loan approvals.
- Focus on Controlling Expenses. Since its inception, the
Company has focused on being a low-cost provider by
controlling operating costs and increasing efficiency. In
addition to implementing its incentive-based, variable cost
structure, the Company continues to invest in process enabling
technologies.
GROWTH STRATEGY
The Company has increased the dollar value of its loan origination
volume from $62 million in 1994 to $2.3 billion in 1999. The Company's growth
strategy is to continue to increase its loan origination volume through
expanding its presence in existing markets and expanding the Company's delivery
channels to the prospective customers of residential mortgage products. The
Company is executing this strategy by expanding its branch network and expanding
Internet relationships. The Company may pursue selective acquisition
opportunities once this offering is completed.
Expansion of Branch Network. Since 1991, the Company has opened 381
branches in 49 states and recruited over 1,200 new loan originators. The Company
intends to continue to generate internal growth through:
- Addition of Loan Originators in Existing Branches. The Company
intends to continue recruiting additional highly qualified
loan originators with experience in the mortgage industry and
long-standing relationships with consumers, real estate agents
and brokers, homebuilders, corporations, developers,
professionals and other referral sources. The Company targets
loan originators who it believes can immediately increase its
origination volume. In fiscal 1999, the Company added
approximately 183 loan originators to its existing branches.
- Expansion of Branch Network. The Company intends to continue
to capitalize on market opportunities by opening additional
branches. The Company's branches differ from the typical
company-owned branches used by some mortgage businesses in
that the branch manager is in control and responsible for all
costs associated with the branch, including rent, employee
salaries and overhead but, in return, receives a higher per
loan commission. The Company's branches provide a means of
expanding into new geographic markets without significant
up-front costs or operating risk, which are both borne by the
branch manager. The Company has
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applications pending to open an additional 110 branches and is
in the process of adding additional branches.
The Company believes that its attractive compensation system, together
with its broad product offering of competitively priced products, will continue
to enable it to recruit additional, highly qualified loan originators for its
existing retail branches and additional branches, as well as establish new
branch relationships.
Expand Internet Relationships. The Company's objective is to become a
leading provider of mortgage products through the Internet. Industry analysts
estimate the on-line mortgage market will dramatically increase. In fiscal 1999,
the Company originated over $30.9 million of mortgage loans over the Internet.
The Company believes its broad range of competitively priced products and its
strategic relationships with leading Internet mortgage web sites position it to
capitalize on the on-line mortgage origination growth. These relationships have
enabled the Company to become a substantial provider of mortgage services to
Internet web sites like QuickenMortgage(TM), The LendingTree(TM) and Microsurf.
In addition, the Company has constructed its own electronic commerce portal at
Alliedhomenet.com designed to attract customers of its residential mortgage
products.
The Company's on-line strategy of aligning itself with leading Internet
mortgage web sites has provided it with access to consumers without any
significant advertising or other costs to date, and this strategy has enabled
the Company to originate loans over the Internet. The Company intends to
continue to expand the breadth and scope of its Internet relationships. These
relationships may also include the acquisition of Internet businesses related to
the Company's business.
Pursue Acquisitions. The Company intends to pursue consolidation
opportunities in the mortgage banking industry of independent, high quality
mortgage brokers and mortgage banks. The Company believes that with the
completion of this offering, the Company will be in a better position to pursue
such acquisitions when the opportunity arises. Through such acquisitions, the
Company believes it will be able to capture origination volume from acquired
companies, allowing it to capitalize on the lower cost of funds and better
pricing it receives in the secondary market on these loans. As a result, the
additional volume created by acquisitions provides an effective means to
capitalize on the economies generated by the Company's mortgage bank. The
Company believes that its acquisition model and operating structure make it an
attractive acquirer for the following reasons:
- Breadth of Product Offering. The Company offers the acquired
business access to (1) the mortgage products and pricing of
over 700 lenders throughout the U.S. and (2) a broad range of
mortgage products, competitive rates, dependable customer
service and execution of the Company's mortgage bank.
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- Decentralized Management. The Company believes that the
selling owners will have significant loan origination
experience and will have developed substantial relationships
with customers in their markets. Since the Company operates
with a decentralized management structure, selling owners are
provided with significant autonomy to utilize their experience
and relationships to generate origination volume. In addition,
the Company assumes certain burdensome administrative and
operational functions which allows the selling owners to
become increasingly focused on generating originations.
- Future Value. A substantial portion of the value the Company
pays for an acquisition is dependent upon the future
profitability of the acquired company's business and, when
common stock is issued as consideration, upon the Company's
future profitability. The Company's size and the economies
generated by its mortgage bank encourage the selling owners to
increase the profitability of their business by directing loan
volume into its mortgage bank and earn attractive returns.
Building Alliances. The Company will also build its business through
establishing alliances with builders, brokers, realtors and other professionals
who have access to potential residential mortgage customers. Two efforts of the
Company currently underway include a relationship with an H&R Block franchise
operating over 500 such branches and a proposed venture by the Company to assist
homeowners selling their homes without the assistance of a broker ("For Sale By
Owner" or "FSBO"). The Company has entered into an agreement with an H&R Block
franchisee to jointly market residential mortgage products to the customers of
the tax service. Although still in its beginning stages, loan applications are
being received by numerous offices of the H&R Block franchisee and the Company
hopes that this alliance will continue to build additional mortgage loan volume.
The FSBO program started in a Florida branch office of the Company and is
expanding within the Company. Branch offices of the Company are assisting
homeowners desiring to sell their own home without a broker by providing such
homeowners with a marketing kit. The marketing kit is designed to first send a
prospective buyer of a FSBO property to the Company to be qualified before
having him contact the owner of the property. The Company's limited experience
so far has indicated that numerous potential home buyers are being prequalified
by the Company. If the prospective buyer does not buy a particular FSBO
property, he will have had a preliminary meeting with an employee of the Company
and is more likely to use the Company when he finds a property in the future
that he wants to purchase. It is through this kind of marketing that the Company
believes it will continue to expand its residential mortgage loan volumes.
MORTGAGE BANKING OPERATIONS
The mortgage loans that the Company originates are funded through its
mortgage banking operations or are brokered to the lender providing the mortgage
product. In fiscal 1999, the Company closed 7.5% of its loans through its
mortgage bank. The Company's mortgage bank currently offers a full range of
single-family mortgage loan products. Mortgage loan applicants
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can choose from among fixed-rate mortgage loans with several different term
options, including standard 15-year and 30-year terms, and "balloon" mortgage
loans with relatively shorter terms, such as five or seven years, and longer
amortization schedules, such as 30 years. An array of adjustable rate mortgage
loans with rates tied to various indices is also available. The Company offers a
wide variety of combinations of interest rates and origination fees ("points")
on many of its mortgage loan products so that borrowers may elect to pay higher
points at closing and lower interest over the life of the mortgage loan, or pay
a higher interest rate and reduce or eliminate points payable at closing. In
addition, the Company offers buydown-type mortgage loans which allow a borrower
to make lower monthly payments for the first one, two or three years of the
loan.
MORTGAGE LOAN PRODUCTS
The following table summarizes the Company's originations for the
categories of mortgage loans listed below:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998
(Volume Data in Millions)
<S> <C> <C>
CONFORMING AND GOVERNMENT INSURED MORTGAGE LOANS:
Number of loans ................................... 14,848 7,606
Volume ............................................ $1,444,075 $ 889,044
Percent of total loan volume ...................... 61.9% 76.9%
JUMBO MORTGAGE LOANS:
Number of loans ................................... 530 185
Volume ............................................ $ 179,022 $ 57,572
Percent of total loan volume ...................... 7.7% 5.0%
HOME EQUITY AND SECOND MORTGAGE LOANS:
Number of loans ................................... 983 581
Volume ............................................ $ 20,590 $ 12,883
Percent of total loan volume ...................... 0.9% 1.2%
NON-PRIME MORTGAGE LOANS:
Number of loans ................................... 6,791 3,417
Volume ............................................ $ 686,390 $ 195,832
Percent of total loan volume ...................... 29.5% 16.9%
TOTAL MORTGAGE LOANS:
Number of loans ................................... 23,152 11,789
Volume ............................................ $2,330,079 $1,155,333
Average loan size ................................. $ 100,643 $ 98,001
</TABLE>
Conforming and Government Insured Mortgage Loans. These mortgage loans
conform to the underwriting standards established by one of the government
sponsored mortgage entities, Fannie Mae or Freddie Mac, and are originated and
sold. This product is limited to high quality borrowers with good credit records
and involves adequate down payments or mortgage insurance.
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These loans may qualify for guarantees from the Federal Housing Authority or
insurance from the Veterans Administration. Approximately 61.9% of loan volume
originated by the Company in the fiscal year ended June 30, 1999 were conforming
and government insured loans.
Jumbo Mortgage Loans. These mortgage loans do not satisfy the criteria
to be conforming or government insured mortgage loans solely because they exceed
the maximum loan size (currently $240,000 for single-family, one-unit mortgage
loans in the continental United States). The Company sells all jumbo mortgage
loans to a number of national privately sponsored mortgage conduits.
Approximately 7.7% of the loan volume originated by the Company in the fiscal
year ended June 30, 1999 were jumbo mortgage loans.
Home Equity and Second Mortgage Loans. Home equity and second mortgage
loans are generally secured by second liens on the related property. Home equity
mortgage loans can take the form of a home equity line of credit ("Home Equity
Line") while second mortgage loans are closed-end loans. Both types of loans are
designed primarily for high credit quality borrowers and are underwritten
according to the standards of the investor to whom the loans will be sold. Home
Equity Lines generally provide for either a 5-year or 15-year draw period,
during which the borrower may make cash withdrawals, and a 10-year repayment
period during which the amount outstanding at the end of the draw period is
repaid. Only interest payments are made during the draw period. Second mortgage
loans are fixed in amount at the time of origination and typically amortize over
30 years with a balloon payment due after 15 years. Home Equity Lines generally
bear adjustable interest rates while closed-end loans typically bear fixed
interest rates. Both types are frequently originated in conjunction with the
Company's origination of a first-lien mortgage loan on the related property.
Home Equity Lines and second mortgage loans represented approximately 0.9% of
the loan volume originated by the Company in the fiscal year ended June 30,
1999.
Non-prime Mortgage Loans. This category consists of mortgage loans for
borrowers who have impaired or limited credit profiles or higher debt-to-income
ratios than would be acceptable for sale of such loans to one of the agencies or
private-sponsored mortgage conduits. Such mortgage loans may also fail to
satisfy the underwriting criteria of the government sponsored entities in other
ways. The Company categorizes these mortgage loans based on the borrower's
credit profile as "A-", "B" or "C" loans which are generally considered
"non-prime" mortgage loans in the secondary mortgage market. The Company does
not originate mortgage loans that it would categorize as "D" loans. The Company
offers non-prime loans on a limited basis to ensure that it has loan products
for nearly every borrower. Non-prime loans are underwritten to the standards of
investors to whom the loans will be sold. These loans represented approximately
29.5% of the loan volume originated by us in the fiscal year ended June 30,
1999. The Company only funded non-prime mortgage loans equal to 5.4% of its
total loan volume. The Company does not intend to commit significant resources
to increase its non-prime business.
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SALES OF LOANS AND SERVICING RIGHTS
Loan Sales. The Company customarily sells all loans funded through its
mortgage bank to one of the government-sponsored mortgage entities or to one of
the national privately sponsored mortgage conduits. A primary component of the
Company's business strategy is to seek the most efficient method of selling its
mortgage loans. The Company evaluates the sale of each mortgage loan type and
compares prices available for each alternative method of sale, given current
market conditions at the time and the risk characteristics of the mortgage loan
type to determine which method of sale to utilize. While the Company currently
does not securitize its loans, if the prices offered in the secondary market for
its loans decrease significantly relative to the value it believes that it could
receive by securitizing such loans, the Company's management would consider
securitizing its loans. If the Company began to securitize its loans, it would
be subject to the risks described in "Risk Factors." If in the future the
Company decides to securitize and/or retain servicing rights of its loans, it
would be subject to additional risks that it does not currently face.
The Company currently sells its conforming or government insured loans
either through co-issue/concurrent transactions, assignments of trade or
whole-loan sales. Co-issue/concurrent transactions involve a sale of the
underlying mortgage loan to Fannie Mae or Freddie Mac with a concurrent sale of
the servicing rights to an independent servicer. Assignment of trade sales are
sales of conforming or government insured loans to a third party who exchanges
the loans with Fannie Mae or Freddie Mac for mortgage backed securities issued
by them. In a whole-loan sale, individual loans are underwritten to the
standards of and sold to a specific buyer on a forward commitment basis. Jumbo
and Alternative A mortgage loans are currently sold in whole-loan sales on a
forward commitment basis. The Company sells its non-prime loans and Home Equity
Lines and closed-end home second mortgage loans through whole-loan sales, bulk
sales or flow sales in order to avoid the credit risk associated with these
types of mortgage loans. Bulk sales are sales of loans underwritten to the
Company's underwriting standards that are pooled and then sold to third parties
for cash by the Company. Flow sales are sales of loans which are underwritten by
a third party who commits to purchase each individual loan its underwriters
approve.
In the fiscal year ended June 30, 1999, the Company sold over 90% of
the loans funded by its mortgage bank to two large, national companies, one of
which directly competes with the Company for retail originations. The loss of
either of these buyers or any significant reduction in the prices these buyers
are willing to pay for its loans could have an adverse effect on the Company's
business and results of operations.
The sale of mortgage loans may generate a gain or loss to the Company.
Gains or losses result primarily from two factors. First, the Company may
originate a loan at a price (i.e., interest rate and discount) that may be
higher or lower than it would receive if it immediately sold the loan in the
secondary market. These pricing differences occur principally as a result of
competitive pricing conditions in the primary loan origination market. Second,
gains or losses upon the sale of loans may result from changes in interest rates
that cause changes in the market value of the loans from the time the price
commitment is given to the customer until the time that the loan is
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sold by the Company to the investor. The Company applies interest rate risk
management techniques to reduce the net effect of interest-rate changes on the
gain and loss on loan sales.
The Company sells some of its loans on a forward commitment or other
deferred delivery and payment basis and has credit risk exposure to the extent
purchasers are unable to meet the terms of their forward purchase contracts. As
is customary in the marketplace, none of the forward payment obligations of any
of the Company's counterparties is currently secured or subject to margin
requirements, although the Company attempts to limit its credit exposure on
forward sales arrangements by entering into forward sales contracts solely with
institutions that it believes are sound credit risks, and by limiting exposure
to any single counterparty by selling to a number of investors.
Sales of Servicing Rights. When a loan is originated, a corresponding
right to service the loan for an annual yield is created. The Company's current
strategy is to realize the value of this right by selling its loans without
retaining the right to service the loan or by selling the servicing rights
separately from the loan to national servicers. As a result, the Company
minimizes risk associated with defaults and early prepayments of those loans.
However, the Company services the loans it closes between the date of funding
the loan and the date it sells the loan and the related servicing in the
secondary market, a period averaging approximately 30 days. The Company has
developed an in-house proprietary system to provide its loan servicing computing
services. The Company will consider selling its loans with the servicing rights
retained if it believes that the value of the servicing rights is or may become
significantly greater than secondary market buyers are then willing to pay for
them. If the Company began to sell its loans with servicing retained, it would
be subject to the risks described in "Risk Factors." If in the future the
Company decides to securitize and/or retain the servicing rights of its loans,
it would be subject to additional risks that it does not currently face. In
fiscal 1999, the Company sold over 95% of its servicing rights to a large
national servicer that is a competitor and also a principal purchaser of loans
funded by the Company's mortgage bank.
Recourse. By selling all the loans the Company closes, it reduces its
exposure to default risk (other than first-payment defaults by customers) and
most of the prepayment risk normally inherent in the mortgage lending business.
However, in connection with whole-loan sales and exchanges, the Company makes
representations and warranties to the buyers thereof which it believes are
customary in the industry relating to, among other things, compliance with laws,
regulations and program standards and accuracy of information. In the event of a
breach of these representations and warranties, the Company may be required to
repurchase these mortgage loans and indemnify the investors for damages caused
by the breach. If a repurchase request is made, the Company would either (1)
attempt to remedy the deficiency and have the investors rescind the rejection of
the mortgage loan or (2) refinance or sell the mortgage loan, sometimes at a
loss. To date, the Company has never been required to repurchase a mortgage
loan. The Company has implemented a stringent quality assurance program
monitoring the most important stages of the mortgage loan origination process to
minimize the number of mortgage loans rejected by investors. In addition, in
connection with some non-prime loan sales, the Company may be required to return
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a portion of the premium received upon the sale of the loan if the loan is
prepaid by the customer within the first year after sale.
MORTGAGE LOAN FUNDING AND BORROWING ARRANGEMENTS
The Company uses its short-term warehouse financing facilities and
repurchase agreements under its in-house mortgage bank to fund mortgage loan
originations. Under the Company's current warehouse facility, it has available a
$16 million warehouse line of credit secured by the mortgage loans it
originates. The Company is required to comply with various operating and
financial covenants as defined in the agreements governing the warehouse
facility. In accordance with industry practice, the warehouse facility is
considered for renewal by the lenders annually. At June 30, 1999, the
outstanding balance under the Company's warehouse facilities was $16.6 million.
For a more detailed description of the warehouse facility, please refer to
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources."
OPERATIONS
The Company's offering of a broad range of conventional and specialized
mortgage loan products requires the timely delivery of such mortgage loan
products to the branches and careful monitoring and tracking of the origination
of such mortgage loan products through delivery to the ultimate investor. For
this reason, the Company continues to develop its operational and technological
capabilities. The Company has developed a proprietary in-house mortgage banking
and administration system that has largely eliminated many of the manual efforts
associated with underwriting, funding and loan delivery. This system provides
real-time access to the information used by each department in operations as
well as the secondary marketing and treasury departments. This company-wide
system provides a smooth flow of data from the origination process until the
investor purchases the mortgage loan. These integrated systems also improve data
integrity since information is not re-keyed or transferred to multiple mortgage
loan-tracking systems.
The Company's processing is decentralized to provide fast and efficient
service. Unlike many regional and national banks, the processing of its
customers' loan files are performed in the local branches by processors who work
in teams with one or more loan originators. The Company's underwriting, unlike
many regional and national banks, is performed regionally at five sites,
including its regional operational centers and certain large branches. The
Company's remaining mortgage banking functions, including secondary marketing,
corporate accounting, quality assurance, systems programming and support, loan
delivery and servicing are centralized and maintained at the Company's Houston
headquarters.
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UNDERWRITING
Mortgage loan applications must be approved by the Company's
underwriters in accordance with the underwriting criteria of the entity or the
investor to whom the loan will be sold. These standards include the customer's
mortgage, installment loan and revolving debt payment history, employment
history, capacity to pay, outstanding judgments, charge-offs and repossessions,
involvement in bankruptcies and foreclosures. Since loans are secured by a
mortgage lien, an appraisal of the property securing the loan is also essential.
Furthermore, the Company generally evaluates the applicant's creditworthiness
through the use of a consumer credit report, verification of employment and a
review of the debt-to-income ratio of the customer. The Company also utilizes
Fannie Mae's automated underwriting system, Desktop Underwriter. In under one
minute, this system evaluates and makes a decision on whether a borrower meets
Fannie Mae's guidelines. There are a number of attractive advantages of
utilizing this system: (1) it reduces operating costs by reducing the amount of
time an underwriter spends on a file, (2) it reduces the typical liability
associated with underwriting when selling a loan to Fannie Mae because Fannie
Mae will have already approved the loan and (3) it improves customer service by
enabling the Company to approve loans more quickly.
To maintain the consistency of underwriting quality, the Company's loan
production personnel, such as branch managers and loan originators and Internet
service representatives, are not permitted to underwrite the mortgage loan
packages which they originate. Underwriting reviews and decisions for loans
underwritten by the Company are made by separate underwriters located at the
Company's regional operational centers and at certain large branches. The
Company's underwriting manager is located in the corporate headquarters in
Houston and is responsible for administering all underwriting policies. The
underwriting manager reports to the Company's senior officers.
QUALITY CONTROL
The Company's legal/compliance team is responsible for compliance and
quality control. This centralized compliance function allows the Company to
control and supervise regulatory compliance and offer consistency to its
customers. The legal/compliance team also helps the servicing team handle
delinquencies and foreclosures that occur before a loan is sold. The quality
control personnel review loans that have already been made (1) to monitor,
evaluate and improve the overall quality of loan production and (2) to identify
and communicate to the legal/compliance team and management existing and
potential underwriting and loan file problems or areas of concern. After loans
close, the quality control personnel select a percentage of the closed loans to
check them for documentation, accuracy, compliance with law and potential fraud.
The Company performs a post-funding quality control review on a sample of
originated loans for complete re-verification of employment, income and liquid
assets used to qualify for such mortgage loan. Such review also includes
procedures intended to detect evidence of fraudulent documentation and/or
imprudent activity during the processing, funding, servicing or selling of the
mortgage loan. Verification of occupancy and applicable information is made by
regular mail.
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At the present time, the Company does not utilize the services of a third party,
independent quality control provider.
The Company is also subject to certain capital requirements and
internal auditing and quality controls established by the U.S. Department of
Housing and Urban Development. The Company has determined that it has not fully
implemented certain quality control procedures and that the Company was not in
compliance with such quality procedures in six monthly periods during fiscal
1999. The Company has been further advised that repeated noncompliance of these
regulations could result in sanctions by HUD and the potential loss of future
business. To remedy this situation, management of the Company has taken steps to
see that the employees in charge of quality control will follow up on the
reporting requirements. Management is confident that the Company will be in
compliance with all HUD requirements during fiscal 2000.
INFORMATION SERVICES
The information services department is responsible for implementing,
supporting and improving the software and hardware technology employed
throughout the Company. Specifically, the information services department
concentrates on the development of new technology to increase operational
efficiencies, applications programming, applications development and analysis of
new software technologies which can be used within the Company's business to
improve information flow and reduce operating costs. For example, the
information services department was responsible for implementing Desktop
Underwriter which has greatly improved the Company's operating efficiency. The
information services department also focuses on the integration and support of
hardware technologies including those established in the branch offices. In
addition, the information services department is currently involved in (1) the
deployment of laptops to the Company's loan originators, which enables its loan
originators to originate a loan anywhere, at any time, including in a customer's
home or office, (2) the requisite training of the loan originators on laptop
origination and (3) automated underwriting. By utilizing these technologies, the
Company's loan originators will have the ability to take a customer's
application anywhere there is an available telephone line and provide them with
a decision within one minute on the approval of their loan if such loan meets
the standards of government sponsored mortgage entities.
COMPETITION
Traditional Channels. The mortgage lending industry is highly
competitive and fragmented. The Company faces intense competition, primarily
from commercial banks, savings and loan associations, credit unions, insurance
companies, mortgage brokers, mortgage bankers and other consumer finance
companies. If the Company expands into additional geographic markets, it may
face competition from consumer lenders with established positions in such
markets. The Company cannot provide any assurances that it will be able to
compete successfully with these consumer lenders. Competition can take place on
various levels, including convenience in obtaining a loan, service, marketing,
pricing (including the interest rates, closing costs and
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processing fees charged) and range of products. The Company believes that
pricing, service and product breadth are the most important competitive factors
affecting its business. Many of the Company's competitors in the mortgage
lending industry are better established, larger and have more capital and other
resources than the Company. Barriers to entry into the mortgage lending industry
are low, and the current level of gains realized by the Company and its existing
competitors on the sale of loans could attract additional competitors into the
market. Consequently, there are many recent market entrants seeking these
relatively attractive profit margins. Increases in the number of competitors
seeking to originate consumer loans could lower the rates of interest or reduce
the amount of origination points and fees the Company can charge customers,
thereby reducing the potential profitability of such loans. Competition might
also reduce the Company's loan closing volume.
Internet. Mortgage origination over the Internet is relatively new.
Competition over the Internet is intense and rapidly evolving as mortgage
brokers and lenders continue to establish affiliations with current web sites.
Currently, competition is generally based on rate and on visibility over the
Internet. Similarity of product offerings and the vast amount of
mortgage-related information available over the Internet may lead to increasing
price competition.
GOVERNMENT REGULATION
The Company's business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and will be
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of its operations. Regulated
matters include, without limitation, loan origination, marketing efforts, credit
application and underwriting activities, maximum finance and other charges,
disclosure to customers, certain rights of rescission, closing and servicing
loans, collection and foreclosure procedures, qualification and licensing
requirements for doing business in various jurisdictions and other trade
practices. Loan origination activities are subject to the laws and regulations
in each of the states in which those activities are conducted. Lending
activities are also subject to various federal laws. The Truth in Lending Act
("TILA") and Regulation Z promulgated thereunder contain disclosure requirements
designed to provide consumers with uniform, understandable information with
respect to the terms and conditions of loans and credit transactions in order to
give them the ability to compare credit terms. TILA also guarantees consumers a
three-day right to cancel certain credit transactions. If the Company is found
not to be in compliance with TILA, aggrieved customers could have the right to
rescind their loan transactions with the Company and to demand the return of
finance charges paid to it, among other remedies. The Company is also required
to comply with the Equal Credit Opportunity Act of 1974, as amended ("ECOA"),
and the Fair Housing Act (the "FHA") which prohibit lenders from discriminating
against applicants on the basis of race, color, religion, national origin,
familial status, sex, age, marital status or other prohibited bases. Regulation
B promulgated under ECOA restricts lenders from obtaining certain types of
information from loan applicants. It also requires certain consumer disclosures,
including advising applicants of the reasons for any credit denial. The Fair
Credit Reporting Act of 1970, as amended ("FCRA"), regulates the use of consumer
credit information, and among
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other things, requires the lender to supply the applicant with a name and
address of the reporting agency in instances where the applicant is denied
credit or the rate or charge for a loan increases as a result of information
obtained from a consumer credit agency. The Company is also subject to RESPA and
the Fair Debt Collection Practices Act and is required to collect certain
applicant information and file an annual report with HUD pursuant to the Home
Mortgage Disclosure Act ("HMA"). The Company is also subject to the rules and
regulations of, and examinations by, HUD, the Veterans Administration, Fannie
Mae, Freddie Mac and state regulatory authorities with respect to originating,
processing, underwriting, selling and servicing mortgage loans and to various
other federal and state laws, rules and regulations governing among other
things, the licensing of, and procedures that must be followed by, consumer
lenders and servicers, and disclosures that must be made to customers. Various
state laws affect the Company's mortgage banking operations, including licensing
requirements and, in certain instances, state usury statutes.
Failure to comply with these requirements may lead to civil or criminal
liability, loss of licenses, termination or suspension of servicing contracts
without compensation to the servicer, demands for indemnification or loan
repurchases, rights of rescission for mortgage loans and administrative and
enforcement actions by regulatory authorities.
In addition, industry participants are frequently named as defendants
in class-action and other litigation involving alleged violations of federal and
state consumer lending laws and regulations. These actions and lawsuits allege
violations of RESPA, TILA, ECOA, FHA and various other federal and state lending
and consumer protection laws. Some of the practices which have been the subject
of lawsuits against other companies include, but are not limited to,
miscellaneous "add on" fees; truth in lending calculations and disclosures;
escrow and adjustable rate mortgage calculations and collections; private
mortgage insurance calculations, disclosures and cancellation; forced-placed
hazard, flood and optional insurance; payoff statement, release and reconveyance
fees; and unfair lending practices. If a significant judgment were rendered
against the Company in connection with any litigation, it could have a material
adverse effect on the Company's business and results of operations. For more
information, please refer to "Risk Factors-The practice of having lenders pay
mortgage brokers is currently being litigated."
In addition, because the Company's business is highly regulated, the
laws, rules and regulations applicable to it are subject to modification and
change. Any changes in such laws, rules and regulations could make compliance
much more difficult or expensive, restrict the Company's ability to originate or
sell loans, limit or restrict the amount of interest and other charges earned on
loans closed or sold by the Company, or otherwise adversely affect its business
or its prospects.
EMPLOYEES
As of June 30, 1999, the Company had approximately 1,443 employees,
substantially all of whom were full-time employees. Of these, approximately 85
were employed at the Company's Houston, Texas headquarters and the remainder
were employed at the branch offices, including
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employees who are commission-based loan officers. None of the Company's
employees is represented by a union. The Company considers its relations with
its employees to be good.
PROPERTIES
The Company's corporate and administrative headquarters are located in
facilities in Houston, Texas. These facilities comprise approximately 10,000
square feet of space in a building owned by Mercantile Investment Corp.
("Mercantile") for a renewable one year term at an annual rate of $120,000,
payable in equal monthly payments of $10,000. Mercantile is an affiliate of the
Company. See "Related Transactions." The Company believes that its present
facilities are adequate for its current level of operations.
The Company owns a tract of land near its existing building in Houston,
Texas. Currently, the tract is undeveloped and the Company intends to hold it
for future expansion of its operations.
Also, the Company subleases office space from the branch managers of
each of its 381 branches. These subleases are all similar in form and all are on
a month-to-month basis.
The Company's corporate headquarters are located at 6110 Pinemont,
Houston, Texas 77092 and its telephone number is (713) 353-0400.
LEGAL PROCEEDINGS
The Company, through its subsidiary Allied, is involved from time to
time in litigation incidental to its business. The Company is not aware of any
pending or threatened claims against it that might materially adversely affect
its operating or financial results.
In addition to the legal actions incidental to its business, Allied and
its President have both been involved in a lawsuit styled Corinthian Mortgage
Corporation vs. Allied Mortgage Corporation, James C. Hodge and Renee LaBrot.
Corinthian Mortgage Corporation ("Corinthian") filed a complaint against Allied,
Jim Hodge and Renee LaBrot in the District Court of Johnson County, Kansas,
Civil Court Department, Court 17. The complaint alleges breach of contract and
violation of RESPA. In the breach of contract claim, Corithian alleges that
Allied improperly solicited Corinthian's borrowers to refinance loans through
Allied. Corinthian asserts that its contract prohibited solicitation of its
borrowers. Corinthian is seeking damages in excess of $750,000 plus attorney's
fees and court costs. In the RESPA claim, Corinthian alleges that Allied
violated RESPA by agreeing to pay borrower's mortgage payments in exchange for
the borrowers refinancing their loans through Allied. Corinthian seeks damages
in the amount of three times the fees it paid to Allied for settlement services
plus attorney's fees and court costs. Trial is not yet set for this case. Allied
is vigorously defending against the allegations and intends to continue to
participate in discovery and trial preparation to determine potential liability
and defenses. Allied has attempted to settle the case, but in the event
settlement is not reached, intends to contest the case vigorously. At this time,
it is impractical to assess the likelihood of an
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unfavorable outcome or to assess Allied's potential liability because discovery
is not complete. In the event that Corinthian is completely successful in
proving the liability of Allied and all of the damages it pled in its lawsuit,
it is possible that the outcome of that lawsuit would have a material effect on
the financial position and results of operations of the Company. In the event
Allied is found liable for any amount to Corinthian, it intends to seek
indemnity from the allegedly responsible Allied employees.
Allied is a party to a second action not incidental to its business
styled Transamerica Mortgage Company v. Allied Mortgage Capital Corporation in
the 55th Judicial District Court in Harris County. Transamerica sued Allied for
breach of contract. Transamerica alleges that Allied must re-purchase two loans
and seeks damages related to those loans in the amount of $139,000. No
depositions have been taken. Allied intends to continue to participate in
discovery and trial preparation to determine its potential liability and
defenses. This case is not yet set for trial. Allied intends to contest this
case vigorously. At this time, it is impractical to assess the likelihood of an
unfavorable outcome or to assess Allied's potential liability because discovery
is not complete.
The Company is, from time to time, named in other lawsuits. The Company
believes that it has meritorious defenses to these lawsuits and that resolution
of these matters will not have a material adverse effect on the business or
financial condition of the Company. In management's estimation, the Company has
recorded adequate reserves in the financial statements for pending litigation.
Except as described above regarding the Corinthian case, management, after
reviewing all actions and proceedings pending against or involving the Allied,
considers that the aggregate liability or loss, if any, resulting from the final
outcome of these proceedings will not have a material effect on the financial
position of the Company.
In recent years, the mortgage banking industry has been subject to
class action lawsuits which allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges. Class action lawsuits may be filed in the future against the mortgage
banking industry and in particular the Company and Allied.
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MANAGEMENT
The Board of Directors of the Company currently consists of five
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>
Jim C. Hodge Chairman, President, Chief Executive 58 1999 2002
Officer and Director
Don Parker Director 43 1999 2002
David Klein Director 50 1999 2001
Don J. Strouse Executive Vice President and Director 37 1999 2001
Jamey J. Hodge(2) Senior Vice President and Director 39 1999 2000
</TABLE>
- -----------
(1) As of July 31, 1999.
(2) Jamey J. Hodge is the son of Jim C. Hodge.
JIM C. HODGE, Chairman of the Board, President, Chief Executive Officer
and Director of the Company, founded Allied in May 1991 and has served as its
Chairman of the Board and Chief Executive Officer since its inception. In March
1999 Mr. Hodge was appointed President of Allied. From 1977 to 1991 Mr. Hodge
was Chairman of the Board and President of Mercantile Mortgage Corporation, a
mortgage servicing company. Prior to 1977 he was a Vice President for Fort Worth
Mortgage Corporation, a mortgage loan origination company. He holds a B.B.A.
from Texas Wesleyan College and a M.B.A. from Sam Houston State University. Mr.
Hodge has over 29 years of experience in the mortgage business.
DON PARKER is Vice President of Congress Financial Corporation, a
wholly-owned subsidiary of First Union National Bank ("Congress"), which is the
sixth largest commercial bank in the country. Congress is a commercial finance
company providing working capital and fixed asset financing for middle market
companies throughout the United States, Canada and the United Kingdom. Mr.
Parker's primary responsibility is to source financing opportunities for
Congress in the Southwest. Mr. Parker has been active in commercial banking
since 1980 in the Houston area and started his career in residential mortgage
lending in Houston in 1978 with First Continental Mortgage. Mr. Parker received
a Bachelors degree in Business Administration with an emphasis in Finance from
Texas Tech University in 1978.
DAVID KLEIN is Manager/Member and 50% owner of A-K Texas Venture
Capital, L.C., a commercial real estate management company. Mr. Klein holds a
B.A. in Economics, B.S. in Accounting and M.S. in Accounting from Rice
University. He is also a Licensed Real Estate Broker and a C.P.A.
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DON J. STROUSE is Executive Vice President and Director of the Company
and Allied. Mr. Strouse has served as Sr. Vice President since October 1996
after having been a Branch Manager and State Manager since joining Allied in
1994. He holds a B.A. in Finance from Ohio State University.
JAMEY J. HODGE, the son of Jim Hodge, served as President of Allied
from 1991 to February 1999. Prior to 1991, he was a Loan Officer for Mercantile
Mortgage Corporation. Mr. Hodge holds a B.B.A. from University of Texas in
Arlington.
Allied has one director on its Board of Directors, Mr. Jim C. Hodge.
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company's board of directors will be divided into three classes,
and each director will serve for a staggered three-year term. The board will
consist of one Class I director, two Class II directors and two Class III
directors. At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The terms of the Class I directors, Class II directors
and Class III directors will expire upon the election and qualification of
successor directors at the annual meeting of stockholders held during the
calendar years 2000, 2001 and 2002, respectively.
Each officer serves at the discretion of the board of directors.
BOARD COMMITTEES
Audit Committee. As soon as practicable after the closing of the
offering, the Company's board of directors will establish an audit committee
which, among other things, will perform the following functions:
- make recommendations to the Company's board of directors
concerning the engagement of independent public accountants;
- monitor and review the quality and activities of the Company's
internal audit function and those of the Company's independent
auditors; and
- monitor the adequacy of the Company's operating and internal
controls as reported by management and the independent or
internal auditors.
The initial members of the audit committee will be Directors David
Klein and Don Parker.
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Compensation Committee. As soon as practicable after the closing of the
offering, the Company's board of directors will establish a compensation
committee which will, among other things, perform the following functions:
- review salaries, benefits and other compensation of the Company's
officers and other employees;
- make recommendations to the Company's board of directors
regarding salaries, benefits and other compensation; and
- administer the Company's employee benefit plans.
The initial members of the compensation committee will be Directors
David Klein, Don Parker and Jim Hodge.
DIRECTOR COMPENSATION
The Company's directors are not currently compensated. Following the
offering, each of the Company's directors will receive reimbursement for all
travel and other expenses incurred in connection with attending each meeting of
the board of directors or committee meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's board of
directors or its planned compensation committee and any member of any other
company's board of directors or the Company's compensation committee, nor has
any interlocking relationship existed in the past.
INDEMNIFICATION
The Certificate of Incorporation of the Company provides that a
director or officer of the Company shall be indemnified by the Company to the
fullest extent authorized by the General Corporation Law of the State of
Delaware against all expenses, liability and loss reasonably incurred or
suffered by such person in connection with his activities as a director or
officer or as a director or officer of another company, if the director or
officer held such position at the request of the Company. Delaware law requires
that such director, officer, employee or agent, in order to be indemnified, must
have acted in good faith and in a manner reasonably believed to be not opposed
to the best interests of the Company, and, with respect to any criminal action
or proceeding, did not have reasonable cause to believe his or her conduct was
unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate
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of Incorporation, Bylaws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.
These provisions may have the effect of deterring stockholder
derivative actions, since the Company may ultimately be responsible for expenses
for both parties to the action. A similar effect would not be expected for
third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Company has the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law. The Company may obtain such insurance.
EXECUTIVE COMPENSATION
AllQuest has not paid any compensation to its executive officers.
Separate compensation will not be paid to the officers of AllQuest until such
time as the officers of AllQuest devote significant time to separate management
of Company affairs, which is not expected to occur until AllQuest becomes
actively involved in additional significant business beyond that of Allied.
The following table sets forth information concerning the compensation
paid or granted to Allied's Chief Executive Officer in fiscal years ended June
30, 1999 and 1998. No other executive officer of Allied had an aggregate salary
and bonus that exceeded $100,000 in fiscal 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
--------------------------------------------- ------------ All Other
Name and Fiscal Other Annual Options/ Compen-
Principal Position Year(3) Salary($) Bonus($) Compensation($) SAR's(2)(#) sation1(1)($)
------------------ ------ --------- -------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jim C. Hodge, 1999 $0 $0 $0 -- $0
President and Chief 1998 --
Executive 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 June 30, 1999 and 1998.
Allied currently provides insurance benefits to its employees,
including health and life insurance, subject to certain deductibles and
copayments.
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CERTAIN TRANSACTIONS
The Company originates mortgage loans which are subsequently sold to
Allied Mortgage Corporation ("AMC") at cost. AMC is owned by Jim C. Hodge who is
Chairman of the Board and President of the Company, Kathy Hodge who is the
spouse of Jim C. Hodge and is an Existing Stockholder and Jamey J. Hodge who is
a director, Senior Vice President and Existing Stockholder of the Company. AMC
purchased approximately 6.5% and 5.6% of the Company's total retail loan
production for the fiscal years ended June 30, 1998 and 1999, respectively.
In fiscal year 1999, AMC owed Allied an account payable of $310,000. In
an effort to reconcile the account payable, AMC conveyed to Allied a tract of
real estate near Allied's principal office, furniture and equipment all in the
amount of $310,000. Additionally, the Company's majority stockholder contributed
$335,000 in furniture and equipment to the Company in 1999 as an additional
capital contribution.
The Company paid a management fee to AMC for services provided. This
fee totaled approximately $617,000 for the year ended June 30, 1998. The Company
has not paid a management fee to AMC since December 31, 1997.
The Company conducts its operations in premises leased from Mercantile
Investments Corp., a company owned by Jim C. Hodge, President of the Company,
under a lease expiring on May 31, 2000. Lease expense was approximately $98,000
and $32,000 for the years ended June 30, 1999 and 1998, respectively. The
current rent for the premises is $10,000 per month.
AMC is a co-borrower with the Company on the Company's $16 million
residential warehouse line of credit. That line of credit is also guaranteed by
Mr. Jim C. Hodge who is an officer, director and stockholder of both entities.
Under the terms of the line of credit, the lender has agreed to make advances to
either AMC or the Company provided that such advance is secured by residential
mortgage loans. AMC and the Company have each made representations, warranties
and covenants to the lender which are usual and customary for transactions of
this nature. Since the Company and AMC are jointly and severally liable under
the line of credit, a default by either AMC or the Company would subject the
other party to the remedies provided in the loan agreement, including the
potential foreclosure of loans held by the Company. In the event of default by
AMC, both the Company and Mr. Hodge, as a guarantor, could be liable for any
amounts outstanding.
Allied follows a policy of granting loans to Allied's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time, in accordance with Allied's
underwriting guidelines. These loans do not involve more than the normal risk of
collectibility or present other unfavorable features. There are no loans to any
director or executive officer or their associates.
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DESCRIPTION OF SECURITIES
COMPANY CAPITAL STOCK
The 20 million shares of capital stock authorized by the Company's
certificate of incorporation are divided into two classes, consisting of 15
million shares of Common Stock (par value $0.01 per share) and 5 million shares
of serial preferred stock (par value $0.01 per share). The Company currently
expects to issue between 1,000,000 and 1,400,000 shares of Common Stock in the
offering and no shares of serial preferred stock. The aggregate par value of the
issued shares will constitute the capital account of the Company on a
consolidated basis. Upon payment of the Purchase Price, all shares issued in the
offering will be duly authorized, fully paid and nonassessable. The balance of
the purchase price of Common Stock, less expenses of the offering, will be
reflected as paid-in capital on a consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock.
Under Delaware law, the holders of the Common Stock will possess exclusive
voting power in the Company. Each stockholder will be entitled to one vote for
each share held on all matters voted upon by stockholders, subject to the
limitation discussed under "Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions - Provisions of the Company's Certificate of
Incorporation and Bylaws Limitation on Voting Rights." If the Company issues
preferred stock subsequent to the offering, holders of the preferred stock may
also possess voting powers.
Liquidation or Dissolution. In the event of liquidation, dissolution or
winding up of the Company, the holders of its Common Stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
preferred stock is issued subsequent to the offering, the holders thereof may
have a priority over the holders of Common Stock in the event of liquidation or
dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
Preferred Stock. After the offering, the Board of Directors of the
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights. The holders of preferred stock
will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights that such holders may have.
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Except as discussed above, the Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock. In the future, the authorized but unissued and
unreserved shares of Common Stock will be available for general corporate
purposes, including but not limited to, possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under a stock based employee plan. The authorized but unissued
shares of preferred stock will similarly be available for issuance in future
mergers or acquisitions, in a future underwritten public offering or private
placement or for other general corporate purposes. Except as described herein or
as otherwise required to approve the transaction in which the additional
authorized shares of common stock or authorized shares of preferred stock would
be issued, no stockholder approval will be required for the issuance of these
shares. Accordingly, the Board of Directors of the Company, without stockholder
approval, can issue preferred stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Company's certificate of incorporation and bylaws which may
affect the ability of the Company's stockholders to participate in certain
transactions relating to acquisitions of control of the Company.
Dividends. The Company's Board of Directors may consider a policy of
paying cash dividends on the Common Stock in the future. No decision has been
made, however, as to the amount or timing of such dividends, if any. The
declaration and payment of dividends are subject to, among other things, the
Company's then current and projected consolidated operating results, financial
condition, future growth plans and other factors the Board deems relevant.
Therefore, no assurance can be given that any dividends will be declared.
The ability of the Company to pay cash dividends to its stockholders
will be dependent, in part, upon the ability of Allied to pay dividends to the
Company.
Delaware law generally limits dividends of the Company to an amount
equal to the excess of its net assets over its paid-in capital or, if there is
no such excess, to its net earnings for the current and immediately preceding
fiscal year. In addition, as the Company does not anticipate, in the immediate
future, engaging in activities other than (i) investing in cash, short-term
securities and investment and mortgage-backed securities similar to those
invested in by Allied and (ii) holding the stock of Allied.
TRANSFER AGENT AND WARRANT AGENT
American Securities Transfer and Trust, Inc. has been appointed
registrar and transfer agent for the Common Stock and the warrant agent for the
warrants of Choice.
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<PAGE> 62
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Board of Directors of the Company is not aware of any
effort that might be made to obtain control of the Company after the offering,
the Board of Directors, as discussed below, believes that it is appropriate to
include certain provisions as part of the Company's certificate of incorporation
to protect the interests of the Company and its stockholders from takeovers
which the Board of Directors of the Company might conclude are not in the best
interests of the Company or the Company's stockholders.
The following discussion is a general summary of material provisions of
the Company's certificate of incorporation and bylaws and certain other
regulatory provisions that may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Company's certificate of
incorporation and bylaws reference should be made in each case to the document
in question, each of which is part of the Company's Registration Statement filed
with the SEC. See "Additional Information."
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Directors. Certain provisions of the Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Company's certificate of incorporation provides that the Board of
Directors of the Company will be divided into three classes, with directors in
each class elected for three-year staggered terms except for the initial
directors. Thus, assuming a Board of five directors, it would take two annual
elections to replace a majority of the Company's Board. The Company's
certificate of incorporation also provides that the size of the Board of
Directors may be increased or decreased only by a majority vote of the whole
Board. The bylaws also provide that any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. Finally, the bylaws impose certain notice
and information requirements in connection with the nomination by stockholders
of candidates for election to the Board of Directors or the proposal by
stockholders of business to be acted upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Company provides that a special meeting of stockholders may
be called only pursuant to a resolution of the Board of Directors and for only
such business as directed by the Board. Stockholders are not authorized to call
a special meeting.
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<PAGE> 63
Absence of Cumulative Voting. The Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Company authorizes 5 million shares of serial preferred stock, $0.01 par
value. The Company is authorized to issue preferred stock from time to time in
one or more series subject to applicable provisions of law, and the Board of
Directors is authorized to fix the designations, powers, preferences and
relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Company that the Board of Directors does not
approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of preferred stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any preferred stock and does not intend to issue any preferred stock except on
terms which the Board deems to be in the best interests of the Company and its
stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock, which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit"), be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. This limitation would not inhibit any person
from soliciting (or voting) proxies from other beneficial owners for more than
10% of the Common Stock or from voting such proxies. Beneficial ownership is to
be determined pursuant to Rule 13d-3 of the General Rules and Regulations of the
Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power but shall not include shares
beneficially owned by directors, officers and employees of the Company. This
provision will be enforced by the Board of Directors to limit the voting rights
of persons beneficially owning more than 10% of the stock and thus could be
utilized in a proxy contest or other solicitation to defeat a proposal that is
desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Company's certificate
of incorporation requires that certain business combinations (including
transactions initiated by management) between the Company (or any majority-owned
subsidiary thereof) and a 10% or more stockholder either (i) be approved by at
least 80% of the total number of outstanding voting shares, voting as a single
class, of the Company, (ii) be approved by two-thirds of the continuing Board of
Directors (i.e., persons serving prior to the 10% stockholder becoming such) or
(iii) involve consideration per share generally equal to that paid by such 10%
stockholder when it acquired its block of stock.
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It should be noted that the Board and executive officers will hold more
than 74% of the Common Stock of the Company even if the Maximum offering is
sold. As a result, the Board and management may have considerable influence
regarding the approval of combinations requiring an 80% vote even where a
majority of the stockholders vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Company's certificate of incorporation must be approved by the Company's Board
of Directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Company's Certificate of
Incorporation and Bylaws. The Board of Directors of the Company believes that
the provisions described above are prudent and will reduce the Company's
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist the Company in the orderly deployment of the offering proceeds
into productive assets during the initial period after the offering. The Board
of Directors believes these provisions are in the best interest of the Company
and its stockholders. In the judgment of the Board of Directors, the Company's
Board will be in the best position to determine the true value of the Company
and to negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Company and
that these provisions will encourage such negotiations and discourage hostile
takeover attempts. The Board of Directors believes that these provisions should
not discourage persons from proposing a merger or other transaction at prices
reflective of the true value of the Company and which is in the best interests
of all stockholders.
Attempts to take over mortgage companies have recently become
increasingly common. Takeover attempts which have not been negotiated with and
approved by the Board of Directors present to stockholders the risk of a
takeover on terms which may be less favorable than might otherwise be available.
A transaction which is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time in
order to obtain maximum value for the Company and its stockholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Company's assets.
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<PAGE> 65
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Company as to the benefits to stockholders of
these provisions of the Company's certificate of incorporation and bylaws, these
provisions may also have the effect of discouraging a future takeover attempt
which would not be approved by the Company's Board, but pursuant to which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have any opportunity to do so. Such provisions
will also render the removal of the Company's Board of Directors and of
management more difficult. The Board will enforce the voting limitation
provisions of the charter in proxy solicitations and accordingly could utilize
these provisions to defeat proposals that are favored by a majority of the
stockholders. The Board of Directors of the Company, however, has concluded that
the potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the offering, the Company may adopt additional charter
provisions regarding the acquisition of its equity securities that would be
permitted to a Delaware corporation. The Company does not presently intend to
propose the adoption of further restrictions on the acquisition of the Company's
equity securities.
DELAWARE ANTI-TAKEOVER STATUTE
The Delaware General Corporation Law (the "DGCL") provides that buyers
who acquire more than 15% of the outstanding stock of a Delaware corporation,
such as the Company, are prohibited from completing a hostile takeover of such
corporation for three years. However, the takeover can be completed if (i) the
buyer, while acquiring the 15% interest, acquires at least 85% of the
corporation's outstanding stock (the 85% requirement excludes shares held by
directors who are also officers and certain shares held under employee stock
plans), or (ii) the takeover is approved by the target corporation's board of
directors and two-thirds of the shares of outstanding stock of the corporation
(excluding shares held by the bidder). These provisions of the DGCL will not
apply during any period that the Company has less than 2,000 stockholders and
does not have voting stock listed on a national exchange or listed for quotation
with a registered national securities association.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the maximum offering, the Company will have
5,400,000 shares of Common Stock outstanding. Of these shares, 1,400,000 will be
freely tradeable without restriction or registration under the Securities Act,
unless held by affiliates of the Company. All of the remaining 4,000,000 shares
will be "restricted securities" as that term is defined in Rule 144 promulgated
under the Securities Act and may only be sold in the public market if such
shares are registered under the Securities Act or sold in accordance with Rule
144 promulgated thereunder.
In general, under Rule 144 a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned his shares for
one year, may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the outstanding shares of
the Company's Common Stock (approximately 54,000 shares) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
limitations on the manner of sale, notice requirements and availability of
current public information about the Company. A person (or persons whose shares
are aggregated) who is deemed not to be an "affiliate" or a recent "affiliate"
of the Company and who has beneficially owned his shares for at least two years,
may sell such shares in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, notice requirements or
availability of current information provisions referred to above. Restricted
shares properly sold in reliance upon Rule 144 are thereafter freely tradeable
without restrictions or registration under the Act, unless thereafter held by an
"affiliate" of the Company.
Of the 4,000,000 restricted shares currently outstanding, a total of
3,960,000 shares are held by Kathy Hodge, spouse to the President Jim Hodge, and
40,000 shares are held by Jamey J. Hodge, son to President Hodge. The 40,000
restricted shares held by Jamey Hodge were acquired from the Company (or its
predecessors) more than two years prior to the date of this Prospectus and are
therefore eligible for sale under Rule 144(k) without volume limitation
commencing 90 days after the completion of this offering. The remaining
3,960,000 restricted shares held by Kathy Hodge were acquired from the Company
(or its predecessors) more than one year ago and are therefore eligible for sale
under Rule 144(e)(1) subject to certain volume restrictions commencing 90 days
from the completion of this offering. Additionally, up to 140,000 shares of the
Company's common stock will be reserved for issuance under the warrants to be
granted to the Underwriter.
Future sales of substantial amounts of Common Stock in the public
market, or the availability of such shares for future sale, could impair the
Company's ability to raise capital through an offering of securities and may
adversely affect the then-prevailing market prices for the Company's stock.
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<PAGE> 67
PLAN OF DISTRIBUTION
OFFERING OF COMMON STOCK
Up to 1,400,000 shares of the Company's Common Stock will be offered
for sale, subject to certain restrictions described below, through a
Subscription Offering to employees, officers and directors of AllQuest and
Allied and then in a Public Offering to the general public. The price at which
the shares are sold in the Subscription Offering will be the same as the price
in the Public Offering.
Employees, officers and directors of AllQuest and Allied have been
granted non-transferable Subscription Rights until 4:00 p.m., Austin, Texas
time, on November ___, 1999 (the "Subscription Expiration Date") to purchase
Common Stock of the Company. These Subscription Rights will give such employees,
officers and directors a preference over subscribers in the Public Offering to
purchase the Common Stock.
The Public Offering will expire at 4:00 p.m., Austin, Texas time, on
November ___, 1999 (the "Public Offering Expiration Date") unless extended by
the Company. The offering may be extended by the Company until March 15, 2000.
If the Public Offering is extended beyond November ___, 1999, all subscribers
will be permitted to modify or cancel their subscriptions and to have their
subscription funds returned promptly with interest. In the event of such an
extension, all subscribers will be notified in writing of the time period within
which the subscriber must notify the Company of his intention to maintain,
modify or rescind his subscription. In the event the subscriber does not respond
in any manner to the Company's notice, the funds will be refunded to the
subscriber with interest and/or the subscriber's withdrawal authorizations will
be terminated. The Company may terminate or withdraw the offering prior to the
Subscription Expiration Date or the Public Offering Expiration Date. AllQuest
reserves the right to withdraw the offer of Common Stock and close the offering
prior to November ___, 1999 upon the sale of at least 1,000,000 shares. In the
event that the offering is not effected, all funds submitted and not previously
refunded pursuant to the offering will be promptly refunded to subscribers with
interest, and all withdrawal authorizations will be terminated. In the event of
an oversubscription, the shares of Common Stock will be allocated first pro rata
among the subscribers in the Subscription Offering and, if any shares remain
thereafter, on a pro rata basis among the subscribers in the Public Offering, in
each case based on the amount of their respective subscriptions. The opportunity
to subscribe for shares of Common Stock in the Subscription Offering and the
Public Offering is subject to the right of the Company, in its sole discretion,
to accept or reject any such orders in whole or in part either at the time of
receipt of an order or as soon as practicable following the Public Offering
Expiration Date.
The minimum purchase is 100 shares. Pursuant to the terms of this
offering, no person (which includes a natural person, company or other entity)
or group of persons acting together for the purpose of acquiring, holding or
disposing of the shares, may purchase more than $500,000 of the shares being
offered hereby (i.e., 83,333 shares) if such person would be deemed the
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beneficial owner of such shares within the meaning of Rule 13(d)(3) promulgated
under the Securities Exchange Act of 1934.
Choice, as underwriter of the offering, will be available to answer
questions about the offering and may also hold informational meetings with
interested persons where licensed executive officers and directors of the
Company may participate. Such officers and directors will not be permitted to
make statements about the Company unless such information is also set forth in
the Prospectus, nor will they render investment advice. All purchasers of the
shares offered hereby will be instructed to send payment directly to the
Company, where such funds will be delivered to a special escrow account with
Compass Bank, N.A. ("Compass") and not released until the minimum shares are
sold or the offering is terminated.
Depending upon market and financial conditions, the Board of Directors
of the Company, without approval of the subscribers, may increase or decrease
any of the above purchase limitations at any time. Factors the Company may
consider in increasing or decreasing the purchase limitations include, among
other things, (i) changes in market conditions, (ii) an oversubscription of
shares or (iii) the failure to sell a minimum number of shares. Subscribers will
be notified by mail in the event of an increase in the purchase limitations. In
the event of a decrease in the purchase limitations, subscribers will be
notified, to the extent their orders are affected at the time they receive final
confirmation of their orders.
Common Stock purchased in the offering will be freely transferable
except as described below. In addition, under National Association of Securities
Dealers, Inc. ("NASD") guidelines, members of the NASD and their associates are
subject to certain restrictions on transfer of securities purchased in
accordance with this offering and to certain reporting requirements upon
purchase of such securities.
The Company stock received in the offering by persons who are not
"affiliates" of the Company may be resold without registration. Shares received
by affiliates of the Company (primarily the directors, officers and principal
stockholders of the Company) will be subject to the resale restrictions of Rule
144 under the Act, which are discussed below. Rule 144 generally requires that
there be publicly available certain information concerning the Company, and that
sales thereunder be made in routine brokerage transactions or through a market
maker. If the conditions of Rule 144 are satisfied, each affiliate (or group of
persons acting in concert with one or more affiliates) is entitled to sell in
the public market, without registration, in any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the number of outstanding
shares of the Company stock or, (ii) if the stock is admitted to trading on a
national securities exchange or reported through the automated quotation system
of a registered securities association, the average weekly reported volume of
trading during the four weeks preceding the sale.
The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which Choice and the Board desires to
offer the Common Stock.
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MARKETING AND UNDERWRITING ARRANGEMENTS
The Company has retained Choice, which is a broker-dealer registered
with the SEC and a member of the NASD, to consult with and advise the Company
and to assist in the distribution of shares in the offering on a best efforts
basis. Choice will have no obligation to take or purchase any Common Stock.
Choice will assist the Company in the offering as follows: (1) in conducting
informational meetings for subscribers and other potential purchasers; (2) in
keeping records of all stock subscriptions; (3) in organizing and staffing with
Choice agents the Stock Sales Center; and (4) in training and educating the
Company's employees regarding the mechanics and regulatory requirements of the
offering process. For its services, Choice will receive a financial advisory fee
of $25,000 and a sales fee equal to 6.0% of the aggregate Purchase Price of the
Common Stock sold in the offering. Depending upon market conditions, the shares
of Common Stock may be offered for sale in the Public Offering on a best efforts
basis by a selling group of selected broker dealers agreed upon by Choice and
the Company. In addition, the Company will reimburse Choice for all reasonable
out-of-pocket expenses (including expenses related to attorneys' fees and
expenses) not to exceed $35,000.
Choice was formed in 1983 as a registered securities broker-dealer.
Since that time, Choice has served its customers as broker-dealers but has not
acted as an underwriter in any public offerings. Although Choice's principals
have extensive experience in the securities industry, there can be no assurance
that Choice's limited operating history will not have an adverse effect on the
offering or the market for the Company's securities.
The Company has agreed to indemnify Choice against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
Choice may be required to make in respect thereof. It is the opinion of the
Securities and Exchange Commission that such indemnification is contrary to
public policy and unenforceable.
The Company has also agreed to sell to Choice warrants to purchase up
to 140,000 shares of Common Stock at a price of $0.01 per warrant. Choice's
warrants will be exercisable for a period of four years, commencing on the first
anniversary of the date of the Prospectus, at a per share exercise price equal
to $7.20 per share. Choice's warrants are not redeemable by the Company under
any circumstances. Neither Choice's warrants nor the shares of Common Stock
issuable upon exercise thereof may be transferred, assigned or hypothecated
until one year from the date of issuance of Choice's warrants, except they may
be assigned, in whole or in part, to any successor or employee of Choice.
Choice's warrants will contain provisions for appropriate adjustment of the
exercise price and number of shares which may be purchased upon exercise upon
the occurrence of certain events, such as mergers or reorganizations. The
holders of Choice's warrants shall have no voting, dividend or other rights as
stockholders of the Company unless and until the exercise of such warrants.
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The foregoing does not purport to be complete statements of the terms
and conditions of the Agency Agreement and related documents, copies of which
are on file at the offices of Choice, the Company and the Securities and
Exchange Commission, forms of which have been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
In addition, directors and executive officers of the Company may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Company may participate in the offering in administrative
capacities, providing clerical work in effecting a sales transaction or
answering questions of a potential purchaser provided that the content of the
employee's responses is limited to information contained in the Prospectus or
other offering document. Other questions of prospective purchasers will be
directed to registered representatives of Choice. Company employees have been
instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock. Sales of Common Stock will be made from
the Stock Sales Center. Until final approval of the appropriate Texas dealer
registrations are obtained, officers, directors and employees of the Company
will not be allowed to participate in the sale of the Common Stock. Assuming
such registrations are received, the Company will rely on Rule 3a4-1 under the
Exchange Act, and sales of Common Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of Common Stock under federal law. No officer, director
or employee of the Company will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Stock.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Prior to this offering, there has been no public market for the
Company's Common Stock and therefore no public market price. The public offering
price of $6.00 for the Common Stock has been determined by negotiation between
the Company and Choice. Among the factors considered in determining the public
offering price were the earnings and certain other financial and operating
information of the Company in recent periods, the future prospects of the
Company and its industry in general and the price-earning ratios, price-book
value ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company.
The Company and Choice also considered the Company's desire to (i) conduct the
offering in a manner to achieve the widest distribution of the Common Stock,
(ii) promote liquidity in the Common Stock subsequent to the offering and (iii)
comply with the minimum price per share requirement of the NASDAQ Stock Market
System.
METHOD OF PAYMENT FOR SUBSCRIPTIONS
Subscribers must, before the appropriate expiration date (or such
extensions thereof), return an original stock order form to the Company,
properly completed, together with cash, checks or money orders in an amount
equal to the Purchase Price ($6.00 per share) multiplied by the number of shares
for which subscription is made. Subscriptions which are returned by mail
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must be received by the Company by the appropriate expiration date. All funds
will be placed in an Escrow Account with Compass and will earn interest from the
date of receipt until completion or termination of the offering. Compass may
invest the escrow funds in short-term Government securities or money market
investments. Stock subscriptions received by the Company may not be modified,
withdrawn or canceled by the subscriber without the consent of the Company and,
if accepted by the Company, are final unless the offering is extended as
described above. Subscriptions which are not received by the appropriate
expiration date or are not in compliance with the stock order form instructions
may be deemed void by the Company. The Company has the right to extend the
Public Offering Expiration Date or to waive or permit correction of incomplete
or improperly executed stock order forms, but does not represent that it will do
so. If a minimum of 1,000,000 shares of the Common Stock have not been sold by
the termination of this offering, all funds received from subscribers will be
promptly refunded, with interest.
In addition to the foregoing, if a selected dealer arrangement is
utilized, as described above, a purchaser may pay for his shares with funds held
by or deposited with a selected dealer. If a stock order form is executed and
forwarded to the selected dealer or if the selected dealer is authorized to
execute the stock order form on behalf of a purchaser, the selected dealer is
required to promptly forward the stock order form and funds to the Company for
deposit in the Escrow Account on or before noon, Austin, Texas time on the
business day following receipt of the stock order form or execution of the order
form by the selected dealer. Alternatively, selected dealers may solicit
indications of interest from their customers to place orders for shares. Such
selected dealers shall subsequently contact their customers who indicated an
interest and seek their confirmation as to their intent to purchase. Those
indicating an intent to purchase shall execute stock order forms and forward
them to their selected dealer or authorize the selected dealer to execute such
forms. With the exception of "non-customer carrying broker-dealers," the
selected dealer will acknowledge receipt of the order to its customer in writing
on the following business day and will debit such customer's account on the
fifth business day after the customer has confirmed his intent to purchase (the
"debit date") and on or before noon, Austin, Texas time, on the next business
day following the debit date will promptly send stock order forms and funds to
the Company for deposit in the Escrow Account. If such alternative procedure is
employed, purchasers' funds are not required to be in their accounts with
selected dealers until the debit date. In the case of a non-customer carrying
broker-dealer, checks will be made payable to the Company and promptly
transmitted to the Company by the broker-dealer by noon of the day after receipt
of the check.
RISK OF DELAYED OFFERING
In the event that all shares of the Common Stock are not sold in the
offering, the Company may extend the offering until March 15, 2000. Until the
termination of the offering, the subscription funds will be invested by Compass
as Escrow Agent in short-term U.S. Government securities and money market
investments. The actual rate of interest on these investments is not known
because they fluctuate as often as daily. The interest that such subscription
funds may earn, while in escrow, may be lower than those otherwise available to
subscribers.
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A material delay in the completion of the sale of all unsubscribed
shares in the offering may result in a significant increase in the costs in
completing the offering. Significant changes in the Company's operations and
financial condition, the aggregate market value of the Common Stock to be issued
in the offering and general market conditions may occur during such material
delay. In the event the offering is not consummated before March 15, 2000, the
Company would charge accrued offering costs to then current period operations.
PRINCIPAL STOCKHOLDERS
After the Exchange, the Company will have two record holders of Common
Stock. There will be 4,000,000 shares of its Common Stock issued and outstanding
as of that date. The following table lists the beneficial ownership of (i) each
director and executive officer of the Company owning any shares of Common Stock,
(ii) the directors and officers of the Company as a group and (iii) each person
known to own at least 5% of any class of its securities outstanding. The table
assumes that no officer or director of the Company will acquire any of the
shares of the offering.
<TABLE>
<CAPTION>
Number of Percent
Common Percent of Total
Shares of Total After
Beneficially Before Maximum
Name and Address Relationship with the Company Owned Offering Offering
- ---------------- ----------------------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Kathy Hodge 3,960,000 99% 73.3%
6110 Pinemont
Houston, Texas 77092
Jamey J. Hodge 40,000 1% 0.74%
3100 West Arkansas, Suite 105
Arlington, Texas 76091
All Directors and Officers as a 4,000,000 100% 74.04%
Group (5 persons) including
those named above
</TABLE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by the firm of Selman & Munson, P.C.,
111 Congress Avenue, Austin, Texas 78701. Certain legal matters regarding the
offering will be passed upon for Choice by Jack W. Ledbetter & Associates, P.C.,
3563 Far West Boulevard, Suite 107, Austin, Texas 78731.
EXPERTS
The financial statements of Allied included in this Prospectus have
been audited by KPMG LLP, independent certified public accountants, to the
extent and for the periods indicated in their report appearing elsewhere herein,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
67
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
The historical financial statements of Allied Mortgage Capital
Corporation are included herein as listed below:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Balance Sheets; June 30, 1999 and 1998 F-2
Statements of Operations; Years ended June 30, 1999 and 1998 F-3
Statements of Stockholders' Equity; Years ended June 30, 1999 and 1998 F-4
Statements of Cash Flows; Years ended June 30, 1999 and 1998 F-5
Notes to Financial Statements; June 30, 1999 and 1998 F-6
</TABLE>
68
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allied Mortgage Capital Corporation:
We have audited the accompanying balance sheets of Allied Mortgage Capital
Corporation (the Company) as of June 30, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a 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 financial statements referred to above present fairly, in
all material respects, the financial position of Allied Mortgage Capital
Corporation as of June 30, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
August 13, 1999
F-1
<PAGE> 75
ALLIED MORTGAGE CAPITAL CORPORATION
Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Cash $ 1,657,031 1,472,314
Mortgage loans held for sale (notes 5 and 8) 16,944,667 17,890,764
Mortgage loans held for investment,
net of allowance for credit losses of $5,500 in 1999 366,507 --
Real estate held for sale 203,315 73,051
Accounts receivable (note 6) 1,319,213 780,875
Furniture and equipment, net (note 7) 484,767 14,751
Other assets 193,702 24,000
----------- -----------
$21,169,202 20,255,755
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable (note 8) $16,603,486 16,980,499
Accounts payable - affiliate (note 3) 52,879 --
Accounts payable and other accrued expenses 4,169,101 3,081,417
----------- -----------
Total liabilities 20,825,466 20,061,916
----------- -----------
Stockholders' equity (note 1):
Common stock, $10 par value. 100 shares
authorized, issued and outstanding in
1999 and 1998 1,000 1,000
Additional paid-in capital 333,243 179,258
Retained earnings 9,493 13,581
----------- -----------
Total stockholders' equity 343,736 193,839
Commitments and contingencies (notes 4 and 9)
----------- -----------
$21,169,202 20,255,755
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 76
ALLIED MORTGAGE CAPITAL CORPORATION
Statements of Operations
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Income - gain on sales of loans $6,069,908 3,271,341
---------- ----------
Expenses:
Personnel 2,218,458 689,594
General and administrative 2,139,484 846,606
Office supplies 748,919 252,029
Other 489,366 204,850
Occupancy (note 4) 255,329 94,912
Data processing 155,516 45,671
Warehouse interest expense, net of warehouse interest
income of approximately $1,052,000 in 1999
and $863,000 in 1998 53,343 81,318
Management fees (note 3) -- 616,684
---------- ----------
Total expenses 6,060,415 2,831,664
---------- ----------
Net income (note 2) $ 9,493 439,677
========== ==========
Pro forma basic and diluted net income per share (note 2) $ -- 0.07
========== ==========
Reconciliation of weighted average shares used in pro forma income per share
calculation (note 2):
Outstanding shares assuming exchange of Allied
Mortgage Capital Corporation shares 4,000,000 4,000,000
Shares assumed issued for distribution from offering 7,667 7,667
---------- ----------
Weighted average shares 4,007,667 4,007,667
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 77
ALLIED MORTGAGE CAPITAL CORPORATION
Statements of Stockholders' Equity
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Balance at June 30, 1997 $ 2,020 311,517 (46,529) 267,008
Return of capital to stockholder (1,020) (132,259) -- (133,279)
Dividend to stockholder -- -- (379,567) (379,567)
Net income for 1998 -- -- 439,677 439,677
-------- -------- -------- --------
Balance at June 30, 1998 1,000 179,258 13,581 193,839
Capital contribution -- 335,404 -- 335,404
Return of capital to stockholder -- (181,419) -- (181,419)
Dividend to stockholder -- -- (13,581) (13,581)
Net income for 1999 -- -- 9,493 9,493
-------- -------- -------- --------
Balance at June 30, 1999 $ 1,000 333,243 9,493 343,736
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 78
ALLIED MORTGAGE CAPITAL CORPORATION
Statements of Cash Flows
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,493 439,677
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 10,377 --
Provision for credit losses 5,500 --
Gain on sales of real estate held for sale (5,798) --
Changes in operating assets and liabilities:
Decrease (increase) in mortgage loans held for sale, net 946,097 (14,275,739)
Increase in accounts receivable (848,165) (449,057)
Increase in other assets (169,702) (88,345)
Increase in accounts payable and other accrued expenses 1,087,684 2,223,702
----------- -----------
Net cash provided by (used in) operating activities 1,035,486 (12,149,762)
----------- -----------
Cash flows from investing activities:
Purchases of real estate held for sale -- (47,263)
Capitalized additions to real estate held for sale (5,025) (25,788)
Proceeds from sales of real estate held for sale 45,397 --
Increase in furniture and equipment, net -- (14,751)
Increase in mortgage loans held for investment (372,007) --
----------- -----------
Net cash used in investing activities (331,635) (87,802)
----------- -----------
Cash flows from financing activities:
Increase in accounts payable - affiliate 52,879 --
Net (decrease) increase in notes payable (377,013) 13,486,281
Return of capital to stockholder (181,419) (133,279)
Cash dividend to stockholder (13,581) (379,567)
----------- -----------
Net cash (used in) provided by financing activities (519,134) 12,973,435
----------- -----------
Increase in cash 184,717 735,871
Cash at beginning of year 1,472,314 736,443
----------- -----------
Cash at end of year $ 1,657,031 1,472,314
=========== ===========
Supplemental disclosure of cash information - cash paid
for interest $ 1,136,954 850,375
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Furniture and equipment contributed by affiliate in
satisfaction of accounts receivable - affiliate (note 7) $ 144,989 --
Real estate held for sale contributed by affiliate in satisfaction
of accounts receivable - affiliate (note 2) 164,838 --
Capital contribution of furniture and equipment
by majority stockholder (note 7) 335,404 --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 79
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
(1) ORGANIZATION AND PROPOSED INITIAL PUBLIC OFFERING
ORGANIZATION
Allied Mortgage Capital Corporation (the Company) was incorporated on May
31, 1991 under the laws of the State of Texas. The Company is a retail
mortgage banking company engaged in the business of originating, selling
and brokering mortgage loans. As of June 30, 1999, the Company operates
out of 405 branches in 49 states. Beginning in 1997, the Company also
began funding and closing mortgage loans. The Company maintains net worth
at or above minimum requirements for the U.S. Department of Housing and
Urban Development. Should the Company's net worth fall below these
requirements, the Company is dependent upon its stockholders for capital
infusions to meet these requirements. The Company's stockholders
contributed additional capital to the Company during 1999 (see notes 7
and 8).
PROPOSED INITIAL PUBLIC OFFERING
Subsequent to June 30, 1999, the stockholders of the Company approved a
plan in which the shares of the Company would be exchanged for shares of
a newly formed holding company, which would then pursue a public offering
of its common stock. The Company's stockholders would receive 4,000,000
shares of holding company stock for the Company's stock and the holding
company would register 1,400,000 shares for sale to the public at an
offering price of $6. Commensurate with the offering, the Company would
convert from a Subchapter S corporation for Federal income tax purposes
to a Subchapter C corporation. A distribution of $46,000 would be paid to
the Company's stockholders from the proceeds of the offering for payment
of Federal income tax liabilities of the Subchapter S corporation. There
can be no assurance that the public offering will be completed or that,
if completed, it will be completed upon the proposed terms.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
The financial statements were prepared on the accrual basis in conformity
with generally accepted accounting principles.
FEDERAL AND STATE INCOME TAXES
The stockholders have elected under provisions of the Internal Revenue
Code to treat the Company as an S Corporation. As such, the stockholders
are required to report their share of the Company's earnings on their
individual returns. Accordingly, no federal income tax provision is
required by the Company (see note 1).
On August 13, 1991, the State of Texas passed legislation providing for
the imposition of an earned surplus tax. The tax is assessed against
adjusted federal taxable income, allocated to Texas, at a rate of 4.5%.
This tax is considered an income tax to the extent the tax computed
exceeds the franchise tax.
(Continued)
F-6
<PAGE> 80
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
PRO FORMA NET INCOME PER SHARE
Pro forma basic and diluted net income per share assumes the Company is
converted from a Subchapter S corporation to a Subchapter C corporation
for Federal income tax purposes commensurate with the proposed initial
public offering (see note 1). Distributions from proceeds of the proposed
initial public offering to existing owners are assumed to be $46,000,
which converts to 7,667 shares at the initial offering price. Federal
income taxes are assumed at the statutory rates in effect for the years
presented. Temporary differences as a result of accelerated depreciation
for tax purposes are immaterial.
Pro forma net income per share used in pro forma net income per share
calculation:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income $ 9,493 439,667
Federal income tax at statutory rate -- (149,487)
-------- --------
Pro forma net income $ 9,493 290,180
======== ========
</TABLE>
USE OF 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 disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale to investors are valued on an aggregate loan
basis at the lower of cost or market value as determined by outstanding
commitments from investors or current market yield requirements.
Differences between the carrying amount of mortgage loans held for sale
to investors and amounts received upon sale of such loans are credited or
charged to income when the transaction is consummated.
MORTGAGE LOANS HELD FOR INVESTMENT
Mortgage loans held for investment are transferred to the investment
category at the lower of cost or market on the date of transfer. These
loans consist principally of loans originated by the Company which do not
meet investor purchase criteria and second-lien loans.
ALLOWANCE FOR CREDIT LOSSES
An allowance for credit losses is maintained to absorb future losses
inherent in the loan portfolio based on management's judgment. Factors
considered in determining the level of the allowance include: lending
policies, adequacy of collateral, historical loss experience, the status
and amount of non-performing and past-due loans, specific known risks and
current, as well as, anticipated specific and general economic factors
that may affect certain borrowers. Credit losses are charged against the
allowance; recoveries are added to the allowance.
(Continued)
F-7
<PAGE> 81
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
REAL ESTATE HELD FOR SALE
Real estate held for sale is recorded at its initial acquisition cost.
Thereafter, it is carried at the lower of cost or net realizable value.
Net realizable value is computed at the estimated selling price in the
normal course of business less estimated costs of holding and disposal.
During 1999, an affiliate of the Company exchanged $164,838 of land to
the Company in satisfaction of accounts receivable-affiliate. The land
was transferred to and recorded by the Company as real estate held for
sale at the majority stockholder's cost.
INCOME RECOGNITION
Sales of loans are recognized when loans are delivered to the investor.
Gain or loss is recognized to the extent that the sales price exceeds or
is less than the book value (net of unearned discount or premium at date
of sale) of the loans.
Interest income on nondiscounted loans and interest expense are accrued
based on principal outstanding. Interest income on discounted loans is
recognized based on a method that approximates a level yield. Discounts
from origination of mortgage loans held for sale are deferred and
recognized as adjustments to gain or loss on sale.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees and direct origination costs are deferred and
recognized as gain or loss on sale of loans when the loans are sold. The
difference in recognizing fees and costs in this manner and the manner
required by FASB's Statement 91, Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases, which generally requires the deferral of net origination
fees and direct costs and subsequent amortization, is not material.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost less accumulated
depreciation (note 7).
Depreciation is provided on the double declining basis over the estimated
useful lives of the respective assets. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or
loss is recognized in operations for the period. The cost of maintenance
and repairs is charged to operations as incurred; however, significant
refurbishments or improvements, which extend the life or usefulness of an
asset, are capitalized.
The Company periodically reviews the carrying value of its furniture and
equipment for possible impairment. When applicable, the book amounts are
reduced to estimated fair values.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 presentation with no effect on the results of
operations.
(Continued)
F-8
<PAGE> 82
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
(3) AFFILIATE RELATIONSHIPS
The Company periodically originates mortgage loans which are subsequently
sold to Allied Mortgage Corporation (AMC), an affiliated company, at
cost.
As discussed in note 4, the Company leases premises from an affiliate.
In the normal course of business the Company and its affiliates pay
certain expenses for each other, which are subsequently reimbursed.
At the discretion of the Company's management, the Company paid a
management fee to AMC for services provided. This fee totaled $616,684
for the year ended June 30, 1998. The Company discontinued the management
fee during the year ended June 30, 1998.
(4) COMMITMENTS AND CONTINGENCIES
LEASES
The Company conducts its operations in premises leased from an affiliate
under a lease expiring on May 31, 2000. Lease expense was approximately
$98,000 and $32,000 for the years ended June 30, 1999 and 1998,
respectively.
The Company incurred a penalty fee of approximately $26,000, that was
paid during the year ended June 30, 1999 for canceling its previous
premises lease prior to its expiration.
LITIGATION
The Company, its affiliate, Allied Mortgage Corporation, its president
and director, and a branch manager are defendants in a lawsuit alleging
breach of contract and violations of the Real Estate Settlement
Procedures Act. The plaintiff seeks actual and punitive monetary damages.
Because discovery is not complete in the case, it is impossible to
predict its ultimate outcome. If the case is found in favor of the
plaintiff, it is possible that the lawsuit would have a material adverse
affect on the financial position and the results of operations of the
Company. Management intends to vigorously defend against the litigation
and in the event of adverse outcome, pursue others for indemnification.
In the normal course of business, the Company is subject to various other
legal proceedings and claims, the resolution of which, in management's
opinion, will not have a material adverse effect on the financial
position or the results of operations of the Company.
LOAN COMMITMENTS
Other than obtaining firm "best efforts" commitments to sell loans to
investors, the Company does not hedge its mortgage loan pipeline.
(Continued)
F-9
<PAGE> 83
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
REGULATORY MATTERS
During 1999, the Company violated certain requirements of the U.S.
Department of Housing and Urban Development (HUD) with respect to
performance of quality control procedures on loans originated with FHA or
VA guarantees. HUD could impose sanctions, fines or force the Company to
repurchase loans as a result of such violations. Management has
implemented controls to prevent future violations. Although there has
been no indication of action from HUD, management believes that any such
action would not have a material adverse effect on the financial position
or results of operations of the Company.
(5) MORTGAGE LOANS HELD FOR SALE
The Company had outstanding mortgage loans held for sale at June 30,
1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
First mortgage; single family residential $16,841,748 17,631,372
Unearned premiums 102,919 259,392
----------- -----------
$16,944,667 17,890,764
=========== ===========
</TABLE>
The Company's loan portfolio 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 income or cash flow.
(6) ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1999 and 1998, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Broker fees $ 901,411 679,338
Investors 172,022 39,148
Stockholder 52,502 --
Employees 48,044 49,165
Branches 46,101 --
Affiliate (note 3) 2,638 13,224
Other 96,495 --
---------- ----------
$1,319,213 780,875
========== ==========
</TABLE>
(Continued)
F-10
<PAGE> 84
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
(7) FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at June 30, 1999 and
1998:
<TABLE>
<CAPTION>
USEFUL LIFE 1999 1998
----------- -------- --------
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 12,607 8,726
Machinery and equipment 5 years 482,537 6,025
-------- --------
495,144 14,751
Less accumulated depreciation (10,377) --
-------- --------
$484,767 14,751
======== ========
</TABLE>
During 1999, an affiliate exchanged $144,989 of furniture and equipment
in satisfaction of accounts receivable-affiliate to the Company. In 1999,
the Company's stockholders contributed $335,404 in furniture and
equipment as a capital contribution to the Company. These assets were
transferred to and recorded by the Company at the affiliate's and
majority stockholder's depreciated historical cost.
(8) NOTES PAYABLE
Notes payable at June 30, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Residential warehouse line of credit totaling $23,000,000,
secured by mortgage loans held for sale, due May 31,
2000, required interest at LIBOR plus 2.5% on prime
mortgage loans and LIBOR plus 3% on subprime mortgage
loans held for sale $ 16,603,486 16,980,499
============ ==========
</TABLE>
The Company is a co-borrower with AMC on the warehouse line of credit.
The line is personally guaranteed by Jim C. Hodge, president and director
of the Company.
The Company's warehouse financing facility requires the Company to comply
with various operating and financial covenants. Two of these covenants
require the Company to maintain a minimum net worth and a maximum debt
leverage ratio. In fiscal 1999, the Company made distributions to its
stockholders in an amount that caused its net worth to fall under the
minimum net worth requirement and also resulted in the Company failing to
comply with the maximum debt leverage ratio for June 30, 1999 and
subsequent months. Subsequent to June 30, 1999 the financial institution
that provides the warehouse financing facility granted the Company
forbearance on such covenant violations, but also reduced the warehouse
financing facility from a maximum of $23 million to $16 million and
required the Company to meet the net worth requirements by November 30,
1999 and maintain a maximum debt to equity ratio of 20 to 1. The
completion of the proposed initial public offering (see note 1) will
provide the Company with sufficient capital to meet the net worth
requirements of the warehouse financing facility lender. If this offering
is not completed by November 30, 1999, and the net worth requirement has
not been met, the Company will seek to raise the necessary capital
through other means including the sale of stock to the existing
stockholders.
(Continued)
F-11
<PAGE> 85
ALLIED MORTGAGE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1999 and 1998
(9) YEAR 2000 (UNAUDITED)
As with all financial service businesses, the Company's operations depend
almost entirely on computer systems.
Some 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 miscalculation.
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, at the corporate
office, are currently Year 2000 compliant on a stand-alone basis. The
branch offices are in the process of obtaining third- party certification
of the Year 2000 compliance of all software and hardware at those
locations. The Company anticipates that it will complete this process by
November 30, 1999. The Company has internally developed a variety of
software programs that run its website, including Allied Web Wizard.
Although such software was designed to be Year 2000 compliant, the
Company has not completed the Year 2000 testing of the software. The
Company anticipates that it will complete this testing by October 31,
1999. 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 its facilities. The
Company has requested and received compliance certificates from
substantially all of these vendors to certify their Year 2000 readiness.
The operations of a few of the Company's business partners and suppliers
may be affected by Year 2000 complications. The failure of these
organizations to ensure that their systems are Year 2000 compliant could
have an adverse effect on the Company's business results of operations,
and financial condition.
The potential worst case scenario includes, but is not limited to, the
possibility that some branch offices are unable to process information;
the communications are interrupted between the branch locations,
corporate office and outside third parties; delays in processing
information that is dependent on third-party systems; financial losses
associated with delays in closing loans; and the failure of
infrastructure services provided by third parties, such as internet
service providers and public utilities organizations.
The Company has not incurred significant costs to date concerning its
Year 2000 efforts, and it does not believe that it will incur significant
costs for such purposes in the foreseeable future. If the Company
discovers any unexpected Year 2000 errors or defects in its internal
systems, it could incur substantial costs in making repairs.
F-12
<PAGE> 86
NO DEALER, SALES PERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN GIVEN OR
MADE BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR THE SOLICITATION OF ANY OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON TO WHOM, OR IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.............................................................
Prospectus Summary................................................................. 1
Selected Financial Data............................................................ 3
Risk Factors....................................................................... 4
Reorganization and Termination of S Corporation Status............................. 19
Capitalization..................................................................... 20
Use of Proceeds.................................................................... 20
Dividend Policy.................................................................... 21
Market for Common Stock............................................................ 22
Dilution........................................................................... 22
Management's Discussion and Analysis of Results of Operations and Financial
Condition................................................................. 24
The Company and its Business....................................................... 32
Legal Proceedings.................................................................. 48
Management......................................................................... 50
Description of Securities.......................................................... 55
Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions............................................................... 57
Shares Eligible for Future Sale.................................................... 61
Plan of Distribution............................................................... 62
Principal Stockholders............................................................. 67
Legal Matters...................................................................... 67
Experts............................................................................ 67
Index to Financial Statements ..................................................... 68
</TABLE>
<PAGE> 87
UNTIL _________________, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR SOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,400,000 SHARES
OF
COMMON STOCK
ALLQUEST.COM CORPORATION
----------------
PROSPECTUS
----------------
CHOICE INVESTMENTS, INC.
, 1999
------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eleventh of the Company's Certificate of Incorporation provides
for indemnification of directors and officers of the Company against any and all
liabilities, judgments, fines and reasonable settlements, costs, expenses and
attorneys' fees incurred in any actual, threatened or potential proceeding,
except to the extent that such indemnification is limited by Delaware law and
such law cannot be varied by contract or bylaw. Article Eleventh also provides
for the authority to purchase insurance with respect thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Company by a majority vote of a quorum
consisting of directors not at the time parties to such proceeding; or (ii) if
such a quorum cannot be obtained or the quorum so directs, then by independent
legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
<PAGE> 89
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by
the Registrant in connection with the issuance and distribution of the
securities being registered hereby other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
SEC registration fee $ 3,099
NASD filing fee 1,340
NASDAQ listing fees 5,000
Accounting fees and expenses 40,000
Legal fees 145,000
Blue sky fees and expenses 40,000
Underwriter's expenses including
counsel fees and expenses* 35,000
Cost of printing and engraving 15,000
Escrow Agent Fee 5,000
Transfer Agent Fees 1,000
Miscellaneous 4,561
----------
Total $ 295,000
</TABLE>
*Excludes Underwriter's Advisory Fee of $25,000, commissions and the value of
the warrants to be issued.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company is newly incorporated, solely for the purposes of acting as
the holding company of Allied Mortgage Capital Corporation ("Allied") pursuant
to a Plan and Agreement of Reorganization (filed as Exhibit 2 herein). Effective
on the closing of this offering, the Company will issue 4,000,000 shares of its
Common Stock to Kathy Hodge and Jamey Hodge in exchange for 1,000 shares of
Allied pursuant to a Plan and Agreement of Reorganization between the Company
and those existing stockholders of Allied. As a result of that exchange, Allied
will be the wholly owned subsidiary of the Company. The Company relied on Rule
147 (intrastate exemption) and Section 3(a)(11) in the exchange of securities
without first registering them under the Securities Act of 1933.
<PAGE> 90
ITEM 27. EXHIBITS
1. Form of Agency Agreement
2. Plan and Agreement of Reorganization
3.1 Certificate of Incorporation of AllQuest.com Corporation
3.2 Bylaws of AllQuest.com Corporation
5. Opinion regarding Legality
10.1 Coastal Banc Revolving Credit Note
10.2 Coastal Banc Loan Agreement
10.3 Guaranty Agreement
10.4.a Coastal Banc Modification Agreement dated September, 1999
10.4.b Coastal Banc Modification Agreement dated June 1, 1999
10.4.c Coastal Banc Modification Agreement dated October 16, 1998
10.4.d Coastal Banc Modification Agreement dated May 28, 1998
10.4.e Coastal Banc Modification Agreement dated April 2, 1998
10.4.f Coastal Banc Modification Agreement dated February 1, 1998
10.4.g Coastal Banc Modification Agreement dated January 8, 1998
10.4.h Coastal Banc Modification Agreement dated October 31, 1997
10.4.i Coastal Banc Modification Agreement dated September 8, 1997
10.4.j Coastal Banc Modification Agreement dated May 30, 1997
10.4.k Coastal Banc Modification Agreement dated February 18, 1997
10.5 LendingTree, Inc. Internet Marketing Service Agreement
10.6 Intuit Mortgage Marketspace Agreement
10.7 Commercial Lease Between Mercantile Investment Corp. and
Allied Mortgage Capital Corporation
10.8 Subscription Escrow Agreement
10.9 General Warranty Deed
11. Statement Regarding Computation of Earnings per Share*
21. Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Selman & Munson, P.C.
27. Financial Data Schedule*
99.1 Marketing Materials
99.2 Sales Presentation Materials
*To be filed by amendment.
<PAGE> 91
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which offers or sells securities, a
post-effective amendment to the Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) (ss.230.424(b) of this chapter) if, in
the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
the time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
<PAGE> 92
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(b) under the Act
shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purposes of determining any liability under the Act,
each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
<PAGE> 93
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS ON THIS 28th DAY OF September,
1999.
ALLQUEST.COM CORPORATION
By: /s/ JIM C. HODGE
---------------------------------------
Jim C. Hodge, President
By: /s/ MICHAEL V. REA
---------------------------------------
Michael V. Rea, Vice President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jim C. Hodge as his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact or agent or substitute may
lawfully do or cause to be done by virtue hereof.
<PAGE> 94
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE CAPACITIES
AND ON THE DATE STATED ABOVE:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President, Chairman of the Board, Chief
/s/ JIM C. HODGE Executive Officer and Director (Principal September 28, 1999
- ------------------------------------ Executive Officer) ------------------
Jim C. Hodge
/s/ DON PARKER September 28, 1999
- ------------------------------------ Director ------------------
Don Parker
/s/ DAVID KLEIN September 28, 1999
- ------------------------------------ Director ------------------
David Klein
/s/ DON J. STROUSE September 28, 1999
- ------------------------------------ Executive Vice President and Director ------------------
Don J. Strouse
/s/ JAMEY J. HODGE September 28, 1999
- ------------------------------------ Senior Vice President and Director ------------------
Jamey J. Hodge
</TABLE>
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1. Form of Agency Agreement
2. Plan and Agreement of Reorganization
3.1 Certificate of Incorporation of AllQuest.com Corporation
3.2 Bylaws of AllQuest.com Corporation
5. Opinion regarding Legality
10.1 Coastal Banc Revolving Credit Note
10.2 Coastal Banc Loan Agreement
10.3 Guaranty Agreement
10.4.a Coastal Banc Modification Agreement dated September, 1999
10.4.b Coastal Banc Modification Agreement dated June 1, 1999
10.4.c Coastal Banc Modification Agreement dated October 16, 1998
10.4.d Coastal Banc Modification Agreement dated May 28, 1998
10.4.e Coastal Banc Modification Agreement dated April 2, 1998
10.4.f Coastal Banc Modification Agreement dated February 1, 1998
10.4.g Coastal Banc Modification Agreement dated January 8, 1998
10.4.h Coastal Banc Modification Agreement dated October 31, 1997
10.4.i Coastal Banc Modification Agreement dated September 8, 1997
10.4.j Coastal Banc Modification Agreement dated May 30, 1997
10.4.k Coastal Banc Modification Agreement dated February 18, 1997
10.5 LendingTree, Inc. Internet Marketing Service Agreement
10.6 Intuit Mortgage Marketspace Agreement
10.7 Commercial Lease Between Mercantile Investment Corp. and
Allied Mortgage Capital Corporation
10.8 Subscription Escrow Agreement
10.9 General Warranty Deed
11. Statement Regarding Computation of Earnings per Share*
21. Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Selman & Munson, P.C.
27. Financial Data Schedule*
99.1 Marketing Materials
99.2 Sales Presentation Materials
</TABLE>
*To be filed by amendment.
<PAGE> 1
EXHIBIT 1
ALLQUEST.COM CORPORATION
(Holding Company for Allied Mortgage Capital Corporation)
1,400,000 Shares
Common Stock
(par value $.01 per share)
AGENCY AGREEMENT
October ___, 1999
Choice Investments, Inc.
5900 Balcones Drive, Suite 110
Austin, Texas 78731
Gentlemen:
Allquest.com Corporation, a Delaware corporation (the "Company") hereby
confirms its agreement with Choice Investments ("Choice" or the "Agent" or
"you") as follows:
Section 1. The Offering. The Company is offering up to 1,400,000 shares
of its Common Stock, no par value per share (the "Shares"), in an offering (the
"Offering") first to the employees, officers and directors of the Company and
its subsidiaries (the "Employees") and then to the general public. In accordance
with the Plan and Agreement of Reorganization, there will be 4,000,000 shares of
Common Stock outstanding prior to the Offering, and there is no active public
market in the Common Stock. The shares of Common Stock are to be offered at the
price per share (the "Purchase Price") set forth on the cover page of the
Prospectus (as hereinafter defined). The Purchase Price may be changed by the
Company after consultation with, and the consent of, the Agent, subject to such
declaration of effectiveness of an amendment to the Prospectus by the Securities
and Exchange Commission (the "SEC") as may be required. The Offering will
commence on October __, 1999, and subscriptions from the Employees will be
accepted until 4:00 p.m. C.S.T. on October 29, 1999 and subscriptions from the
general public will be accepted until 4:00 p.m., C.S.T., on November 12, 1999,
subject to the Company's right to extend the subscription period until March 15,
2000, or terminate the Offering prior to November 12, 1999, upon the sale of at
least 1,000,000 shares (the "Expiration Date"). All purchases in the Offering
will be subject to certain minimum and maximum purchase limitations and other
terms and conditions, including the right of the Company, in its sole
discretion, to reject orders in whole or in part.
1
<PAGE> 2
Subject to the foregoing and the non-transferable priority right of the
Employees to subscribe for Common Stock prior to October 29, 1999, Choice shall
have the right, in its sole discretion, to permit investors to submit
irrevocable orders together with legally binding commitments for payment for
Shares for which they subscribe at any time prior to the Expiration Date.
Persons may subscribe for the Shares offered by completing, signing and
delivering or mailing a subscription order form, substantially in the form
attached as an exhibit to the Registration Statement (as defined hereinafter)
together with payment in full for the number of Shares for which such person is
subscribing by cashier's check, draft or wire transfer, payable in next day
funds to Choice. All subscription funds will be deposited into a separate,
interest-bearing account (the "Escrow Account") with Compass Bank, N.A. (the
"Escrow Agent") until the Closing Date or termination of the Offering. No funds
deposited into the Escrow Account(s) shall be released or disbursed to the
Company until all of the conditions set forth in Section 9 of this Agreement
shall have been fulfilled to the satisfaction of the Agent and its counsel. In
accordance with Rule 15(c) of the Securities Exchange Act of 1934, as amended,
any funds received by the Agent as payment for the Shares will be forwarded to
the Escrow Agent by noon of the day following receipt. The Company, the Agent
and the Escrow Agent will, prior to the beginning of the offering of the Shares,
enter into a subscription escrow agreement in a form satisfactory to the
parties. The parties mutually agree to faithfully perform their obligations
under the subscription escrow agreement. The Company and Agent hereby
acknowledge and agree that only personnel employed by the Agent, and such other
personnel as are assigned for specific purposes or services contemplated by this
Agreement to be performed by the Agent, will be involved in providing the
services described herein.
Concurrently with, or as soon as practicable after the execution of the
Agreement, the Company will deliver to Choice copies of the Prospectus to be
used in the Offering. Concurrently with or as soon as practicable after the
execution of the Agreement, but in any event prior to the commencement of the
Offering, the Company will cause to be delivered to Choice a Blue Sky Survey
setting forth the jurisdictions in which the Shares may be offered and sold and
the number of Shares that may be offered and sold in each such jurisdiction.
The Company agrees and acknowledges that the Agent may utilize its broker
network in the Offering to distribute the Shares, on a "best efforts" basis, and
other broker/dealers which are members of the National Association of Securities
Dealers, Inc. (the "NASD") pursuant to the terms and conditions of a Selected
Dealers' Agreement between the Agent and such broker/dealers, the form of which
is attached hereto as Exhibit "A". The Agent hereby agrees that prior to
utilizing its other broker/dealers, the Agent will consult with the Company
regarding its determination and will not take any action in this regard which is
not approved in writing by the Company.
The Company has filed with the SEC a registration statement on Form
SB-2 (File No. _________) containing a prospectus relating to the Offering for
the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof and such amended prospectuses as
may have been required to the date hereof. Such Registration Statement,
including any documents incorporated by reference therein and all financial
schedules and exhibits thereto, as amended, including post-effective amendments,
is herein called the
2
<PAGE> 3
"Registration Statement." The prospectus, as amended, on file with the SEC at
the time the Registration Statement initially became effective is hereinafter
called the "Prospectus," except that if any prospectus is filed by the Company
pursuant to Rule 430A or Rule 424(b) or (c) of the rules and regulations of the
SEC under the 1933 Act (the "1933 Act Regulations") differing from the
prospectus on file at the time the Registration Statement initially becomes
effective, the term "Prospectus" shall refer to the prospectus filed pursuant to
Rule 430A or Rule 424(b) or (c) from and after the time said prospectus is filed
with the SEC.
Section 2. Appointment of the Agent. Subject to the terms and
conditions of this Agreement, the Company hereby appoints Choice as its
marketing agent, to utilize its best efforts to (i) assist the Company in
establishing the transaction structure, reviewing the Prospectus, and preparing
marketing materials in connection with the Offering; (ii) assist the Company in
preparing applications to regulatory agencies and participate with the Company
in discussions and negotiations with regulatory agencies; (iii) as financial
advisor and marketing agent, manage the placement of the Company's Common Stock
pursuant to the Offering; (iv) to the extent necessary, respond to non-routine
questions of a financial or investment nature; and (v) solicit subscriptions for
the Shares and advise the Company in connection with the Offering. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, Choice accepts such appointment
and agrees to consult with and advise the Company as to the matters set forth
herein and in the letter agreement ("Letter Agreement"), dated January 6, 1999,
between the Company and Choice , a copy of which is attached hereto as Exhibit
"B". The Agent agrees to use its best efforts, as agent for the Company, to sell
the shares subject to the terms and conditions set forth in this Agreement. It
is acknowledged by the Company that Choice shall not be required to purchase any
Shares and shall not be obligated to take any action which is inconsistent with
applicable laws, regulations, decisions or orders.
The obligations of the Agent pursuant to this Agreement shall terminate
upon the completion or termination or abandonment of the Offering, but in no
event later than December 31, 1999 (the "End Date"). All fees or expenses due to
the Agent but unpaid will be payable to the Agent in next day funds at the
earlier of the Closing Date (as hereinafter defined) or the End Date. In the
event the Offering is extended beyond the End Date, the Company and the Agent
may mutually agree to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of 1,000,000
Shares within the period herein provided, this Agreement shall terminate, and
the Company shall refund to any persons who have subscribed for any of the
shares of Common Stock the full amount which it may have received from them plus
accrued interest as set forth in the Prospectus; and none of the parties to this
Agreement shall have any obligation to the other parties hereunder, except as
set forth in this Section 2 and in Sections 3, 10, 11, 12, 20, 25 and 27 hereof.
In the event of over-subscription in the Offering, the Shares will be allocated
by the Agent in accordance with the terms of the Prospectus.
In the event the Offering is terminated for any reason not attributable
to the action or inaction of Choice, the Agent shall be paid the fees due to the
date of such termination, abandonment or amendment pursuant to Section 3(a)
below and reimbursement for reasonable
3
<PAGE> 4
legal fees and out-of-pocket expenses incurred in connection with the provision
of services contemplated by this Agreement upon such termination, abandonment or
amendment within five days of such event.
Section 3. Fees. In addition to the expenses specified in Sections 7
and 8 hereof, as compensation for the Agent's services under this Agreement, the
Company will pay the following fees and provide the following warrants to the
Agent:
(a) A non-refundable initial financial advisory fee of $25,000
payable in two installments: the first installment of $15,000 was paid on the
execution of the Letter Agreement and the second installment of $10,000 is
payable upon the distribution of the Prospectuses.
(b) A commission equal to 6% of the aggregate actual purchase
price of the securities sold in the Offering. In the event that a syndicate of
selected broker-dealers are used to assist in the Offering, the Agent will
allocate to such selected broker-dealers who assist in the Offering an amount
competitive with gross underwriting discounts charged at such time for
comparable amounts of stock sold at a comparable price per share in a similar
market environment. Fees with respect to purchases affected through selected
broker-dealers other than the Agent shall be transmitted by the Agent to such
selected broker-dealer. The decision to utilize selected broker-dealers will be
made by the Company with consent of the Agent.
(c) Subject to the sale of 1,000,000 shares of the Common
Stock in connection with the Offering, upon termination of the Offering, the
Company will sell to Choice Common Stock Purchase Warrants (the "Warrants"), for
a purchase price of $.01 per Warrant Share (the "Warrant Shares"), entitling
Choice to purchase one share of the Company's Common Stock for each ten shares
of the Company's Common Stock sold in the Offering. The Warrants shall be
non-exercisable for a period of 12 months following the date of the Prospectus.
However, if the Company merges or reorganizes in such a way as to terminate the
Warrants, the Warrants may be exercised immediately prior to such action. Also,
the Warrants will contain proportionate adjustment provisions for splits,
dividends, recapitalizations and distributions of the Company's Common Stock.
The Warrants will be exercisable for a period of four years, such period to
commence 12 months after the date of the Prospectus used in this Offering and if
the Warrants are not exercised during the term, they shall by their terms
automatically expire. The exercise price of the Warrants shall be 120% of the
Actual Purchase Price. The Company will set aside and at all times have
available a sufficient number of shares of its Common Stock to be issued upon
the exercise of the Warrants to be sold to Choice. The Warrants will not be
transferable to anyone for a period of 12 months after the date of the
Prospectus.
Section 4. Closing. If at least the minimum number of Shares required
to be sold in the Offering are subscribed for at the completion of the Offering,
the Company agrees on the Closing Date to issue the Shares which have been
subscribed for against payment therefor from the aforesaid Escrow Account
maintained for the benefit of the subscribers with the Escrow Agent and to
deliver certificates evidencing ownership of such Shares in such authorized
denominations and registered in such names as indicated on the Stock Order Forms
directly to the purchasers thereof as promptly as practicable after the Closing
Date. In addition, a closing shall be held at the offices
4
<PAGE> 5
of Selman & Munson, P.C., or at such other place as shall be agreed upon between
the Company and the Agent, as of the close of business on a business day to be
selected by the Agent, which business day shall be no less than two business
days following the giving of prior notice to the Company and no more than five
business days after the Shares have been sold or at such other time as shall be
agreed upon between the Company and the Agent. The Company shall notify the
Agent by telephone, confirmed in writing, when funds shall have been received
for all Shares. At the closing, the Company shall deliver to the Agent in next
day funds the commissions, fees and expenses due and owing to the Agent as set
forth in Sections 3, 9 and 10 hereof, and the Warrants and certificates required
hereby and other documents deemed reasonably necessary by the Agent shall be
executed and delivered to effect the sale of the Shares as contemplated hereby
and pursuant to the terms of the Prospectus. The hour and date upon which the
Company shall release for delivery all Shares, in accordance with the terms
hereof, are referred to herein as the "Closing Date."
Section 5. Representations and Warranties of Company. In order to
induce the Agent to enter into this Agreement, the Company represents and
warrants to, and agrees with, the Agent that:
(a) The Company has all such power, authority, authorizations,
approvals and orders as may be required to enter into this Agreement, to carry
out the provisions and conditions hereof and to issue and sell the Shares as
provided herein and as described in the Prospectus. The consummation of the
Offering, the execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated have been duly and validly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and is legal,
valid and binding on it, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights and to general equity principles, and except as the
obligations of the Company under the indemnification and contribution provisions
hereof may be limited by public policy under certain circumstances.
(b) A Registration Statement on Form SB-2 (Registration No.
___________) with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Act and the SEC Rules and Regulations,
has been filed with the SEC and has been declared effective by the SEC. At the
time the Registration Statement became effective, and at all times subsequent
thereto up to the Closing Date, the Registration Statement and the Prospectus,
including any amendments or supplements thereto, contained and will contain all
statements that are required to be stated therein in accordance with the Act and
the SEC Rules and Regulations and conformed and will conform in all material
respects to the requirements of the Act and the SEC Rules and Regulations. The
Registration Statement, the Prospectus, any Blue Sky Application or any Sales
Information (as such term is defined in Section 10 hereof), including any
amendments or supplements thereto, did not contain or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this subsection
shall apply to
5
<PAGE> 6
statements in or omissions from any preliminary Prospectus, the Prospectus, the
Registration Statement or any conformity or supplement made in reliance upon and
in conformity with information made in reliance upon and in conformity with
information furnished to the Company in writing by the Agent expressly for use
therein. Without limiting the generality of the foregoing, all fees, whether of
finder's, originators, underwriters or otherwise required to be disclosed in the
Prospectus have been disclosed; all legal or governmental proceedings pending or
threatened involving the Company and required to be disclosed in the Prospectus
have been disclosed; and all contracts, agreements or other documents of a
character required to be described or referred to therein have been disclosed in
the Prospectus. All contracts, agreements and other documents described or
referred to in the Prospectus, to which the Company is a party, or by which it
or its properties are bound or committed are, unless otherwise disclosed
therein, in full force and effect; the descriptions thereof or references
thereto are correct in all material respects; and no default exists in the due
performance or observance of any obligations, agreements or other document so
described or referred to therein, unless otherwise disclosed therein. As of the
Closing Date, the Company will have satisfied the conditions precedent to their
consummation of the Offering in accordance with all applicable laws,
regulations, decisions and orders.
(c) Neither the SEC nor any state authority nor any court or
other governmental agency or body has, by order or otherwise, prevented or
suspended the use of the Prospectus or the offer or sale of the Shares, or to
the best knowledge of the Company, is any such action threatened.
(d) KPMG, LLP, which has expressed its opinion with respect to
certain of the financial statements and schedules filed as part of the
Prospectus and included in the Registration Statement, is, with respect to the
Company's subsidiary, Allied Mortgage Capital Corporation ("Allied"), an
independent certified public accountant within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
(e) The financial statements and schedule(s) of Allied and
notes related thereto included in the Registration Statement and which are part
of the Prospectus present fairly the financial condition of Allied as of the
dates indicated and the results of their operations for the periods specified
and comply as to form in all material respects with the applicable accounting
requirements. Such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis during
the periods involved. The tables and any other financial and numerical data in
the Prospectus fairly present in all material respects the information purported
to be shown thereby at the respective dates thereof and for the respective
periods covered thereby and were prepared on a basis consistent with the audited
financial statements of Allied.
(f) Since the respective dates as of which information is
given in the Prospectus, except as may otherwise be stated therein, (i) there
has not been any material adverse change in the condition of the Company or
Allied, financial or otherwise, or in the results of operations, earnings,
affairs or business prospects of the Company or Allied, whether or not arising
from transactions in the ordinary course of business; (ii) there have not been
any material transactions entered into by the Company or Allied, other than
those in the ordinary course of
6
<PAGE> 7
business; (iii) there has not been any material increase in the long-term debt
of the Company or Allied; (iv) there has not been any material adverse change in
the aggregate dollar amount of the Company's or Allied's surplus or reserves;
(v) there has been no material adverse change in the Company's or Allied's
relationship with its insurance carriers; (vi) there has been no material change
in management of the Company or Allied; and (vii) there has been no material
increase in the Company's or Allied's liability for borrowed money.
(g) The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own its properties and conduct its business as
described in the Prospectus. The Company has obtained all licenses, permits and
other governmental authorizations currently required for the conduct of its
business, except where the failure to do so would not individually or in the
aggregate have a material adverse effect on the business, prospects, results of
operation or general affairs of the Company; all such licenses, permits and
other governmental authorizations are in full force and effect, and the Company
is in all material respects complying therewith. The Company is not required to
qualify as a foreign corporation in any other jurisdiction in which the failure
to qualify would have a material adverse impact on the conduct of the Company's
business as described in the Prospectus.
(h) The authorized, issued and outstanding equity capital of
the Company is as set forth in the Prospectus under the caption
"Capitalization"; no shares of Common Stock or Preferred Stock or other equity
securities have been or will be issued and outstanding prior to the Closing
Date; the Shares offered in the Offering have been duly and validly authorized
for issuance and, when issued and delivered by the Company pursuant to the terms
in the Prospectus against payment of the consideration as set forth in the
Prospectus, will be duly and validly issued and fully paid and nonassessable;
and the Common Stock conforms to the description thereof contained in the
Prospectus. There are no pre-emptive rights or other rights to subscribe for or
to purchase, or, except as set forth in the Articles of Incorporation and Bylaws
of the Company, any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's Articles of Incorporation, Bylaws or
other governing documents or any agreement or other instrument to which the
Company is a party or by which it is bound. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
The certificates used to evidence the Shares are in due and proper form.
(i) The Company has three subsidiaries, including Allied. Upon
the Closing, the Company will own, directly or indirectly, all of the issued and
outstanding capital stock of the Subsidiaries, free and clear of any lien,
charge or encumbrance and there are no outstanding warrants, rights or options
to acquire or instruments convertible into, or exchangeable for any shares of
capital stock or other equity interest in Allied.
(j) The Company is not in violation of its Articles of
Incorporation, Bylaws or other corporate governing documents. The Company is not
in violation of or in default, and no event has occurred which with notice of
lapse of time, or both, would constitute default on the part
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<PAGE> 8
of the Company in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, lease, loan agreement,
mortgage, note, indenture or other material instrument to which it is a party or
by which it or its assets are bound, which default in any individual case or in
the aggregate would have a material adverse effect on the business, prospects,
general affairs, operations or financial condition of the Company, and the
execution and delivery of this Agreement, the incurrence of the obligations
herein set forth and the consummation of the transactions herein contemplated
will not conflict with or constitute a breach of, or default under, or result in
the creation of any material lien, charge or encumbrance upon any of the assets
of the Company pursuant to the Articles of Incorporation or Bylaws of the
Company or any material obligation, agreement, contract, franchise, license,
lease, indenture, note, mortgage loan agreement or other material instrument to
which it is a party or in which it has a beneficial interest in, or by which it
may be bound, or materially violate or conflict with any law, administrative
regulation or administrative or court decree. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except such as has been obtained and except for approval of the SEC,
compliance with the Act, the state securities laws ("Blue Sky Laws") applicable
to the Offering of the Shares and the clearance of such offering with the NASD
and the National Association of Securities Dealers Automated Quotation System
("NASDAQ").
(k) The Company and Allied each have good and marketable title
to all its properties and assets material to its business and to those
properties and assets described in the Prospectus as owned by it, free and clear
of all liens, charges, encumbrances or restrictions, except such as are
described in the Prospectus or are individually or in the aggregate are not
materially significant or important in relation to the business of the Company;
and all of the leases and subleases material to the business of Allied under
which Allied holds properties, including those described in the Prospectus, are
valid and binding leases and subleases in full force and effect.
(l) The Company is not subject to nor in violation of any
directive from the State of Delaware or any other governmental authority to make
any material change in the method of conducting its business or affairs; the
Company has conducted and is conducting its business to comply in all material
respects with all applicable statutes and regulations and, except as set forth
in the Prospectus, there is, to the knowledge of the Company, no charge,
investigation, action, suit or proceeding before or by any court, regulatory
authority or governmental agency or body pending or threatened which may
materially and adversely affect the performance of this Agreement or the
consummation of the transactions herein contemplated or which may result in any
material adverse change in the condition (financial or otherwise), business,
operations general affairs or prospects of the Company, or which would
materially affect any of its properties and assets. The Company is in compliance
in all material respects with the applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, and the rules and regulations thereunder.
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<PAGE> 9
(m) The Warrants (as defined in paragraph 3 hereof) and
Warrant Shares (as defined in paragraph 3 hereof) have been duly and validly
authorized and, when issued and delivered against payment as provided in this
Agreement, will be validly issued, fully paid and nonassessable. The Warrant
Shares, upon issuance, will not be subject to the preemptive rights of any
shareholders of the Company. The Warrants, when sold and delivered, will
constitute valid and binding obligations of the Company enforceable in
accordance with their terms. A sufficient number of shares of Common Stock have
been reserved for issuance upon exercise of the Warrants. The Warrant Shares and
Warrants will conform to all statements in the Registration Statement and
Prospectus. Upon delivery of and payment for the Warrants to be sold by the
Company as set forth in this Agreement, the Agent and its designees will receive
good and marketable title thereto, free and clear of all liens, encumbrances,
charges and claims except those created by, through or under the Agent and
except restrictions on transfer arising under federal and state securities laws
and their rules and regulations. The Company will have on the Closing Date and
at the time of delivery of such Warrants full legal right and power and all
authorization and approval required by law to sell, transfer and deliver such
Warrants in the manner provided hereunder.
(n) All documents delivered or to be delivered by the Company
or their representatives in connection with the issuance and sale of the Shares
or in connection with the Agent's exercise of due diligence, except for those
documents which were prepared by parties other than the Company or its
representatives, to the knowledge of the Company, were on the dates on which
they were delivered, or will be on the dates on which they are to be delivered,
true, complete and correct in all material respects.
(o) The Company and Allied have each filed all required
federal, state and foreign income, sales and franchise tax returns and has paid
all taxes shown as due and payable thereon except where permitted to be
extended; neither the Company nor Allied have any knowledge of any tax
deficiency which has been asserted or threatened against the Company or Allied
which could materially and adversely affect the business or operations or
properties of the Company.
(p) Appropriate arrangements have been made for placing the
funds received from subscriptions for shares in special interest-bearing
accounts with the Escrow Agent until all shares are sold and paid for, with
provision for refund to the purchasers in the event that the closing of the
Shares is not completed for whatever reason or for delivery to the Company if
all Shares are sold.
(q) The Company has complied or will comply in all material
respects with each and every undertaking or commitment made by them under the
Blue Sky Laws, including, without limitation, each and every undertaking or
commitment made in connection with the Offering. The Company has obtained a
CUSIP number for its Common Stock and the Company has used its best efforts to
qualify the Shares for offering in every state reasonably designated by the
Agent. The materials previously filed or filed after the date hereof with any
state do not and will not contain any untrue statements of material fact nor are
there or will there be any omissions
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<PAGE> 10
of material facts required to be stated therein or that are necessary to make
the statements therein not misleading.
(r) No relationship, direct or indirect, exists between the
Company, on the one hand, and the directors or officers of the Company, on the
other hand, which is required to be described in the Prospectus and which is not
so described.
(s) The Company has not: (i) placed any securities within the
last 18 months; (ii) had any material dealings with any member of the NASD or
any person related to or associated with such member, other than discussions and
meetings relating to the proposed Offering and routine purchases and sales of
U.S. Government and agency securities and other assets; (iii) entered into a
financial or management consulting agreement except as contemplated hereunder
and except for the engagement letter with the Agent attached hereto as Exhibit
"B"; or (iv) engaged any intermediary between the Agent and the Company in
connection with the offering of Common Stock, and no person is being compensated
in any manner for such service.
Any certificate signed by any officers of the Company and delivered to
the Agent or to the Agent's counsel shall be deemed a representation and
warranty of the Company to the Agent as to the matters covered thereby. Any
certificate delivered by the Company to their counsel for purposes of enabling
such counsel to render the opinions referred to in Section 9(e) will also be
furnished to the Agent and its counsel and shall be deemed to be additional
representations and warranties by the Company to the Agent as to the matters
covered thereby and the Agent and its counsel are entitled to rely thereon.
Section 6. Representations and Warranties of Choice.
(a) Choice is a corporation established in 1983 and is validly
existing in good standing under the laws of the State of Texas with full power
and authority to provide the services to be furnished to the Company hereunder.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of Choice, and this Agreement has
been duly and validly executed and delivered by Choice and is a legal, valid and
binding agreement of Choice, enforceable in accordance with its terms except as
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors, or by general equity
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
(c) Each of Choice and its employees, agents and
representatives who shall perform any of the services hereunder shall be duly
authorized and empowered, and shall have all licenses, approvals and permits
necessary to perform such services.
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<PAGE> 11
(d) The execution and delivery of this Agreement by Choice,
the consummation of the transactions contemplated hereby and compliance with the
terms and provisions hereof will not conflict with, or result in a breach of,
any of the terms, provisions or conditions of, or constitute a default (or an
event which with notice or lapse of time or both would constitute a default)
under, the articles of incorporation of Choice or any material agreement,
indenture or other instrument to which Choice is a party or by which it or its
property is bound.
(e) No approval of any regulatory or supervisory or other
public authority is required in connection with Choice's execution and delivery
of this Agreement or the performance of its terms, except as may have been
received.
(f) There is no suit or proceeding or charge or action before
or by any court, regulatory authority or government agency or body or, to the
knowledge of Choice, pending or threatened, which might materially adversely
affect Choice's performance of this Agreement.
Section 7. Agreements of the Company. The Company hereby agrees with
the Agent that:
(a) The Company will use its best efforts to cause the
Registration Statement to be declared effective by the SEC. The Company will
notify the Agent immediately and confirm the notice in writing thereto (i) of
any request by or the receipt of any comments from the SEC with respect to the
transactions contemplated by this Agreement; (ii) of any request by or any
comments or other communications received from the SEC and any request by the
SEC for any amendment or supplement to the Registration Statement or the
Prospectus, or for additional information with respect to the transactions
contemplated therein or by the Offering; and (iii) of the issuance by the SEC or
any court or governmental agency or body of any stop order or other order
suspending or enjoining the effectiveness or approval of the Registration
Statement, the Prospectus or the Offering or of the institution of any
proceedings for that purpose or of any notification of the suspension of
qualification of the Shares in any jurisdiction or the initiation or threatening
of any proceeding for that purpose or the threat of any such action. The Company
will make every reasonable effort to prevent the issuance by the SEC and any
court or governmental agency or body of any stop order or other such order, or
request for amendment or additional information or the commencement of any
proceeding and, if any such order, request or proceeding shall at any time be
issued or commenced, to obtain the lifting thereof, to respond thereto or to
obtain the termination thereof at the earliest possible moment.
(b) The Company will deliver to the Agent, without charge,
from time to time such number of copies of the Prospectus and related documents
(as amended or supplemented), as the Agent may reasonably request. The Company
authorizes the Agent, subject to all requirements of applicable law, to use the
Prospectus (as the same may be amended or supplemented) in connection with the
sale of the Shares.
(c) The Company will deliver to the Agent at least two
complete copies (including exhibits) of its Registration Statement on Form SB-2
as originally filed with the SEC and of each amendment thereto.
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<PAGE> 12
(d) The Company will comply, at its own expense, with all
requirements imposed upon it by the SEC and by the Act, the Exchange Act and the
SEC Rules and Regulations, including, without limitation, Rules 10b-5 and 10b-6
under the Exchange Act, in each case as from time to time in effect, so far as
necessary to permit the continuance of offers, sales or dealings in Shares
during such period in accordance with the provisions hereof and the Prospectus.
(e) If, at any time during the period when the Prospectus is
required by law to be delivered, any event occurs as a result of which, in the
opinion of counsel to the Company or the Agent, the Prospectus, including any
amendments or supplements, would contain an untrue statement of a material fact,
or would omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary in the opinion
of counsel to the Company or the Agent at any time to amend or supplement the
Prospectus, including any amendments or supplements to comply with the Act and
all other laws, the Company, as appropriate, will promptly advise the Agent
thereof and will promptly prepare and file with the SEC and any other authority
with jurisdiction an amendment or supplement.
(f) The Company will not acquire any shares of Common Stock or
Preferred Stock prior to the Closing Date.
(g) During the period of three years after the date of the
Prospectus, the Company will furnish to the Agent (i) as soon as practicable
after the end of each fiscal year, the annual report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
corresponding statements of income, stockholders' equity and changes in
financial position for the year then ended, such financial statements to be
certified by independent public accountants; (ii) as soon as practicable after
the end of each fiscal quarter (other than the last quarter of each fiscal
year), an unaudited balance sheet and statements of income, stockholders' equity
and changes in financial position of the Company as at the end of and for such
quarter; (iii) as soon as available, a copy of each proxy statement, financial
statement and periodic and special reports of the Company mailed to holders of
any class of its securities registered under Section 12 of the Exchange Act;
(iv) as soon as practicable after the filing thereof, of each report or other
statement or document filed by the Company with the SEC or other regulatory
agency or with any national securities exchange or quotation system on which any
securities of the Company may be listed or quoted; and (v) from time to time,
such other information concerning the Company as the Agent may reasonably
request.
(h) The Company will comply or cause to be complied with the
conditions to the obligations specified in Section 11 hereof.
(i) The Company shall promptly prepare and file with the SEC,
from time to time, such reports as may be required to be filed by the SEC Rules
and Regulations, including, without limitation, reports with respect to the sale
of the Shares and the application of the proceeds thereof as may be required in
accordance with Rule 463 under the Act.
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<PAGE> 13
(j) The Company shall comply in all material respects with the
undertaking given by the Company in connection with the qualification of the
Shares for offering and sale under the Blue Sky Laws.
(k) The Company shall use the net proceeds from the sale of
the Shares in the manner set forth in the Prospectus under the caption "Use of
Proceeds."
(l) The Company will not, for a period of 120 days after the
date hereof, without the prior written consent of the Agent, offer for sale,
sell or issue, contract to sell or otherwise dispose of, any shares of, or any
securities convertible into or exercisable for, issued pursuant to the Offering
or sell or grant any options, rights or warrants with respect to shares of
Common Stock (other than the grant of options pursuant to the Warrants.
(m) Other than as permitted by applicable law, the Company
will not distribute any Prospectus or other offering material in connection with
the subject offering and sale of the Shares.
(n) To the extent required by law or applicable rules and
regulations, the Company will promptly take all steps necessary to register its
class of Common Stock under Section 12(g) of the Exchange Act to ensure that it
maintains the registration of the Common Stock under Section 12(g) of the
Exchange Act. The Company shall maintain the effectiveness of such registration
for not less than five years.
(o) The Company will qualify the Shares under the Blue Sky
Laws of such jurisdictions as the Agent may reasonably request to make such
applications, file such consents to service of process or other documents and
furnish such other information as may be reasonably requested for that purpose
and to comply with such laws so as to permit the continuance of sales and
dealings in which jurisdictions for as long a period as the Agent may reasonably
request. The Company will notify the Agent immediately of, and confirm in
writing, the suspension of qualification of the Shares or the threat of such
action in any jurisdiction. In each jurisdiction where any of the Shares shall
have been qualified as provided above, the Company will make and file such
statements and reports as are required by, or in the future may be required by,
the laws of such jurisdiction.
(p) The Company agrees to cause the stock certificates of all
of the current shareholders of the Company and of any future officers or
directors of the Company to be clearly legended as being restricted against
transfer without compliance with the Act and to cause the Company's transfer
agent to put stop transfer instructions against such stock certificates.
(q) At the Closing Date, the Company will have completed the
Offering in all material respects as described in the Prospectus and in
accordance with all applicable laws, regulations, decisions and orders of the
SEC and state securities authorities.
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<PAGE> 14
(r) The Company will maintain appropriate arrangements with
the Escrow Agent for depositing all funds received from persons mailing
subscriptions for or orders to purchase Shares in the Offering in an account
bearing interest at the rate, if any, described in the Prospectus until the
Closing Date and satisfaction of all conditions precedent to the release of the
Company's obligation to refund payments received from persons subscribing for or
ordering Shares in the Offering as described in the Prospectus or until refunds
of such funds have been made to the persons entitled thereto as described in the
Prospectus.
(s) The Company will use its best efforts to (i) encourage and
assist a market maker to establish and maintain a market for the Shares, and
(ii) obtain approval for and maintain quotation of the shares on the Small-Cap
Market of the NASDAQ system effective on or prior to the Closing Date. The
Company will take such actions and furnish such information as are reasonably
requested by the Agent in order for the Agent to ensure compliance with the NASD
"Interpretation With Respect to Free Riding and Withholding."
(t) The Company will conduct its business in compliance in all
material respects with all applicable federal and state laws, rules,
regulations, decisions, directives and orders, including all decisions,
directives and orders of the SEC.
(u) The Company shall not deliver the Shares until it has
satisfied or caused to be satisfied in all material respects each and every
condition set forth in Section 11 hereof unless such condition is waived in
writing by the Agent.
Section 8. Covenants of Choice. Choice hereby covenants with the
Company as follows:
(a) During the period when the Prospectus is used, Choice will
comply, in all material respects and at its own expense, with all requirements
imposed upon it, to the extent applicable, by the 1933 Act and the 1934 Act and
the rules and regulations promulgated thereunder and state blue sky laws and
regulations applicable to Choice; Choice will distribute the Prospectuses or
offering materials in connection with the sales of the Shares only in accordance
with the 1933 Act and the rules and regulations promulgated thereunder.
(b) Choice shall assist the Escrow Agent in maintaining
arrangements for the deposit of funds and the making of refunds, as appropriate.
Section 9. Payment of Expenses of the Company. Subject to the
provisions of Section 10 below, whether or not the transactions contemplated
hereunder are consummated or this Agreement becomes effective or is terminated
for any reason, the Company will pay all costs and expenses incident to the
performance of its obligations hereunder, including, without limiting the
generality of the foregoing:
(a) All fees and expenses of the accountants and counsel of
the Company, all costs and expenses incurred in connection with the preparation,
printing, filing and distribution, including costs of shipping and mailing, of
the Registration Statement and the Prospectus and all amendments and supplements
thereto and other documents in connection with the transactions
14
<PAGE> 15
contemplated by this Agreement and the Prospectus (including all exhibits and
financial statements) (and all agreements and supplements provided for therein
and in this Agreement and the preliminary and supplemental Blue Sky Memoranda).
(b) All registration fees and expenses, including, without
limitation, legal fees and disbursements of the Company's counsel incurred in
connection with qualifying or registering all or any part of the Shares for
offer and sale under the Blue Sky Laws.
(c) All fees and expenses of the transfer agent and any
special agents appointed for the transfer of the Shares, preparation, printing,
issuance and delivery of the certificates representing Shares, all stock issue
and transfer taxes, if any, with respect to the sale and delivery of the Shares
and all fees of the NASD.
The Company shall reimburse the Agent pursuant to the procedures set
forth in Section 10 for any expense provided in (a) through (c) above which, in
the first instance, was paid by the Agent.
Section 10. Reimbursement of Agent's Expenses. Except for the
reimbursement provided herein, the Agent will pay its own costs and expenses
incurred in connection with the performance of this Agreement and the
transactions contemplated hereunder, including the fees and disbursements of its
counsel, marketing expenses and due diligence expenses. The Company shall
reimburse the Agent for (i) the fees and disbursements of its counsel (up to a
maximum of $25,000.00 for legal fees, including out-of-pocket expenses for
travel and other disbursements of counsel), and (ii) its reasonable expenses in
an amount not to exceed $10,000 (exclusive of legal fees and expenses of Agent's
counsel) which shall be paid within five days of receipt by the Company of an
itemized bill summarizing such expenses since the date of the last bill, if any,
to the date of the current bill. To the extent not previously paid, full payment
of the Agent's expenses shall be made in next day funds on the Closing Date
provided that the Company shall have received an itemized bill summarizing any
unreimbursed expenses at least two days before the Closing Date or on such later
date if the Company shall have received an itemized bill summarizing any
unreimbursed expenses at least two days before such date or, if the Offering is
not completed and is abandoned or terminated for any reason, within five days of
receipt by the Company of a reasonable accounting from the Agent of its
expenses.
The Company may request, and the Agent agrees to provide, copies of
documentary evidence of all expenses of $25.00 or more for which Agent seeks
reimbursement, such as receipts or paid bills, that state information to
establish the amount, date, place and essential character of the expenditure.
Subject to the provisions of this Section 10, in the event the Offering for any
reason is not closed, the Company will reimburse the Agent for its actual
accountable expenses, including reasonable legal fees and expenses.
Section 11. Conditions to the Obligations of the Agent and the Release
of Shares. The issuance and sale of the Shares, the delivery of certificates in
respect thereof, and the obligations of the Agent hereunder shall be subject to
the accuracy in all material respects of the representations and warranties on
the part of the Company herein set forth as of the date hereof
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<PAGE> 16
and as of the Closing Date to the accuracy in all material respects of the
statements of the officers of the Company made pursuant to the provisions hereof
and to the performance in all material respects by the Company's obligations
hereunder.
The issuance and sale of the Shares, the delivery of certificates in
respect thereof, and the obligations of the Agent on the Closing Date shall also
be subject to the following additional conditions (which are solely for the
Agent's benefit), unless waived in writing by the Agent:
(a) The Registration Statement shall have been declared
effective by the SEC; prior to the Closing Date, no stop order or such other
order suspending the offering or the effectiveness of the Registration Statement
or the effectiveness of the Prospectus shall have been issued or proceedings
therefor instituted, initiated or threatened by the SEC or any court or
governmental agency or body and any request of the SEC or any other governmental
agency or body for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with. The NASD, upon review of
the terms of this Agreement, shall not have objected to the Agent's performance
of its obligations hereunder or the terms set forth.
(b) The Agent shall not have advised the Company in writing
that the Registration Statement or the Prospectus or any amendment or supplement
thereto contains an untrue statement of fact, which is material or omits to
state a fact which is material and is required to be stated therein or necessary
to make the statements therein not misleading.
(c) The Agent shall have received on the Closing Date
certificates on behalf of the Company, dated as of the Closing Date, signed by
the chief executive officer and the chief financial officer of the Company, in
form and substance reasonably satisfactory to the Agent's counsel, to the effect
that (i) the signers of each of such certificates have carefully examined the
Registration Statement and the Prospectus and that, in their opinion, at the
time the Registration Statement and the Prospectus became effective, neither the
Registration Statement nor the Prospectus contained any untrue statement of a
material fact or omitted to state any material fact required to or stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; (ii) since the
respective effective or approval dates of the Registration Statement and the
Prospectus, no event has occurred which should have been set forth in an
amendment of or supplement to the Registration Statement or the Prospectus which
has not been so set forth, including specifically, but without limitation, any
material adverse change in the condition, financial or otherwise, or in the
earnings, capital, properties, prospects or affairs of the Company and, the
conditions set forth in this Section 11 have been satisfied; (iii) and to the
further effect that the Company has performed all agreements and has satisfied
all conditions on its part to be performed or satisfied at or prior to the
Closing Date and will comply with all obligations to be satisfied by them after
the Offering; (iv) that all the representations and warranties contained in
Section 5 hereof are true and correct on and as of the Closing Date, with the
same force and effect as though expressly made on the Closing Date; (v) no stop
order suspending the effectiveness of the Registration Statement has been
initiated or threatened by the SEC or any state authority; and (vi) no order
suspending the Offering or the effectiveness of the Prospectus has been issued
and no proceedings for that purpose have been initiated or to the best of their
knowledge threatened by the SEC or any state authority.
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<PAGE> 17
(d) The Shares shall have been qualified or be exempt from
qualification under the Blue Sky Laws of such states as shall have been
identified by the Company. The Company shall have obtained approval for and
shall have in place an arrangement for the quotation of the Shares on the
Small-Cap Market of the NASDAQ system.
(e) The Agent shall have received on the Closing Date an
opinion of Selman & Munson, P.C., counsel for the Company, dated as of the
Closing Date, addressed to the Agent, substantially to the effect as set forth
in Exhibit "C" hereto.
(f) At the time this Agreement is executed and also on the
Closing Date, there shall be delivered to the Agent a letter addressed to the
Agent, from KPMG, LLP, independent accountant, the first one to be dated
___________, 1999, the second one to be dated the Closing Date, substantially
identical in form and substance to the unsigned form of letter heretofore
submitted to and approved by the Agent, and which shall contain information as
of a date within five business days of the date of such letter.
(g) Such further certificates, documents and opinions as the
Agent may reasonably request from the Company (including certificates of
officers of the Company) shall have been furnished by the Company.
(h) The Agent's counsel shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the sale of the Shares as herein contemplated and
related proceedings and in order to evidence the accuracy or completeness of any
of the representations or warranties or the fulfillment of any of the conditions
herein contained; and all proceedings taken by the Company in connection with
the sale of the Shares as herein contemplated shall be reasonably satisfactory
in form and substance to the Agent and its counsel; provided, any objection by
such counsel to the foregoing shall be made by written advice to this effect
from the Agent accompanied by a written opinion of Jack W. Ledbetter &
Associates setting forth such objections.
(i) The representations and warranties of the Company
contained herein shall be true and correct on the date of this Agreement and on
and as of the Closing Date; the Company shall have performed all covenants and
agreements contained herein to be performed on its part at or prior to such
Closing Date.
(j) The Company shall have not have sustained, since the date
of the latest financial statements included in the Registration Statement, any
material loss or interference with its business, or from any labor dispute or
any court or legislative or other governmental action, order or decree, that is
not set forth in the Prospectus. Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall not have been any change in the long-term debt of the Company, or any
change, or any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company, otherwise than as set forth or contemplated in the
Registration Statement and Prospectus, the effect of which, in any such case
17
<PAGE> 18
described above sufficiently material and adverse as to make it impracticable or
inadvisable to proceed with the Offering or the delivery of the Shares on the
terms and in the manner contemplated in the Prospectus.
(k) Prior to and at the Closing Date: (i) there shall have
been no material adverse change in the condition, financial or otherwise, or in
the earnings, the business affairs or business prospects of the Company or
Allied from that as of the latest dates as of which such condition is set forth
in the Prospectus, except as referred to therein; (ii) there shall have been no
material transaction entered into by the Company or Allied from the latest date
as of which the financial condition of the Company is set forth in the
Prospectus other than transactions referred to or contemplated therein; (iii)
neither the Company nor Allied shall have been in default (nor shall an event
have occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of any agreement or instrument relating to any
outstanding indebtedness which default would have a material adverse effect on
the Company; (iv) no action, suit or proceedings, at law or in equity or before
or by any federal or state commission, board or other administrative agency,
shall be pending or, to the knowledge of the Company or Allied, threatened
against the Company or Allied or affecting any of their properties wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, operations, financial condition or income of the Company; and (v)
the Shares shall have been qualified or registered for offering and sale under
the securities or Blue Sky Laws of the jurisdiction as the Company shall have
agreed.
(l) At or prior to the Closing Date, the Agent shall receive
(i) a copy of the order from the SEC declaring the Registration Statement
effective, and (ii) a certificate of good standing from the State of Delaware
evidencing the good standing and existence of the Company.
(m) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) a suspension or limitation in trading in
securities generally on the New York Stock Exchange or American Stock Exchange
or in the over-the-counter market, or quotations halted generally on the NASDAQ
system, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required by either of such exchanges
or the NASD or by order of the SEC or any other governmental authority; or (ii)
the engagement by the United States in hostilities which have resulted in the
declaration, on or after the date hereof, of a national emergency or war if the
effect of any such event specified in this clause (iii) makes it impracticable
or inadvisable to proceed with the Offering or the delivery of the shares on the
terms and in the manner contemplated in the Registration Statement.
(n) On the Effective Date and on the Closing Date, the Agent
shall have received from the Company's legal counsel a Blue Sky Memorandum
setting forth the states in which the Shares may be sold and the number of
Shares that may be sold in each such state.
If any of the material conditions specified in this Section 11 shall
not have been fulfilled when and as required by this Agreement, this Agreement
and all of the Agent's obligations hereunder may be canceled by the Agent by
notifying the Company of such cancellation in writing or by telegram at any time
at or prior to the Closing Date, and any such cancellation shall be
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<PAGE> 19
without liability of any party to any other party except as otherwise provided
in Sections 3, 9, 10 and 11 hereof. Notwithstanding the above, if this Agreement
is canceled pursuant to this paragraph, the Company agrees to reimburse the
Agent for all of the Agent's expenses (including without limitation the fees and
expenses of the Agent's counsel) subject to the applicable provisions of
Sections 3 and 10 hereof.
Section 12. Indemnification and Contribution.
(a) The Company hereby agrees (i) to indemnify and hold
harmless the Agent, each of its directors, officers, other employees and agents
and any person who controls the Agent within the meaning of Section 15 or
Section 20(a) of the Exchange Act (the Agent and each person being indemnified
hereinafter called an "Indemnified Party") against any and all losses, claims,
damages or liabilities, joint or several, to which an Indemnified Party may
become subject, under the Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise; (ii) to reimburse
promptly such Indemnified Party for reasonable legal or other expenses incurred
by such Indemnified Party in connection with investigating any claims or
preparing for or defending any actions, commenced or threatened, whether or not
resulting in any liability; and (iii) to reimburse promptly such Indemnified
Party for any amount paid in settlement of any claim or action, commenced or
threatened, if such settlement is effected with the written consent of the
Company; insofar as such losses, claims, damages, liabilities, expenses, actions
or settlements, referred to above, arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, Prospectus or any amendments or supplements thereto, or
in any application filed under any Blue Sky Law, or in any other document,
advertisement, oral statement or communication ("Sales Information") prepared,
made or executed by the Company in connection with or in contemplation of the
transactions contemplated by this Agreement, or in the information furnished or
otherwise made available to the Agent by the Company, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or arise
from any theory of liability whatsoever relating to or arising from or based
upon the Registration Statement, Prospectus or Sales Information or other
documentation distributed in connection with the Offering or are based on any
oral misstatements made by the Company or its agents, or arise out of any action
or omission to act by the Company, its officers, directors, employees or agents,
which action is willful or negligent. The Company will not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, the
Prospectus or any amendment or supplement thereto or in any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Agent specifically for use therein. The Company
will not, however, be responsible for claims, liabilities, losses, damages or
expenses to the extent they result primarily from actions taken or omitted to be
taken by the Agent in bad faith or from the Agent's negligence. In the event
that the Company advances any amounts alleged to be due under this Section 12(a)
to the Indemnified Party and it is determined by a court of competent
jurisdiction that the Indemnified Party is not entitled to indemnification
hereunder, then the Indemnified Party shall repay, without interest, any amounts
so advanced to the Company, as the case may be. The indemnification
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<PAGE> 20
obligations of the Company as provided above are in addition to any liabilities
the Company may have under other agreements, under common law or otherwise. The
obligation of indemnity provided for hereunder is effective immediately in
respect of all events prior to or after the date hereof and shall survive any
expiration, termination or other cessation of this Agreement.
(b) The Agent agrees (i) to indemnify and hold harmless the
Company, each of its directors and officers and each person who controls the
Company within the meaning of the Act (the Company and each person being
indemnified hereinafter called an "Indemnified Party") against any and all
losses, claims, damages or liabilities, joint or several, to which an
Indemnified Party may become subject, under the Act, the Exchange Act, or other
federal or state statutory law or regulations, at common law or otherwise; (ii)
to reimburse promptly such Indemnified Party for reasonable legal or other
expenses incurred by such Indemnified Party in connection with investigating any
claims or preparing for or defending any actions, commenced or threatened,
whether or not resulting in any liability; and (iii) to reimburse promptly such
Indemnified Party for any amount paid in settlement of any claims or actions,
commenced or threatened, if such settlement is effected with the written consent
of the Agent; insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus or any amendment or supplement thereto, or any Blue Sky Application,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or arise out of any action or omission to act
by the Agent, its officers, directors, employees or agents, which action is
willful or negligent, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, in reliance
upon and in conformity with written information furnished to the Company by the
Agent specifically for use in the preparation thereof. The Agent will not,
however, be responsible for claims, liabilities, losses, damages or expenses to
the extent they result primarily from actions taken or omitted to be taken by
the Company in bad faith or from the Company's negligence. In the event that the
Agent advances any amounts alleged to be due under this Section 12(b) to an
Indemnified Party and it is determined by a court of competent jurisdiction that
the Indemnified Party is not entitled to indemnification hereunder, then the
Indemnified Party shall repay, without interest, any amounts so advanced to the
Agent. The indemnification obligations of the Agent as provided above are in
addition to any liabilities the Agent may have under other agreements, under
common law or otherwise. The obligation of indemnity provided for hereunder is
effective immediately in respect of all events prior to or after the date hereof
and shall survive any expiration, termination or other cessation of this
Agreement.
(c) Promptly after receipt by an Indemnified Party under this
Section of notice of the commencement of any action, such Indemnified Party
shall, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof. In no case shall an indemnifying party be liable under this Agreement
with respect to any loss, claim,
20
<PAGE> 21
damage, liability, expense, action or settlement unless the indemnifying party
shall have been notified in writing by the Indemnified Party seeking
indemnification, of the assertion or filing of the claim or action giving rise
to such loss, claim, damage, liability, expense, action or settlement promptly
after such Indemnified Party shall have been advised of, or otherwise shall have
received information as to, the assertion or filing of such claim or action. In
case any such action is brought against any Indemnified Party, and such
Indemnified Party notifies an indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate in, and, to the extent
that it or he may wish, jointly with all other Indemnifying Parties, similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Party; provided, however, if the defendants in any such action
include both the Indemnified Party and the indemnifying party and the
Indemnified Party shall have reasonably concluded, based upon advice of its
counsel, that there may be legal defenses available to it or he and/or any other
Indemnified Party which are different from or additional to those available to
the indemnifying party, the Indemnified Party shall have the right to select
separate counsel to assume such legal defenses and to otherwise participate in
the defense of such action on behalf of such Indemnified Party. Upon receipt of
notice from the indemnifying party to such Indemnified Party of its election so
to assume the defense of such action and approval by the Indemnified Party of
counsel, the indemnifying party will not be liable to such Indemnified Party
under this Section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with defense thereof unless:
(i) the Indemnified Party shall have employed such
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel);
(ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time after notice or commencement of the
action; or
(iii) the indemnifying party has authorized the
employment of counsel at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party, in lieu of
indemnifying such Indemnified Party, shall, subject to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities:
(i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Agent from the offering of
the Shares; or
(ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company and the Agent in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
21
<PAGE> 22
The respective relative benefits received by the Company and the Agent
shall be deemed to be in such proportion so that the Agent is responsible for
the portion of the losses, claims, damages or liabilities represented by the
percentage that the per share fee to be paid to the Agent in connection with the
solicitation of subscriptions described in Section 3 hereof bears to the actual
Purchase Price per share of the Shares, and Company and its officers and
directors and controlling persons, in the aggregate, jointly and severally are
responsible for the remaining portion. The relative fault of the Company and the
Agent shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or by the Agent and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include, subject to the limitations set forth in
paragraph (d) of this Section, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company and the Agent agree that it would not be just and equitable
if contribution pursuant to this Section were determined by pro rata or per
capita allocation or by any other method or allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 13. Effective Date. This Agreement shall become effective
__________________.
Section 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Agent or the
Company prior to the Closing Date if, in the Agent's reasonable judgment:
(i) additional material governmental restrictions,
not enforce and effect on the date hereof, shall have been imposed upon trading
in securities general or a suspension or limitation in trading in securities
generally has occurred on the New York Stock Exchange or American Stock Exchange
or in the over-the-counter market, or quotations halted generally on the NASDAQ
System, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required by either of such exchanges
or the NASD or by order of the SEC or any other governmental authority; or the
engagement or continued engagement by the United States in major hostilities or
the declaration of a national emergency or war or a material decline in the
price of equity or debt securities if the effect of such hostilities, national
emergency or war or decline, in the Agent's judgment, make it impracticable or
inadvisable to proceed with the Offering or the delivery of shares on the terms
and in the manner contemplated in the Registration Statement and the Prospectus;
22
<PAGE> 23
(ii) any event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or the Prospectus or which
is not reflected in the Registration statement or the Prospectus but should be
reflected therein in order to make the statements or information contained
therein not misleading in any material respect (unless the Registration
Statement or the Prospectus, as appropriate, is amended or supplemented
appropriately in a timely manner);
(iii) the Company or Allied shall have sustained a
loss by fire, flood, accident or other calamity which is material to the
property, business or financial condition of the Company or Allied whether or
not such loss shall have been insured, or there shall have been, since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the business, condition or prospects of the Company
or Allied whether or not arising in the ordinary course of business, or in the
market for the securities of the Company, which shall render it inadvisable to
proceed with the delivery of the Shares.
(b) This Agreement may be terminated by a party upon written
notice to the other party at any time at or prior to the Closing Date if any of
the Conditions specified in Section 11 hereby shall not have been fulfilled when
and as required by this Agreement or if the services to be performed by the
Agent have not been completed by December 31, 1999.
Any termination pursuant to this Section 14 shall be without liability
on the part of the Agent to the Company or on the part of the Company to the
Agent (except for the expenses to be paid or reimbursed by the Company pursuant
to Section 3 or Section 10 hereof and except as to indemnification to the extent
provided in Section 12 hereof).
In the event that the Offering is not consummated for any reason,
including, but not limited to, the termination of this Agreement or the
inability of the Company to sell the Shares during the Offering, this Agreement
shall terminate and the Company shall refund to any persons who have subscribed
for any of the Shares the full amount which it may have received from them,
together with interest at the rate stated in the Prospectus. Upon termination of
this Agreement, neither party shall have any other obligation to the other
except as otherwise provided for pursuant to Sections 3, 10 and 12 hereof and as
provided in Section 25.
Section 15. Representation and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its directors and officers, and of the Agent set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Agent or the
Company or any of their respective partners, officers, agents or directors or
any controlling person, as the case may be, and will survive delivery of any
payment for the Shares sold hereunder.
Section 16. Notice. All communications hereunder will be in writing
and, if sent to the Agent will be mailed, delivered or telegraphed and confirmed
to the Agent c/o Choice Investments, Inc., 5900 Balcones Drive, Suite 110,
Austin, Texas 78731, with a copy to Jack W. Ledbetter & Associates, 3563 Far
West Boulevard, Suite 107, Austin, Texas 78731; if sent to the
23
<PAGE> 24
Company will be mailed, delivered or telegraphed and confirmed to the Company at
6110 Pinemont, Houston, Texas 77092, with a copy to Mr. Jack A. Selman, Selman &
Munson, P.C., 111 Congress Avenue, Suite 1000, Austin, Texas 78701.
Section 17. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors, personal
representatives and assigns, and to the benefit of the officers and directors
and controlling persons referred to in Section 12, and no other person will have
any right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares merely by reason of such purchase.
Section 18. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
Section 19. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas.
Section 20. Entire Agreement. This Agreement, including schedules and
exhibits hereto, which are integral parts hereof and incorporated as though set
forth in full, constitutes the entire agreement between the parties pertaining
to the subject matter hereof superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letters of intent and
understandings, and cannot be modified, changed, waived or terminated except by
a writing which expressly states that it is an amendment, modification or
waiver, refers to this Agreement and is signed by the party to be charged. No
course of conduct or dealing shall be construed to modify, amend or otherwise
affect any of the provisions hereof.
Section 21. Headings. Headings on the Sections in this Agreement are
for reference purposes only and shall not be deemed to have any substantive
effect.
Section 22. Delivery by Telecopier. This Agreement shall become
effective upon execution and delivery hereof by all the parties hereto; delivery
of this Agreement may be made by telecopier to the parties with original copies
promptly to follow by overnight courier.
Section 23. Construction. This Agreement has been negotiated by the
parties and their respective counsel. This Agreement will be fairly interpreted
in accordance with its terms and without any strict construction in favor of or
against either party.
Section 24. Attorneys Fees. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys fees from the other party, which fees may be set by
the court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fees shall be in addition to any other
relief which may be awarded.
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<PAGE> 25
Section 25. Exhibits. Each and all of the Exhibits referred to herein
and attached hereto are hereby incorporated into this Agreement for all purposes
as fully as if set forth herein. The Exhibits include Exhibits "A" through "C."
Section 26. Arbitration. Any controversy or claim arising out of this
letter of intent or the Agency Agreement, or the breach thereof, shall be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitration may be
entered in any court having jurisdiction thereof. The place for such arbitration
shall be in Houston, Texas. The arbitration agreement set forth herein shall not
limit a court from granting a temporary restraining order or preliminary
injunction in order to preserve the status quo of the parties pending
arbitration. Further, the arbitrator(s) shall have power to enter such orders by
way of interim award, and they shall be enforceable in court.
If the foregoing is in accordance with the Agent's understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the Agent,
all in accordance with its terms.
Very truly yours,
ALLQUEST.COM CORPORATION
By:
--------------------------------
Jim C. Hodge, President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
CHOICE INVESTMENTS, INC.
("Agent")
By:
--------------------------
Name:
------------------------
Title:
-----------------------
25
<PAGE> 26
EXHIBIT "A"
Up to 1,400,000 Shares (Anticipated Maximum)
(Par Value $0.01 Per Share)
SELECTED DEALERS' AGREEMENT
_________________, 1999
Gentlemen:
We have agreed to assist ALLQUEST.com Corporation (the "Company"), in
connection with the offer and sale of up to 1,400,000 shares of the Company's
common stock (the "Offering"), par value $0.01 per share (the "Stock"). The
maximum number of shares of Stock to be offered is 1,400,000; the minimum number
of shares of Stock to be offered is 1,000,000 shares. The price per share has
been fixed at $6.00. The Stock, the number of shares to be issued and certain of
the terms on which they are being offered are more fully described in the
enclosed Prospectus dated ___________, 1999 (the "Prospectus").
We are offering the selected dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Stock, and
we will pay you a fee in the amount of ___% of the dollar amount of the Stock
sold on behalf of the Company by you, as evidenced by the authorized designation
of your firm on the order form or forms for such Stock accompanying the funds
transmitted for payment therefor to the special account established by the
Company for the purpose of holding such funds. It is understood, of course, that
payment of your fee will be made only out of compensation received by us for the
Stock sold on behalf of the Company by you, as evidenced in accordance with the
preceding sentence. As soon as practicable after the closing date of the
Offering, we will remit to you, out of our compensation as provided above, the
fees to which you are entitled hereunder.
Each order form for the purchase of Stock must set forth the identity
and address of each person to whom the certificates for such Stock should be
issued and delivered. Such order form should clearly identify your firm. You
shall instruct any subscriber who elects to send his order form to you to make
any accompanying check payable to "ALLQUEST.com Corporation" to be deposited in
a segregated account with the Company by noon of the next business day after
receipt.
This offer is made subject to the terms and conditions herein set forth
and is made only to selected dealers who are (i) members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") who are to comply with
all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation With Respect to Free-Riding and Withholding and
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<PAGE> 27
Section 24 of Article III of the NASD's Rules of Fair Practice, or (ii) foreign
dealers not eligible for membership in the NASD who agree (A) not to sell any
Stock within the United States, its territories or possessions or to person who
are citizens thereof or resident therein, and (B) in making other sales to
comply with the above-mentioned NASD Interpretation, Sections 8, 24 and 36 of
the above-referenced Article III as it applies to non-member brokers or dealers
in a foreign country.
Orders for Stock will be strictly subject to confirmation and we,
acting on behalf of the Company, reserve the right in our uncontrolled
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
other person is authorized by the Company or by us to give any information or
make any representations other than those contained in the Prospectus in
connection with the sale of any of the Stock. No selected dealer is authorized
to act as agent for us when soliciting offers to buy the Stock from the public
or otherwise. No selected dealer shall engage in any stabilizing (as defined in
Rule 10b-7 promulgated under the Securities Exchange Act of 1934) with respect
to the Stock during the Offering.
We and each selected dealer assisting in selling Stock pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934 and applicable state rules and regulations. In addition, we and each
selected dealer confirm that the Securities and Exchange Commission interprets
Rule 15c2-8 promulgated under the Securities Exchange Act of 1934 as requiring
that a Prospectus be supplied to each person who is expected to receive a
confirmation of sale 48 hours prior to delivery of such person's order form.
We and each selected dealer further agree to the extent that our
customers desire to pay for shares with funds held by or to be deposited with
us, in accordance with the interpretation of the Securities and Exchange
Commission of Rule 15c2-4 promulgated under the Securities Exchange Act of 1934,
either (a) upon receipt of an executed order form or direction to execute an
order form on behalf of a customer, to forward the Offering price for the Stock
ordered on or before twelve noon of the business day following receipt or
execution of an order form by us to the Company for deposit in a segregated
account, or (b) to solicit indications of interest in which event (i) we will
subsequently contact any customer indicating interest to confirm the interest
and give instructions to execute and return an order form or to receive
authorization to execute the order form on the customer's behalf, (ii) we will
mail acknowledgements of receipt of orders to each customer confirming interest
on the business day following such confirmation, (iii) we will debit accounts of
such customers on the fifth business day (the "debit date") following receipt of
the confirmation referred to in (i), and (iv) we will forward completed order
forms together with such funds to the Company on or before twelve noon on the
next business day following the debit date for deposit in a segregated account.
We and each selected dealer acknowledge that if the procedure in (b) is adopted,
our customers' funds are not required to be in their accounts until the debit
date.
Unless earlier terminated by us, this Agreement shall terminate upon
the closing date of the Offering. We may terminate this Agreement or any
provisions hereof at any time by written or telegraphic notice to you. Of
course, our obligations hereunder are subject to the successful completion of
the Offering. In the event that the Offering is not consummated for any reason,
including but not limited to the inability to sell at least 1,000,000 shares of
the Common Stock during
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<PAGE> 28
the Subscription and Offering (including any permitted extensions thereof), this
Agreement shall terminate and any persons who have subscribed for any of the
shares of Common Stock shall have refunded to them the full amount which has
been received from such person, together with interest at the rate of _______,
from the date payment is received as provided in the Prospectus.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of Stock
sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect of all matters pertaining to the Offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Stock has been qualified for sale under, or are exempt from the
requirements of, the respective blue sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Stock in any state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
State of Texas.
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Choice Investments, Inc.,
5900 Balcones Drive, Suite 100, Austin, Texas 78731. The enclosed copy will
evidence the Agreement between us.
CHOICE INVESTMENTS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
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<PAGE> 29
EXHIBIT B
CHOICE INVESTMENTS, INC.
5900 Balcones Drive, Suite 100
Austin, Texas 78731
Telephone: (512) 302-6075 Telecopier: (512) 302-6093
January 6, 1999
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
10601 Grant Road, Suite 211
Houston, Texas 77070
Dear Jim:
We are making this proposal in connection with the intention of a newly
organized holding company of Allied Mortgage Capital Corporation (collectively
the "Corporation") to conduct a Public Offering to sell Common Stock in an
amount anticipated to be approximately $5 Million in the minimum and $7 Million
in the maximum (the "Offering").
This letter hereby confirms the interest of Choice investments, Inc. ("Choice")
("Underwriter") in acting as the Corporation's financial advisor and
underwriter in connection with the Offering. For purposes of this letter, it is
understood that employees of Choice will be actively involved in the Offering
and that references to the Underwriter shall include employees of Choice. This
letter sets forth selected terms of our engagement.
1. Offering. The Corporation proposes to offer through the Underwriter and/or
an underwriting group selected by the Underwriter and approved by the
Corporation approximately 500,000 to 700,000 shares of common stock ("Shares")
at $10.00 per share. The Offering shall be on a "best efforts" basis. It is
understood between the parties that there is no firm commitment by the
Underwriters to purchase any or all shares.
2. Underwriter Services. The Underwriter will act as lead manager in the
Offering, and in this regard, may form a syndicate of selected broker-dealers
to assist in the Offering of the Common Stock. The decision to utilize selected
broker-dealers will be made by the Corporation upon consultation with the
Underwriter.
As the Corporation's financial advisor and underwriter, the Underwriter will
provide the Corporation with a comprehensive program of services designed to
promote an orderly, efficient and cost-effective distribution. The Underwriter
will provide financial and logistical advice to the Corporation concerning the
Offering and related issues.
<PAGE> 30
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
January 6, 1999
Page 2
The Underwriter further agrees to provide to the Corporation financial advisory
assistance for a period of one year following completion of the Offering,
including general advice on mergers and acquisitions and other related matters.
Following this initial one-year term, if both parties wish to continue the
relationship, a fee will be negotiated and an agreement entered into at that
time.
3. Preparation of Offering Documents. The Corporation and its counsel will
draft the Registration Statement and other materials to be used in connection
with the Public Offering. The Underwriter will attend meetings to review these
documents and assist your counsel with their preparation. The Registration
Statement will be in a form satisfactory to each of us and our respective
counsel.
4. Due Diligence Review. Prior to the filing of the Registration Statement or
any other documents naming the Underwriter as the Corporation's financial
advisor and underwriter, the Underwriter and its representatives will undertake
substantial investigations to learn about the Corporation's business and
operations ("due diligence review") in order to confirm information provided to
us and to evaluate information to be contained in the Corporation's
Registration Statement. All corporate proceedings undertaken by the Corporation
and other legal matters which relate to the public offering and other related
transactions shall be reasonably satisfactory in all material respects to
counsel for the Underwriter. The Registration Statement and all amendments
thereto shall be approved by counsel to the Underwriter prior to filing with
the SEC.
The Corporation agrees that they will make available to the Underwriter all
relevant information, whether or not publicly available, which the Underwriter
reasonably requests, and will permit the Underwriter to discuss personnel and
the operations and prospects of the Corporation with management. Included
within the documents which will be timely made available are at least all
Articles of Incorporation and Amendments, By-Laws and Amendments, Minutes of
all the Corporation's Incorporators, Directors and Shareholders Meetings, all
financial statements, correct copies of any material contracts, leases, and
agreements, to which the Corporation is a party and a description of the Use of
Proceeds. The Corporation will furnish Underwriter at the earliest practicable
date a business plan acceptable to Underwriter, showing projected cash flow (or
deficiencies) and reconciled to the proposed Use of Proceeds. In addition, the
Corporation will provide the Underwriter with unaudited monthly financial data
concerning the Corporation from now until termination of the offering. The
Underwriter will treat all material non-public information as confidential. The
Corporation acknowledges that the Underwriter will rely upon the accuracy and
completeness of all information received from the Corporation, its officers,
directors, employees, agents and representatives, accountants and counsel.
The Underwriter shall furnish, as soon as practicable, to the Corporation such
information regarding the Underwriter as the Corporation may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification or compliance with state and federal securities
laws.
<PAGE> 31
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
January 6, 1999
Page 3
5. Properties, Capital Structure, Dilution, Employee Benefit Plans. The
properties owned or held under option by the Corporation, the capital structure
of the Corporation immediately preceding the Offering, the contemplated
dilution to the public investor, and the Corporation's business plan shall be
acceptable to the Underwriter. Shares underlying any options and warrants
outstanding, shall be deemed outstanding for this purpose. Any employee
(including officers and/or directors) incentive plan (including royalty plan),
of whatever nature, presently contemplated, shall be fully disclosed to the
Underwriter and subject to the approval of the Underwriter.
6. Regulatory Filings. With respect to the Offering, upon satisfactory
completion of the Underwriter's due diligence review, the Corporation will
cause a Registration Statement with respect to the Offering to be filed with
the Securities and Exchange Commission ("SEC") and such state securities
commissioners as may be determined by the Corporation. No filings naming the
Underwriter will be made without the prior consent of the Underwriter. Copies
of all comment letters from the Securities Exchange Commission and any other
applicable regulatory authorities shall also immediately be supplied to the
Underwriter and its counsel and all Amendments to the Registration Statement
shall be submitted to the Underwriter and its counsel for review prior to the
time they are filed with the SEC or any other regulatory authority.
7. Blue-Sky Laws. It is understood and agreed between the Corporation and the
Underwriter that it shall be the obligation of the Corporation to qualify the
sale of the Corporation's common stock in such states as may be reasonably
agreed to by the Corporation and the Underwriter. Counsel to the Corporation
shall be responsible for state qualification work and issuing a blue-sky
memorandum.
8. Agency or Underwriting Agreement. The specific terms of the Offering and any
broker-assisted sales services contemplated in this letter shall be set forth in
an Agency or Underwriting Agreement between the Underwriter and the Corporation
to be executed prior to commencement of the Offering. Sales of Common Stock in
the Offering will be contingent upon, among other things, the absence of
material adverse developments and the completion of the Offering. The Agency or
Underwriting Agreement and any Selected Dealer Agreement shall be prepared by
counsel for the Underwriter, and such counsel shall make all required filings
with the National Association of Securities Dealers, Inc. The Corporation, its
officers and directors will agree not to offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of any Common Stock for at least
180 days after the public offering without first obtaining the Underwriter's
written consent, other than pursuant to the Corporation's Stock Option Plan and
other benefit plans or applicable disclosure in the offering document.
9. Representations, Warranties and Covenants. The Underwriting Agreement will
provide for customary representations, warranties and covenants by the
Corporation, including, without limitation, with respect to indemnification and
contribution by the Corporation. This will be consistent with the
indemnification set forth in Section 13 herein.
<PAGE> 32
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
January 6, 1999
Page 4
10. Fees. For the services hereunder, the Corporation shall pay the following
fees to the Underwriter at closing unless stated otherwise:
(a) A non-refundable initial financial advisory fee of $25,000 payable
in 2 installments upon execution of this letter agreement
(b) A commission equal to 6% of the aggregate Actual Purchase Price of
the securities sold in the Offering (including those sold by the Sales Team). In
the event that a syndicate of selected broker-dealers are used to assist in the
Offering, the Underwriter will allocate to such selected broker-dealers who
assist in the Public Offering an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold at a
comparable price per share in a similar market environment. Fees with respect to
purchases affected through selected broker-dealers other than the Underwriter
shall be transmitted by the Underwriter to such selected broker-dealer. The
decision to utilize selected broker-dealers will be made by the Corporation with
consent of the Underwriter.
11. Warrants. Subject to the sale of a maximum offering as agreed by the
Corporation and the Underwriter, the Corporation agrees to sell to the
Underwriter warrants to purchase common stock ("Warrants") up to 10% of the
total number of shares sold as part of the Offering (50,000 to 70,000 shares).
The purchase price for the Warrants shall be $.01 (one cent) for each Warrant.
The Warrants shall be non-exercisable for a period of 12 months following the
date of the definitive Prospectus; Provided, if the Corporation plans to merge,
reorganize or take any other action that would terminate the Warrants, the
Warrants will be exercisable immediately prior to such action. Also the
Warrants will contain proportionate adjustment provisions for splits,
dividends, recapitalizations, distributions and the like. The Warrants will be
exercisable for a period of four years, such period to begin 12 months after
the date of the definitive Prospectus used in this Offering and if the Warrants
are not exercised during this term, they shall by their terms automatically
expire. The exercise price shall be 120% of the per share offering price in the
Offering. The Corporation will set aside and at all times have available a
sufficient number of shares of its Common Stock to be issued upon the exercise
of the Warrants to be sold to the Underwriter. The Warrants will not be
transferable to anyone, for a period of twelve (12) months after the date of
the definitive Prospectus, except to officers of the Underwriter.
12. Expenses. The Corporation will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, SEC, "Blue Sky,"
and NASD filing and registration fees; the fees of the Corporation's
accountants, attorneys, transfer agent and registrar, printing, mailing and
marketing expenses associated with the Offering; the fees set forth in Section
10; and fees for "Blue Sky" legal work. Additionally, the Underwriter shall
also be entitled to reimbursement by the Corporation for its reasonable
expenses, including legal fees and expenses of its legal counsel, provided
however, in the event the Corporation terminates the Offering for any reason
except based on a breach of the Underwriter's obligations hereunder the
Corporation will
<PAGE> 33
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
January 6, 1999
Page 5
reimburse the Underwriter for its reasonable expenses including legal fees up
to $25,000.00 and incidental expenses not to exceed $10,000.00 unless the
parties agree otherwise.
13. Indemnification.
(a) In connection with the Underwriter's engagement (which engagement
may have commenced prior to the date hereof), the Corporation agrees to
indemnify and hold harmless the Underwriter, the Sales Team and their affiliates
and the respective directors, officers, employees, agents and partners of the
Underwriter and its affiliates, and each other person controlling the
Underwriter or any of its affiliates within the meaning of either Section 15 of
the Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934
(collectively, "Underwriter Indemnified Parties") to the full extent lawful,
from and against all losses, claims, damages or liabilities resulting from any
legal action, investigation or other proceeding to which any Underwriter
Indemnified Party may become subject as a result of or arising out of this
engagement and will reimburse any Underwriter Indemnified Party for all
reasonable expenses (including reasonable counsel fees) incurred by such
Underwriter Indemnified Party in connection with investigating, defending or
settling any such matter or enforcing any rights hereunder. Notwithstanding the
foregoing, the Corporation shall not be liable to an Underwriter Indemnified
Party in respect of any loss, claim, damage, liability or expense to the extent
the same is determined, in a final judgment by a court of competent
jurisdiction, to have resulted from the gross negligence or bad faith of such
Underwriter Indemnified Party. The Corporation also agrees that neither the
Underwriter, the Sales Team nor any of their affiliates, nor officer, director,
employee or agent of the Underwriter or any of its affiliates, nor any person
controlling the Underwriter or any of its affiliates, shall have any liability
to the Corporation for or in connection with such engagement except for any such
liability for losses, claims, damages, liabilities or expenses incurred by the
Corporation that is finally judicially determined to have resulted primarily
from the Underwriter's gross negligence or bad faith. Notwithstanding the
foregoing, the Underwriter shall not be required to indemnify or reimburse the
Corporation for expenses hereunder in an amount in the aggregate, in excess of
any fees paid pursuant to Section 10 above. The foregoing shall be in addition
to any rights that the Underwriter or any Underwriter Indemnified Party may have
at common law or otherwise.
(b) Upon receipt of notice of any claim or the commencement of any
such action with respect to which indemnity is to be sought, an Indemnified
Party shall notify the indemnifying party of such claim or the commencement of
such action. Such Indemnified Party shall have the right to employ counsel
reasonably acceptable to the Corporation to defend such claim or action.
(c) If for any reason the foregoing indemnification is unavailable to
any Indemnified Party or insufficient to hold it harmless as contemplated
herein then the Corporation shall contribute to the amount payable by the
Indemnified Party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect not only the relative benefits
received by the Corporation and its affiliates, on the one hand, and the
Underwriter and the Indemnified Party on the other hand, but also the relative
fault of the Corporation and its affiliates and the Underwriter or any
Indemnified Party, as the case may be, as well as any other relevant equitable
considerations,
<PAGE> 34
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
January 6, 1999
Page 6
provided, however, that in no event shall the Underwriter be required to
contribute any amount in excess of any fees paid to it pursuant to Section 10
above.
(d) The reimbursement, indemnity and contribution by the Corporation
or Underwriter hereunder shall be in addition to any liability which any party
may otherwise have, and shall be binding upon and accrue to the benefit of any
successors, assigns, heirs and personal representatives of the Corporation, and
any Indemnified Party. The foregoing provisions relating to reimbursement,
indemnification and contribution shall survive any termination of the
Underwriter's engagement under this letter.
14. Conditions. The Underwriter's willingness and obligation to proceed
hereunder shall be subject to, among other things, satisfaction of the following
conditions in the Underwriter's opinion, which opinion shall have been formed in
good faith by the Underwriter after reasonable determination and consideration
of all relevant factors: (a) full and satisfactory disclosure of all relevant
material, financial and other information in the disclosure documents; (b) no
material adverse change in the condition or operations of the Corporation
subsequent to the Underwriter's due diligence review; (c) no market conditions
at the time of Offering which in the Underwriter's opinion make the sale of the
Common Stock by the Corporation inadvisable and (d) the agreement between the
Corporation and the Underwriter as to the offering terms.
15. Benefit. No Party to this letter agreement may assign its duties and
obligations hereunder without the prior written consent of the other parties.
This Agreement shall inure to the benefit of the parties hereto and their
respective successors and assigns and to the parties indemnified hereunder and
their successors and assigns, and the obligations and liabilities assumed
hereunder by the parties hereto shall be binding upon their respective
successors and assigns.
16. Termination. This Agreement may be terminated in writing by either party
hereto without any obligation other than for the payment of any fees
specifically set forth herein. If terminated, all fees paid previously will be
deemed to have been earned when paid. This letter reflects the Underwriter's
present intention of proceeding to work with the Corporation on its proposed
Offering. It does not constitute an agreement to underwrite securities or to
serve as sale or marketing agent to the Corporation, or to perform any other
service, nor is it an agreement to enter into any such agreement or a
representation that market conditions will support an offering of the
Corporation's securities. It also does not constitute a commitment on the part
of the Corporation or the Underwriter except as to the payment of certain fees
as set forth in Section 10, the assumption of expenses as set forth in Section
12 and indemnification as set forth in Section 13, all of which shall constitute
the binding obligations of the parties hereto and which shall survive the
termination of this Agreement or the completion of the services furnished
hereunder and shall remain operative and in full force and effect. You further
acknowledge that any report or analysis rendered by the Underwriter pursuant to
this engagement is rendered for use solely by the management of the Corporation
and its agents in connection with the Offering. Accordingly, you agree that you
will not provide any such information to any other person without our prior
written consent. The
<PAGE> 35
Mr. Jim Hodge
President
Allied Mortgage Capital Corporation
January 6, 1999
Page 7
Underwriter acknowledges that in offering the Corporation's securities, no
person will be authorized to give any information or to make any representation
not contained in the Prospectus and related offering materials filed as part of
the Registration Statement to be declared effective in connection with the
Offering. Accordingly, the Underwriter agrees that in connection with the
Offering it will not give any unauthorized information or make any unauthorized
representation. We will be pleased to elaborate on any of the matters discussed
in this letter at your convenience.
17. In case of a dispute under this agreement, it shall be governed by the law
of the State of Texas. Any claims or disputes, arising out of this agreement,
shall be heard by a court of competent jurisdiction within the State of Texas.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned with a check in the amount of $15,000 payable to Choice
Investments, Inc.
Sincerely,
CHOICE INVESTMENTS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------
-----------------------------
Its: President
Agreed to:
ALLIED MORTGAGE CAPITAL CORPORATION
By: /s/ JIM HODGE
-------------------------
-------------------------
Its: President
Date:
-----------------------
<PAGE> 36
EXHIBIT "C"
Form of Opinion
(to be attached)
<PAGE> 1
EXHIBIT NO. 2
PLAN AND AGREEMENT OF REORGANIZATION
This Plan and Agreement of Reorganization ("Agreement") is entered into
in Harris County, Texas, this 20th day of July, 1999, by and between
ALLQUEST.com Corporation, a Delaware corporation (hereinafter "Purchaser"), and
the undersigned stockholders of Allied Mortgage Capital Corporation, a Texas
corporation (hereinafter "Allied Capital"), who are individually called
"Stockholder" and collectively called "Stockholders", owners of all of the
outstanding shares of capital stock of Allied Capital.
PLAN OF REORGANIZATION
The Purchaser will acquire from the Stockholders all of the issued and
outstanding shares of capital stock of Allied Capital, in exchange for shares of
voting common stock of the Purchaser. Allied Capital will thereby become a
wholly-owned subsidiary of the Purchaser.
AGREEMENT
In order to consummate such plan of reorganization, the parties hereto
in consideration of the mutual agreements and on the basis of the
representations and warranties hereinafter set forth, do hereby agree as
follows:
ARTICLE 1
TRANSFER OF ALLIED CAPITAL'S CAPITAL STOCK
CONSIDERATION FOR TRANSFER
1.01. Terms and Conditions. Subject to the terms and conditions of this
Agreement, each Stockholder will assign, transfer and deliver to the Purchaser,
at the Closing (as hereinafter defined) on the Closing Date (as hereinafter
defined), certificates for shares of capital stock of Allied Capital duly
endorsed in blank with signatures guaranteed by a state or national bank as set
forth beside their respective signatures on this Agreement.
1.02. Closing Date. At the Closing on the Closing Date, subject to the
terms and conditions of this Agreement, and in full consideration for the
assignment, transfer, and delivery to the Purchaser of all of the issued and
outstanding shares of capital stock of Allied Capital, the Purchaser will
deliver to the Stockholders for each share of Allied Capital they hold forty
thousand (40,000) shares of Purchaser's common stock, par value $.01 per share,
hereinafter referred to as the "Common Stock", such shares to be fully paid and
nonassessable.
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<PAGE> 2
ARTICLE 2
CLOSING
The time of the delivery by the Stockholders of their respective shares
of capital stock of Allied Capital, as provided in Paragraph 1.01 of this
Agreement, and the delivery by the Purchaser of its shares of Common Stock, as
provided in Paragraph 1.02 of this Agreement, is herein called the "Closing
Date", and the acts of delivery are considered conditions of closing and are
sometimes referred to as the "Closing". The Closing Date under this Agreement
shall be that date designated by the Purchaser, but in no event shall the
Closing Date occur later than December 31, 1999. The Closing shall be held at
the offices of Selman & Munson, P.C., 111 Congress Avenue, Suite 1000, Austin,
Texas, at 10:00 o'clock A.M., Central Standard Time, on the Closing Date unless
either another time or place is mutually agreed upon by the Stockholders and the
Purchaser.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.01. Representations and Warranties of Stockholder. As a material
inducement to the Purchaser to execute and perform its obligations under this
Agreement, each Stockholder represents and warrants to the Purchaser as follows:
(1) Allied Capital is a Texas corporation duly organized and validly
existing and in good standing under the laws of the State of Texas. It has all
requisite corporate power and authority to carry on its business as now being
conducted. Allied Capital has no subsidiaries and, further, has no direct or
indirect interest, either by way of stock ownership or otherwise, in any other
firm, corporation, capital, or business. Allied Capital is duly qualified,
licensed or domesticated and in good standing as a foreign corporation
authorized to do business in each jurisdiction wherein the nature of its
activities conducted or the character of its properties make such qualification,
licensing or domestication necessary.
(2) (a) Allied Capital is duly and lawfully authorized by its
Articles of Incorporation to issue one hundred (100) shares of common stock, par
value $10.00 per share, of which one hundred (100) shares are now validly issued
and outstanding. Further, Allied Capital has no other authorized series or class
of stock. All the outstanding shares of Allied Capital's capital stock have been
duly authorized and validly issued and are fully paid and nonassessable.
(b) Allied Capital is not presently liable on account of any
indebtedness for borrowed monies, except as reflected on the Report described in
subparagraph (4) below.
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<PAGE> 3
(c) There are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, convertible securities or other
agreements or arrangements of any character or nature whatever under which
Allied Capital is or may be obligated to issue or purchase shares of its capital
stock.
(3) Each Stockholder severally for himself is, and at the time of the
Closing on the Closing Date will be, the lawful owner of the shares of capital
stock of Allied Capital set opposite his signature in this Agreement, free and
clear of all liens, claims, encumbrances and restrictions of every kind; the
list of Stockholders and their respective shares opposite the signatures of the
Stockholder in this Agreement contains a complete and accurate list of all of
the Stockholders of Allied Capital and the shares of its capital stock held by
each; each Stockholder has full legal right, power, and authority to sell,
assign, and transfer his shares of Capital stock of Allied Capital; and the
delivery of such shares to the Purchaser pursuant to the provisions of this
Agreement will transfer valid title thereto, free and clear of all liens,
encumbrances, claims, and restrictions of every kind.
(4) The Stockholders have furnished the Purchaser with audited annual
report of Allied Capital as of September 30, 1998 (the "Report"). The Report
fairly represents the financial condition of Allied Capital at such date and the
results of its operations for the period therein specified. Allied Capital owes
no taxes based upon income of taxable years prior to the calendar year 1998, and
the Report reflects liability for taxes based upon income for calendar year
1998. All required tax returns of Allied Capital have been accurately prepared
and duly and timely filed. Any deficiencies resulting from any examinations by
the Internal Revenue Service have been duly paid or are properly reflected in
the Report.
(5) There are no legal actions, suits, arbitrations or other legal or
administrative proceedings pending or threatened against Allied Capital which
would affect it, its properties, assets or business; and neither Allied Capital
nor any Stockholder is aware of any facts which to its knowledge might result in
any action, suit, arbitration or other proceeding which in turn might result in
any material adverse change in the business or conditions (financial or
otherwise) of Allied Capital or its properties or assets. Allied Capital is not
in default with respect to any judgment, order or decree, of any court or any
governmental agency or instrumentality.
(6) The business operation of Allied Capital has been and is being
conducted in accordance with all applicable laws, rules and regulations of all
authorities. Allied Capital is not in violation of, or in default under, any
term or provision of its Articles of Incorporation or its Bylaws, or of any
lien, mortgage, lease, agreement, instrument, order, judgment or decree, or
subject to any restriction, contained in any of the foregoing, of any kind or
character which does or could materially adversely affect in any way the
business,
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<PAGE> 4
properties, assets or prospects of Allied Capital, or which would prohibit the
Stockholders from entering into this Agreement or prevent consummation of the
exchange of securities contemplated by this Agreement.
(7) Since September 30, 1998, there has not been any material adverse
change in, or event or condition materially and adversely affecting, the
condition (financial or otherwise), properties, assets, liabilities, or to the
knowledge of any Stockholder, the business or prospects of Allied Capital.
(8) Allied Capital carries fire, liability and other insurance with
respect to its properties and business in such amounts as are reasonable and
against such risks as are customary in relation to the character and location of
its properties and the nature of its business.
3.02. Representations and Warranties of Purchaser. The Purchaser
represents and warrants to the Stockholders as follows:
(1) The Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to carry on its business as now being conducted,
to enter into this Agreement and carry out and perform the terms and provisions
of this Agreement.
(2) The Purchaser's authorized capital stock consists of Fifteen
Million (15,000,000) shares of Common Stock, par value $.01 per share, of which
no shares were validly issued and outstanding, and no employee stock options
were issued and outstanding.
(3) The execution, delivery and performance of this Agreement have been
duly authorized by all requisite corporate action. This Agreement constitutes a
valid and binding obligation of the Purchaser in accordance with its terms
(except as limited by bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights). No provision of the Certificate of
Incorporation, Bylaws, minutes or share certificates of the Purchaser, or of any
contract to which the Purchaser is a party or otherwise bound, prevents the
Purchaser from delivering good title to its shares of such Common Stock in the
manner contemplated hereunder.
(4) All of the shares of the Purchaser's Common Stock to be issued to
the Stockholders pursuant to this Agreement will, when so issued, be validly
issued and outstanding, fully paid and nonassessable.
(5) There are no actions, suits or proceedings pending or, to the
knowledge of any officer or officers of the Purchaser, threatened against the
Purchaser which would materially and adversely affect the Purchaser, its
respective properties or assets or the conduct of its business.
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<PAGE> 5
ARTICLE 4
ACTIONS AND OBLIGATIONS OF THE PURCHASER
AND THE STOCKHOLDERS BEFORE AND AFTER
THE CLOSING AND SECURITIES ACT MATTERS
4.01. Covenants. Each of the Stockholders covenants with the Purchaser
from the date hereof to and including the Closing Date:
(1) Each representation and warranty of the Stockholders set forth in
Paragraph 3.01 of this Agreement shall be true and correct on and as of the
Closing Date.
(2) Except with the prior written consent of the Purchaser to the
contrary, Allied Capital will conduct its affairs and business only in the
ordinary course of business.
(3) Allied Capital will afford the Purchaser, its representatives,
counsel, agents and employees, at all reasonable times and in a manner and under
circumstances which will not cause unreasonable interference with the operation
of Allied Capital's business, access to all of the properties of Allied Capital
and its books, files, records, insurance policies and other corporate books and
records, for the purpose of audit, inspection and examination thereof, and will
do, and cause Allied Capital to do, everything reasonably necessary to enable
the Purchaser to make a complete examination of the assets and properties of
Allied Capital and the condition thereof. No such examination, however, shall
constitute a waiver or relinquishment on the part of the Purchaser of its right
to rely upon the covenants, representations and warranties made by Allied
Capital and the Stockholders in the provisions of this Agreement.
(4) Allied Capital and each of the Stockholders will consult with the
Purchaser at all times up to and including the Closing Date with respect to the
operation of and the conduct of Allied Capital's business, provided that neither
Allied Capital nor the Purchaser shall incur any liability to anyone as a result
of the advice or suggestions offered to Allied Capital or any of the
Stockholders in this connection.
(5) No Stockholder will create or incur, or suffer to exit, any
mortgage, lien, pledge, hypothecation, charge, encumbrance or restriction of any
kind on the shares of Allied Capital's capital stock, which will be assigned,
transferred and delivered to the Purchaser at the Closing on the Closing Date.
4.02. Common Stock. (1) Each Stockholder acknowledges that the shares
of the Purchaser's Common Stock to be delivered to him pursuant to this
Agreement have not and are not being registered under the Securities Act of
1933, hereinafter referred to as the 1933 Act, as amended, prior to the Closing
Date and that, accordingly, such stock is not
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fully transferable except as permitted under various exemptions contained in the
1933 Act and the rules of the Securities and Exchange Commission interpreting
said Act. The provisions contained in this Paragraph 4.02 are intended to ensure
compliance with the 1933 Act.
(2) Each Stockholder covenants, warrants and represents that none of
the shares of Allied Capital's capital stock will be issued to him pursuant to
this Agreement, will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
Securities and Exchange Commission thereunder.
(3) Each Stockholder represents and warrants to the Purchaser that he
is acquiring the shares of the Purchaser's Common Stock to be issued to him
under this Agreement for his own account, for investment, and not with a view to
the resale or other distribution thereof; that he presently has no intention of
selling, transferring, hypothecating or otherwise disposing of all or any part
of such shares at any particular time, for any particular price, or upon the
happening of any particular event or circumstances; and that the Purchaser is
relying upon the truth and accuracy of these covenants, warranties and
representations in issuing said shares without first registering the same under
the 1933 Act or the Texas Securities Act.
(4) Each of the Stockholders understands that this offer to exchange
capital stock for Purchaser's Common Stock is being made to the Stockholders
only if all beneficial owners of interests in such Allied Capital shares (such
as a spouse or general partner) are in fact bona fide residents of Texas, and is
being made pursuant to the provisions of the 1933 Act, as amended, excepting
intra-state securities offerings. Recognizing this, the Stockholders represent:
(a) That each Stockholder's residence is within the State of
Texas and that no one else owns an interest, beneficial or otherwise in such
shares whose residence is outside the State of Texas; and
(b) If the Stockholder is a partnership, Allied Capital or
other business entity, that the partnership, Allied Capital or other business
entity has its principal place of business in the State of Texas and that no
partner's, associate's or beneficiary's principal place of business or residence
is outside the State of Texas; and
(c) If the Stockholder is a corporation, that it is a Texas
corporation and that its principal place of business is located in the State of
Texas.
The Stockholders agree to notify the Purchaser promptly if any owner,
direct or indirect, of the Purchaser's shares herein offered becomes a resident
in a state other than
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<PAGE> 7
Texas, or if there is a change in the facts supporting such representations,
prior to the consummation of the exchange.
The Purchaser is hereby granted the right to make such further
investigation as it deems necessary in order to confirm the accuracy of these
representations and may reject at any time the offer made by any one or more
Stockholders herein if it is not satisfied that the aforementioned conditions of
the offer have been met. Each Stockholder further agrees that the certificates
evidencing the shares he will receive shall contain the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be offered for sale, sold or transferred unless a
registration statement under the act is then in effect with respect to
such shares or an exemption from the registration requirement of such
act is then in fact applicable to such sale, transfer, or offer for
sale."
The Purchaser shall also place a "stop transfer" order against transfer
of the shares until one of the conditions set forth above has been met.
(5) If at any time in the future any of the Stockholders should offer,
sell, assign, pledge, hypothecate, transfer or otherwise dispose of any of such
shares of Common Stock without registration under the 1933 Act, as amended, or
such similar federal statute as may then be in effect, such Stockholder hereby
agrees to indemnify and hold harmless the Purchaser against any and from any and
all claims, liabilities, penalties, costs and expenses that may be asserted
against or suffered by the Purchaser as a result of such disposition.
(6) Each Stockholder is either an officer, director, controlling
shareholder, sophisticated investor or a well informed investor (or well
informed investor who has a relationship with the issuer or its principals,
executive officers or directors evincing trust between the Stockholder and the
Purchaser) of the Purchaser and Allied Capital and is knowledgeable about the
nature and the substance of the transaction contemplated herein and of the
operations and business of the Purchaser and Allied Capital.
4.03. Approvals. The Purchaser hereby covenants to and with the
Stockholders as follows:
(1) The Purchaser will use its best efforts to take or cause to be
taken all actions deemed necessary, proper or advisable to consummate the
Agreement, including filing applications and other instruments with, or
obtaining approvals of, governmental bodies to the transactions contemplated by
the Agreement.
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<PAGE> 8
(2) From and after the date of the Agreement to the Closing Date, the
Purchaser will maintain its corporate existence, will not amend its Certificate
of Incorporation or Bylaws, will not issue any securities and will not declare
or make any dividend or other distribution with respect to the outstanding
shares of the Common Stock.
(3) The Purchaser will furnish the Stockholders with all information
reasonably required by the Stockholders to the Purchaser for inclusion in any
application or statement to be made by Allied Capital or the Stockholders to any
regulatory authority in connection with the transactions contemplated by the
Agreement, and the Purchaser represents and warrants that all information
furnished to the Stockholders for such applications and statements shall be true
and correct in all material respects and without omission of any material fact
required to be stated therein to make the information furnished not materially
misleading. The Purchaser shall indemnify and hold harmless Allied Capital and
its officers, directors and Stockholders for and against any and all claims,
charges, liabilities, damages, expenses and costs incurred or paid by such
persons and arising out of or in connection with any material this statement
contained in, or omission of material fact from, information supplied by the
Purchaser to the Stockholders pursuant thereto.
(4) The Purchaser will permit the officers and authorized
representatives of Allied Capital or Stockholders full access to the books and
records of the Purchaser in order that Allied Capital and Stockholders may make
such investigation as it shall deem necessary. The officers of the Purchaser
will furnish Allied Capital and Stockholders with such additional financial data
and such other information relating to the business of the Purchaser as Allied
Capital and Stockholders shall, from time to time, reasonably request.
ARTICLE 5
CONDITIONS PRECEDENT
5.01. Seller Conditions. Except as may be waived in writing by the
Stockholders, the obligations of the Stockholders, and each of them, to sell and
deliver their shares of Capital stock of Allied Capital are subject to the
fulfillment, prior to or at the Closing on the Closing Date, of each of the
following conditions:
(1) The representations and warranties of the Purchaser in Paragraph
3.02 hereof shall be deemed to have been made again on the Closing Date and
shall then be true and correct, subject to any changes contemplated by this
Agreement, and the Stockholders shall not have discovered any material error,
misstatement, or omission therein.
(2) The Purchaser shall have performed and complied with all agreements
or conditions required by this Agreement to be performed and complied with by it
prior to or on the Closing Date.
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<PAGE> 9
(3) No action or proceeding by any governmental body or agency shall
have been threatened, asserted, or instituted to restrain or prohibit the
carrying out of the transactions contemplated by this Agreement.
(4) Prior to the Closing Date, there shall not have occurred any
material adverse change in the financial condition, business or operations of
the Purchaser nor shall any event have occurred which with the lapse of time may
cause or create any material adverse change in its financial conditions,
business or operations.
5.02. Purchaser Conditions. Except as may be waived in writing by the
Purchaser, all of the obligations of the Purchaser under this Agreement are
subject to fulfillment, prior to or at the Closing on the Closing Date, of each
of the following conditions:
(1) The representations and warranties of the Stockholders in Paragraph
3.01 hereof shall be deemed to have been made again on the Closing Date and
shall then be true and correct, subject to any changes contemplated by this
Agreement, and the Purchaser shall not have discovered any material error,
misstatement or omission therein.
(2) Each Stockholder shall have performed and complied with all
agreements or conditions required by this Agreement to be performed and complied
with by them prior to or on the Closing Date.
(3) Prior to the Closing Date, there shall not have occurred any
material adverse change in the financial condition, business or operations of
Allied Capital, nor shall any event have occurred which with the lapse of time
may cause or create any material adverse change in its financial conditions,
business or operations.
(4) The aggregate number of shares of Allied Capital's Capital stock
held by the Stockholders at the Closing on the Closing Date shall constitute one
hundred percent (100%) of all of the issued and outstanding capital stock of
Allied Capital.
(5) No action or proceeding by any governmental body or agency shall
have been threatened, asserted or instituted to restrain or prohibit the
carrying out of the transactions contemplated by this Agreement.
(6) At the time of the Closing the machinery, equipment, inventory or
other tangible property of Allied Capital shall not have suffered loss or damage
on account of fire, flood, accident, act of war, civil commotion or any other
cause or event beyond the
9
<PAGE> 10
reasonable power and control of Allied Capital or the Stockholders (whether or
not similar to the foregoing) to an extent which substantially affects the value
of the properties and assets of Allied Capital. Loss or damage shall be
considered to affect substantially the value of said properties and assets
within the meaning of this paragraph if the book value of such properties and
assets so lost or damaged exceeds five percent (5%) in book value of all such
tangible properties and assets.
ARTICLE 6
CONDITION PRECEDENT TO OBLIGATIONS
OF THE PURCHASER AND THE STOCKHOLDERS
The Purchaser, Allied Capital and the Stockholders shall have received
the approval of the transactions contemplated by the Agreement from all
necessary governmental agencies and authorities, and such approvals and the
transactions contemplated hereby shall not have been contested by a federal or
state governmental authority or any third party by formal proceeding. If any
formal proceeding is initiated, the Purchaser or the Stockholders, may, but
shall not be obligated to, pursue the acquisition over such objection.
ARTICLE 7
NATURE AND SURVIVAL OF WARRANTIES
All statements of fact contained herein, any certificate, the Report
delivered pursuant to Subparagraph 3.01(4) hereof, letter, document or other
instrument delivered by or on behalf of the Stockholder or Purchaser, and its
respective officers, pursuant to the terms hereof shall be deed representations
and warranties made by the Stockholders and the Purchaser, respectively, to each
other under this Agreement. For purposes of this Article 7 only, any party or
other person seeking to enforce, or claiming the benefit of, any representation
and warranty hereunder is called a Claimant, and any party or other person
against which right is claimed is called a "Defendant". All representations and
warranties of the parties shall survive the Closing and all inspections,
examinations or audits on behalf of the parties; provided, however, that all
representations and warranties shall terminate and expire, and be without
further force and effect whatever from and after December 31, 2001, hereinafter
referred to as the Expiration Date, and neither party hereto shall have any
liability whatsoever on account of any inaccurate representation or warranty or
for any breach of warranty, unless Claimant shall on or prior to said date,
serve written notice on Defendant, with a copy to Defendant's counsel herein,
setting forth in reasonable detail any damages (including amounts) which
Claimant may have under this Agreement.
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<PAGE> 11
ARTICLE 8
MISCELLANEOUS
8.01. Default. (1) The Purchaser or all of the undersigned Stockholders
may by notice to the other given in the manner hereinafter provided, on or at
any time prior to the Closing Date, terminate this Agreement if default shall be
made by the other party in the observance or in the due and timely performance
of any of its covenants and agreements herein contained, and such default shall
not have been fully cured within fifteen (15) days after receipt of notice
specifying particularly such default.
(2) If the Closing shall not have occurred by 10:00 o'clock
A.M., Central Standard Time, on December 31, 1999, a party which is not then in
default in the observance or in the due or timely performance of any of its
covenants and conditions herein contained may at any time thereafter terminate
this Agreement by giving written notice of termination to the other party. Such
written notice of termination shall be effective upon the delivery thereof in
person to an officer of such party or, if served by mail, upon the receipt
thereof by such party.
(3) The Purchaser may at its option terminate this Agreement
prior to the Closing if Allied Capital has suffered any damage, destruction or
loss (whether or not covered by insurance) materially and adversely affecting
the properties, business or prospects of Allied Capital. Damage, destruction, or
loss shall be considered to materially and adversely affect the properties,
business or prospects of Allied Capital if the book or market value (whichever
is lower) of the assets so damaged, destroyed or lost exceeds five percent (5%)
in book or market value (whichever is lower) of all tangible assets of Allied
Capital.
8.02. Amended or Modified. This Agreement may be amended or modified at
any time and in all respects by an instrument in writing executed by the
President of the Purchaser and all of the undersigned Stockholders.
8.03. Assignable. Neither this Agreement nor any right created hereby
all be assignable by either the Stockholders (or their successors in interest)
or the Purchaser without the prior written consent of the other, except by the
laws of succession. Nothing in this Agreement, expressed or implied, is intended
to confer upon any person, other than the parties hereto and their authorized
heirs, successors or assigns, any rights or remedies under or by reason of this
Agreement.
8.04. Notices. Any notice, communication, request, reply or advice,
hereinafter severally and collectively called "notice", in this Agreement
provided or permitted to be
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<PAGE> 12
given, made or accepted by either party to the other must be in writing and may
be given or be served by depositing the same in the United States mail,
addressed to the party to be notified, postage pre-paid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer of such party. Notice deposited in the mail in the manner hereinabove
described shall be effective only if and when received by the parties to be
notified. For purposes of notice of the addresses of the parties shall, until
changed as hereinafter provided, be as follows:
To the Purchaser: Mr. Jim Hodge
President, ALLQUEST.com Corporation
6110 Pinemont
Houston, Texas 77092
To the Stockholders: Mr. Jim C. Hodge
President, Allied Mortgage Capital Corporation
P.O. Box 691488
Houston, Texas 77269-1480
8.05. Headings. Paragraph and 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.
8.06. Invalidity. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be constructed as if such invalid, illegal or unenforceable provisions had
never been contained therein.
8.07. Applicable Law. This Agreement shall be construed under and in
accordance with the laws of the State of Texas.
8.08. Binding. This Agreement shall be binding on and inure to the
benefit of and be enforceable by the Stockholders and the Purchaser, their
respective authorized heirs, executors, administrators, legal representatives,
successors and assigns except as otherwise expressly provided herein.
8.09. Remedies. This Agreement and all other copies of this Agreement
insofar as they relate to the rights, duties and remedies of the parties shall
be deemed to be one agreement. This Agreement may be executed concurrently in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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<PAGE> 13
8.10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and there are no agreements, understandings,
restrictions, warranties or representations between the parties other than those
set forth herein or herein provided for.
IN WITNESS WHEREOF, the parties hereto have executed this Plan and
Agreement of Reorganization on the date first above set forth.
PURCHASER:
ALLQUEST.COM CORPORATION
a Delaware corporation
By:
--------------------------------
Jim Hodge, President
ALLIED CAPITAL:
ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation
By:
--------------------------------
Jim Hodge, President
13
<PAGE> 14
STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Capital Stock Signature
- ------------------ ----------------- ---------
<S> <C> <C>
Kathy Hodge 99
----------------- --------------------
Jamey J. Hodge 1
----------------- --------------------
</TABLE>
14
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ALLQUEST.COM CORPORATION
FIRST: The name of the Corporation is ALLQUEST.com Corporation
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The name of the registered
agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is twenty million (20,000,000)
consisting of:
1. fifteen million (15,000,000) shares of common stock, par value
one cent ($.01) per share (the "Common Stock"); and
2. five million (5,000,000) shares of preferred stock, par value
one cent ($.01) per share (the "Preferred Stock").
B. The Board of Directors is hereby expressly authorized, subject to
any limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of the Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
C.1 Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (The "Limit"), be entitled, or permitted to any vote in
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<PAGE> 2
respect of the shares held in excess of the Limit. The number of votes which may
be cast by any record owner by virtue of the provisions hereof in respect of
Common Stock beneficially owned by such person owning shares in excess of the
Limit shall be a number equal to the total number of votes which a single record
owner of all Common Stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
(a) An "affiliate" of a specified person shall mean a person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
(b) "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934 (or any successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule l3d-3 as in effect on March 1, 1998;
provided, however, that a person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding
(but shall not be deemed to be the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other arrangement with this Corporation
to effect any transaction which is described in any one or more of the clauses
of Section A of Article EIGHTH) or upon the exercise of conversion rights,
exchange rights, warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall not be deemed
to be the beneficial owner of any voting shares solely by reason of a revocable
proxy granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed the beneficial
owner); or
(3) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned person or any of its
affiliates acts as a partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of this
Corporation; and provided further, however, that (1) no director or officer of
this Corporation (or any affiliate of any such director or officer) shall,
solely by
2
<PAGE> 3
reason of any or all of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such director or officer (or any affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation nor any trustee with respect
thereto (or any affiliate of such trustee) shall, solely by reason of such
capacity of such trustee, be deemed, for any purposes hereof, to beneficially
own any Common Stock held under any such plan. For purposes of computing the
percentage beneficial ownership of Common Stock of a person, the outstanding
Common Stock shall include shares deemed owned by such person through
application of this subsection but shall not include any other Common Stock
which may be issuable by this Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise. For all other
purposes, the outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation,
or other entity.
(d) The Board of Directors shall have the power to construe
and apply the provisions of this section and to make all determinations
necessary or desirable to implement such provisions, including but not limited
to matters with respect to (1) the number of shares of Common Stock beneficially
owned by any person, (2) whether a person is an affiliate of another, (3)
whether a person has an agreement, arrangement, or understanding with another as
to the matters referred to in the definition of beneficial ownership, (4) the
application of any other definition or operative provision of this Section to
the given facts, or (5) any other matter relating to the applicability or effect
of this Section.
3. The Board of Directors shall have the right to demand
that any person who is reasonably believed to beneficially own Common Stock in
excess of the Limit (or holds of record Common Stock beneficially owned by any
person in excess of the Limit) (a "Holder in Excess") supply the Corporation
with complete information as to (a) the record owner(s) of all shares
beneficially owned by such Holder in Excess, and (b) any other factual matter
relating to the applicability or effect of this section as may reasonably be
requested of such Holder in Excess. The Board of Directors shall further have
the right to receive from any Holder in Excess reimbursement for all expenses
incurred by the Board in connection with its investigation of any matters
relating to the applicability or effect of this section on such Holder in
Excess, to the extent such investigation is deemed appropriate by the Board of
Directors as a result of the Holder in Excess refusing to supply the Corporation
with the information described in the previous sentence.
4. Except as otherwise provided by law or expressly
provided in this Section C, the presence, in person or by proxy, of the holders
of record of shares of capital stock of the Corporation entitling the holders
thereof to cast one-third of the votes (after giving effect, if required, to the
provisions of this Section) entitled to be cast by the holders of shares of
capital stock of the Corporation entitled to vote shall constitute a quorum at
all meetings of the
3
<PAGE> 4
stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
5. Any constructions, applications, or determinations made
by the Board of Directors, pursuant to this Section in good faith and on the
basis of such information and assistance as was then reasonably available for
such purpose, shall be conclusive and binding upon the Corporation and its
stockholders.
6. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this Section shall
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or otherwise
rendered inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders owning an amount of
stock over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for farther
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the By-laws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the By-laws so provide.
C. Subject to the rights of holders of any class or series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
D. Subject to the rights of holders of any class or series of
Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes for the
election of directors.
4
<PAGE> 5
SIXTH:
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors, other than those who may be elected
by the holders of any class or series of Preferred Stock, shall be divided into
three classes, as nearly equal in number as reasonably possible, with the term
of office of the first class to expire at the conclusion of the first annual
meeting of stockholders, the term of office of the second class to expire at the
conclusion of the annual meeting of stockholders one year thereafter and the
term of office of the third class to expire at the conclusion of the annual
meeting of stockholders two years thereafter, with each director to hold office
until his or her successor shall have been duly elected and qualified. At each
annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires, and until
such director's successor 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.
C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80% of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal the By-laws of the Corporation. Any adoption, amendment or repeal of
the By-laws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the By-laws of the Corporation. In addition to
any vote of the holders of any class or series of stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital
5
<PAGE> 6
stock of the Corporation entitled to vote generally in the election of directors
(after giving effect to the provisions of Article FOURTH hereof), voting
together as a single class, shall be required to adopt, amend or repeal any
provisions of the By-laws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in this
Section:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (a) any Interested Stockholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereafter defined) equaling or exceeding 25% or more of the combined
assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value equaling or
exceeding 25% of the combined assets of the Corporation and its Subsidiaries
except pursuant to an employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or consolidation
of the Corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested Stockholder (a
"Disproportionate Transaction"); provided, however, that no such transaction
shall be deemed a Disproportionate Transaction if the increase in the
proportionate ownership of the Interested Stockholder or Affiliate as a result
of such transaction is no greater than the increase experienced by the other
stockholders generally; shall require the affirmative vote of the holders of at
least 80% of the voting power of the then-outstanding shares of stock of the
corporation entitled to vote in the election of directors (the "Voting Stock"),
voting together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote
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may be required, or that a lesser percentage may be specified, by law or by any
other provisions of this Certificate of Incorporation or any Preferred Stock
Designation or in any agreement with any national securities exchange or
quotation system or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean any
transaction which is referred to in any one or more of paragraphs 1 through 5 of
Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote as is required by law or
by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following paragraph 1 is met
or, in the case of any other Business Combination, either the condition
specified in the following paragraph 1 or all of the conditions specified in of
the following paragraph 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by the holders of Common Stock in such
Business Combination shall at least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price, including
any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by
the Interested Stockholder or any of its Affiliates for any shares of Common
Stock acquired by it (i) within the two-year period immediately prior to the
first public announcement of the proposal of the Business Combination (the
"Announcement Date"), or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred to in this Article EIGHTH
as the "Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be at least equal to the
highest of the following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested Stockholder has
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<PAGE> 8
previously acquired any shares of a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder for any shares of
such class of Voting Stock acquired by it (i) within the two-year period
immediately prior to the Announcement Date, or (ii) in the transaction in which
it became an Interested Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting Stock are entitled
in the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; and
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date, whichever is
higher.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be in cash or
in the same form as the Interested Stockholder has previously paid for shares of
such class of Voting Stock. If the Interested Stockholder has paid for shares of
any class of Voting Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of such class of
Voting Stock shall be either cash or the form used to acquire the largest number
of shares of such class of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with Section B.2 of this Article
EIGHTH shall be subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination; (i)
except as approved by a majority of the Disinterested Directors, there shall
have been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding stock having
preference over the Common Stock as to dividends or liquidation; (ii) there
shall have been (X) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the Disinterested Directors, and (Y)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the Disinterested Directors; and
(iii) neither such Interested Stockholder nor any of its Affiliates shall have
become the beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by
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the Corporation, whether in anticipation of or in connection with such Business
Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
stockholders of the Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint venture, a pool,
a joint stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of acquiring,
holding, or disposing of securities.
2. "Interested Stockholder" shall mean any Person (other than the
Corporation or any holding company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by any Interested Stockholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on
March 1, 1998; or
(b) which such Person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote pursuant to any
agreement, arrangement or understanding (but neither such Person nor any such
Affiliate or Associate shall be deemed to be the beneficial owner of any shares
of Voting
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Stock solely by reason of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for such meeting, and
with respect to which shares neither such Person nor any such Affiliate or
Associate is otherwise deemed the beneficial owner); or
(c) which are beneficially owned, directly or indirectly within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in
effect on March 1, 1998, by any other Person with which such Person or any of
its Affiliates or Associates has any agreement, arrangement or understanding for
the purposes of acquiring, holding, voting (other than solely by reason of a
revocable proxy as described in Subparagraph (b) of this Paragraph 3) or in
disposing of any shares of Voting Stock; provided, however, that, in the case of
any employee stock ownership or similar plan of the Corporation or of any
Subsidiary in which the beneficiaries thereof possess the right to vote any
shares of Voting Stock held by such plan, no such plan nor any trustee with
respect thereto (nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee, shall be deemed, for any purposes hereof, to
beneficially own any shares of Voting Stock held under any such plan.
4. For the purpose of determining whether a Person is an Interested
Stockholder pursuant to Section C.2., the number of shares of Voting Stock
deemed to be outstanding shall include shares deemed owned through application
of this Section C.3. but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on March 1, 1998
6. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in this Section C.2., the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
7. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors prior to the time that the Interested Stockholder
became an Interested Stockholder, and any director who is thereafter chosen to
fill any vacancy on the Board of Directors or who is elected and who, in either
event, is unaffiliated with the Interested Stockholder, and in connection with
his or her initial assumption of office is recommended for appointment or
election by a majority of Disinterested Directors then on the Board of
Directors.
8. "Fair Market Value" means: (a) in the case of stock, the highest
closing sales price of the stock during the 30-day period immediately preceding
the date in question of a share of such stock of the Nasdaq System or any system
then in use, or, if such stock is admitted to trading on a principal United
States securities exchange registered under the Securities Exchange Act of 1934,
Fair Market Value shall be the highest sale price
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reported during the 30-day period preceding the date in question, or, if no
such quotations are available, the Fair Market Value on the date in question of
a share of such stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately adjusted for any
dividend or distribution in shares of such stock or in combination or
reclassification of outstanding shares of such stock into a smaller number of
shares of such stock, and (b) in the case of property other than cash or stock,
the Fair Market Value of such property on the date in question as determined by
the Board of Directors in good faith.
9. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any dividend
or distribution in shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of shares of such
stock or any combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock.
10. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in Sections B.2.(a) and B.2.(b) of this Article EIGHTH shall include the
shares of Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article EIGHTH, on
the basis of information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder; (b) the number of shares of Voting Stock
beneficially owned by any person; (c) whether a person is an Affiliate or
Associate of another; and (d) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of the
terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of
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the properties and assets of the Corporation, may, in connection with the
exercise of its judgment in determining what is in the best interest of the
Corporation and its stockholders, give due consideration to all relevant
factors, including, without limitation, the social and economic effect of
acceptance of such offer on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objectives
as a financial institution holding company and on the ability of its subsidiary
financial institution to fulfill the objectives of a federally insured financial
institution under applicable statutes and regulations.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in addition
to any affirmative vote of stockholders required by law or this Certificate of
Incorporation, any direct or indirect purchase or other acquisition by the
Corporation of any Equity Security (as hereinafter defined) of any class from
any Interested Person (as hereinafter defined) shall require the affirmative
vote of the holders of at least 80% of the Voting Stock of the Corporation that
is not beneficially owned (for purposes of this Article TENTH beneficial
ownership shall be determined in accordance with Section C.2(b) of Article
FOURTH hereof) by such Interested Person, voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or by any
other provisions of this Certificate of Incorporation or any Preferred Stock
Designation or in any agreement with any national securities exchange or
quotation system, or otherwise. Certain defined terms used in this Article
TENTH are as set forth in Section C below.
B. The provisions of Section A of this Article TENTH shall not be
applicable with respect to:
1. any purchase or other acquisition of securities made as part of
a tender or exchange offer by the Corporation or a Subsidiary (which term, as
used in this Article TENTH, is as defined in the first clause of Section C.6 of
Article EIGHTH hereof) of the Corporation to purchase securities of the same
class made on the same terms to all holders of such securities and complying
with the applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provision replacing such
Act, rules or regulations);
2. any purchase or acquisition made pursuant to an open market
purchase program approved by a majority of the Board of Directors, including a
majority of the Disinterested Directors (which term, as used in this Article
TENTH, is as defined in Article EIGHTH hereof); or
3. any purchase or acquisition which is approved by a majority of
the Board of Directors, including a majority of the Disinterested Directors, and
which is made at no more than the Market Price (as hereinafter defined), on the
date that the understanding between the Corporation and the Interested Person is
reached with respect to such purchase (whether or not such purchase is made or a
written agreement relating to such purchase is executed on such
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date), of shares of the class of Equity Security to be purchased.
C. For the purposes of this Article TENTH:
1. The term Interested Person shall mean any Person (other than the
Corporation, Subsidiaries of the Corporation, pension, profit sharing, employee
stock ownership or other employee benefit plans of the Corporation and its
Subsidiaries, entities organized or established by the Corporation or any of its
Subsidiaries pursuant to the terms of such plans and trustees and fiduciaries
with respect to any such plan acting in such capacity) that is the direct or
indirect beneficial owner of 5% or more of the Voting Stock of the Corporation,
and any Affiliate or Associate of any such person.
2. The Market Price of shares of a class of Equity Security on any
day shall mean the highest sale price of shares of such class of Equity Security
on such day, or, if that day is not a trading day, on the trading day
immediately preceding such day, on the national securities exchange or the
Nasdaq System or any other system then in use on which such class of Equity
Security is traded.
3. The term Equity Security shall mean any security described in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on March
1, 1998, which is traded on a national securities exchange or the Nasdaq System
or any other system then in use.
4. For purposes of this Article TENTH, all references to the term
Interested Stockholder in the definition of Disinterested Director shall be
deemed to refer to the term Interested Person.
ELEVENTH:
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, including, without limitation, any Subsidiary
(as defined in Article EIGHTH herein), partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a
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proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
B. The right to indemnification conferred in Section A of this Article
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication"), that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article is not paid in full
by the Corporation within 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall also be entitled to be paid the
expense of prosecuting or defending such suit. In (1) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (2) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
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D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
a majority vote of the disinterested directors, grant rights to indemnification
and to the advancement of expenses to any employee or agent of the Corporation
to the fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
TWELFTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (A) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (B) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under Section 174 of the Delaware General
Corporation Law, or (D) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further eliminate or limit the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any night or
protection of a director of the Corporation existing at the time of such repeal
or modification.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate 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 this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article THIRTEENTH, Sections B or C of Article
FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH, Article TENTH or Article ELEVENTH.
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FOURTEENTH: The name and mailing address of the sole incorporator is as follows:
NAME MAILING ADDRESS
----------- ---------------------------
Jim C. Hodge 6110 Pinemont Dr., Ste. 215
Houston, Texas 77092
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I, THE UNDERSIGNED, being the sole incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware, do make, file and
record this Certificate of Incorporation, do certify that the facts herein
stated are true, and, accordingly, have hereto set my hand this 9th day of July
1999.
SOLE INCORPORATOR
/s/ JIM C. HODGE
-----------------
Jim C. Hodge
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EXHIBIT 3.2
ALLQUEST.COM CORPORATION
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which
date shall be within thirteen (13) months subsequent to the latter of the date
of incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time
by the Delaware General Corporation Law or the Certificate of Incorporation of
the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which any adjourned meeting is more
than thirty (30) days after the date for which the meeting was originally
noticed, or if a new record date is fixed for the adjourned meeting, written
notice of the place, date and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be transacted
which might have been transacted at the original meeting.
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Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or
except to the extent that the presence of a larger number may be required by
law. Where a separate vote by a class or classes is required, a majority of the
shares of such class or classes, present in person or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of discussion as seem
to him or her in order.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i)
by or at the direction of the Board of Directors, or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who complies
with the notice procedures set forth in this Section 6(b). 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 delivered or mailed
to and received at the principal executive offices of the Corporation not less
than thirty (30) days prior to the date of the annual meeting; provided,
however, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received not later than the
close of business on the tenth
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day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder who proposed such business, (iii) the
class and number of shares of the stockholder, and (iv) any material interest
of such stockholder in such business. Notwithstanding anything in these Bylaws
to the contrary, no business shall be brought before or conducted at an annual
meeting except in accordance with the provisions of this Section 6(b). The
officer of the Corporation or other person presiding at the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he should so determine, he shall so
declare to the meeting and any such business so determined to be not properly
brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting by or
at the direction of the Board of Directors or by or at the direction of the
holders of not less than one-tenth of all the outstanding capital stock of the
Corporation at whose instance the special meeting is called.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only (i) by or at the direction of the Board of Directors, or (ii)
by any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of
the Corporation not less than thirty (30) days prior to the date of the
meeting; provided, however, that in the event that less than forty (40) days'
notice or prior disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); and (ii)
as to the stockholder giving the notice (x) the name and address, as they
appear on the Corporation's books, of such stockholder and (y) the class and
number of shares of the Corporation's capital stock that are beneficially owned
by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of
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nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the provisions of this Section 6(c). The officer of the Corporation or other
person presiding at the meeting shall, if the facts so warrant, determine that
a nomination was not made in accordance with such provisions and, if he or she
should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such
list available for such purposes, at such places, at such times and to such
persons as required by applicable law. The stock transfer books shall be the
only evidence as to the identity of the stockholders entitled to examine the
stock transfer books or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Stockholder Action Without Meetings.
Any action required by the General Corporation Law to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary
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to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
The Directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the
conclusion of the annual meeting of stockholders one year thereafter and the
term of office of the third class to expire at the conclusion of the annual
meeting of stockholders two years thereafater, with each director to hold
office until his or her successor shall have been duly elected and qualified.
At each annual meeting of stockholders, commencing with the first annual
meeting, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election, with each director to hold office
until his or her successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have
been elected expires, and until such director's successor shall have been duly
elected and qualified. No decrease in the number of authorized directors
constituting the Board shall shorten the term of any incumbent director.
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Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the President and shall be held at such place, on such date, and at such
time as they or he or she shall fix. Notice of the place, date and time of each
such special meeting shall be given to each director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date or time, without further
notice of waiver thereof.
Section 6. Participation in Meetings by Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee 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.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power
to appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, their services as members of
committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may
replace any absent or disqualified member at any meeting of the committee. Any
committee so designated may exercise the power and authority of the Board of
Directors to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law if the resolution which designated the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of three (3) members, one of which shall be the President if,
and only so long as, the President remains in office as a member of the Board
of Directors. The Nominating Committee shall have authority (a) to review any
nominations for election to the Board of Directors made by a stockholder of the
Corporation pursuant to Section 6(c)(ii) of Article I of these Bylaws in order
to determine compliance with such Bylaws, and (b) to recommend to the Whole
Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next
ensuing.
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ARTICLE IV
OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable
after the annual meeting of stockholders shall choose a Chairman of the Board,
a President, one (1) or more Vice Presidents, a Secretary and a Treasurer and
from time to time may choose such other officers as it may deem proper. The
Chairman of the Board and the President shall be chosen from among the
directors. Any number of offices may be held by the same person.
(b) The term of office of all officers shall be until the
next annual election of officers and until their respective successors are
chosen, but any officer may be removed from office at any time by the
affirmative vote of a majority of the authorized number of directors then
constituting the Board of Directors.
(c) All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board of Directors of the Corporation shall act in
a general executive capacity and, subject to the direction of the Board of
Directors, shall have general responsibility for the supervision of the
policies and affairs of the Corporation and the effective administration of the
Corporation's business.
Section 3. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. He
shall see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall
be presided over by the President or, in his absence, the Chairman of the
Board, or in his absence, by such officer as has been designated by the Board
of Directors or, in his absence, by such officer or other person as is chosen
at the meeting. The Secretary or, in his absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors
or, in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
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Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his disability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them from time to time by the Board of Directors, the Chairman of
the Board or the President.
Section 5. Secretary.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
Section 6. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation and shall keep regular books of account. The funds of the
Corporation shall be deposited in the name of the Corporation by the Treasurer
with such banks or trust companies as the Board of Directors from time to time
shall designate. He shall sign or countersign such instruments as require his
signature, shall perform all such duties and have all such powers as are
usually incident to such office and/or such other duties and powers as are
properly assigned to him by the Board of Directors, the Chairman of the Board
or the President, and may be required to give bond for the faithful performance
of his duties in such sum and with such surety as may be required by the Board
of Directors.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one (1) or more assistant
secretaries and one (1) or more assistants to the Treasurer, or one (1)
appointee to both such positions, which officers shall have such powers and
shall perform such duties as are provided in these Bylaws or as may be assigned
to them by the Board of Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
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ARTICLE V
STOCK
Section 1. Certificate of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment
of any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders 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, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
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 of Directors may fix a new record
date for the adjourned meeting.
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Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mail, postage paid, or by sending such notice by prepaid telegram or
mailgram. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mail or by telegram or
mailgram or by sending such notice by facsimile machine or other electronic
transmission, shall be at the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these Bylaws, facsimile signatures of any
officer or officers of the Corporation may be used whenever and as authorized
by the Board of Directors or a committee thereof.
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Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary. If
and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an Assistant
Secretary or Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or committees of the Board of Directors so designated,
or by any other person as to matters which such director or committee member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of
the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
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EXHIBIT 5
September 28, 1999
Board of Directors
AllQuest.com Corporation
6110 Pinemont Drive, Suite 215
Houston, Texas 77092
Re: Registration Statement Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement to be
filed on Form SB-2 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to 1,400,000 shares of Common Stock of
AllQuest.com Corporation (the "Company"), par value $0.01 per share. As
counsel, we have reviewed the Registration Statement and the Restated and
Amended Articles of Incorporation of the Company and such other legal matters
as we have deemed appropriate for the purpose of this opinion. We are rendering
this opinion as of the time the Registration Statement referred to above
becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common Stock
of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Prospectus, be validly issued, fully
paid and non-assessable shares of Common Stock of the Company.
Very truly yours,
SELMAN & MUNSON, P.C.
By: /s/ JACK A. SELMAN
-----------------------------
Jack A. Selman, President
JAS:dl
<PAGE> 1
EXHIBIT 10.1
REVOLVING CREDIT NOTE
COASTAL BANC ssb
Houston, Texas September _____, 1999 $17,600,000.00
FOR VALUE RECEIVED, the undersigned, ALLIED MORTGAGE CORPORATION, a
Texas corporation, and ALLIED MORTGAGE CAPITAL CORPORATION, a Texas
corporation (herein called "Maker", whether one or more), jointly and
severally, promise to pay to the order of COASTAL BANC ssb (herein called
"Payee," which term herein in every instance shall refer to any owner or
holder of this note) the sum of SEVENTEEN MILLION SIX HUNDRED THOUSAND AND
NO/100 DOLLARS ($17,600,000.00), or so much thereof as may be advanced to
such Maker from time to time hereunder by Payee, whichever is less, together
with interest on the principal hereof from time to time outstanding to such
Maker from the date of advancement until maturity, at the per annum rate
hereinafter stated (computed on the basis of a year of 360 days and paid for
the actual number of days elapsed, subject to usury savings provision
contained herein), said principal and interest being payable in lawful money
of the United States of America at the offices of Coastal Banc ssb, 5718
Westheimer, Suite 400, Houston, Harris County, Texas 77057, or at such other
place in Harris County, Texas, as Payee may designate hereafter in writing.
This note is issued pursuant to a loan agreement dated April 30, 1996
by and among Maker and Payee (the "Loan Agreement"), and reference is made to
the Loan Agreement for all purposes, including, but not limited to,
obligations of Payee to advance funds hereunder, mandatory prepayment
obligations of Maker, interest rates applicable hereto, exercise of rights
and remedies, certain rights as to the prepayment and the acceleration of the
maturity. Capitalized terms used but not defined herein have the meanings
assigned to them in the Loan Agreement. This note is given in replacement,
but not extinguishment, of that certain revolving credit note ("Prior Note")
dated June 1, 1999 in the original principal sum of $30,000,000.00, executed
by Maker payable to the order of Payee. All liens, assignments, and security
interests securing the Prior Note are hereby ratified and confirmed,
renewed, extended and carried forward as security for this note, in addition
to and cumulative of all other security.
The principal balance hereof advanced and from time to time remaining
unpaid shall bear interest during each day of the term of the loan evidenced
hereby at a variable annum rate equal to the lesser of (a) the Basic rate, or
(b) the Maximum Rate.
Notwithstanding the foregoing, if at any time the Basic Rate shall
exceed the Maximum Rate and thereafter the Basic Rate shall become less
than the Maximum Rate, the rate of interest payable hereunder on the
entire unpaid principal hereof shall be the Maximum Rate until there shall
have accrued in favor of Payee such amount of interest as Payee would have
otherwise received if the Basic Rate had not been limited to the Maximum
Rate during the period of time that the Basic Rate exceeded the Maximum Rate.
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If a maturity or final payment of this note, the total amount of
interest accrued hereon is less than the total amount of interest which would
have accrued had the Basic Rate not been limited to the Maximum Rate, Maker
agrees, to the full extent permitted by applicable law, to pay to Payee an
amount equal to the positive difference, if any, derived by subtracting (a) the
amount of interest which accrued hereon pursuant to the provisions of the
foregoing two (2) paragraphs from (b) the lesser of (i) the amount of interest
which would have accrued on this note if the Maximum Rate had at all times been
in effect, or (ii) the amount of interest which would have accrued if the Basic
Rate, not limited to the Maximum Rate, had at all times been in effect.
All past due principal and interest of the note, whether due as the
result of acceleration of maturity or otherwise, shall bear interest at the per
annum rate equal to the Maximum Rate, from the date the payment thereof shall
have become due until the same shall have been fully discharged by payment.
Interest shall be due and payable monthly as it accrues on the unpaid
principal amount of this note from time to time outstanding, the first payment
of interest to be due and payable on the 1st day of each succeeding calendar
month thereafter until the Termination Date, when the then remaining unpaid
balance of principal of this note plus all accrued and unpaid interest shall
become due and payable.
Until the Termination Date, Maker may borrow, pay, prepay in whole or
in part and reborrow hereunder subject to the terms and conditions set forth in
the Loan Agreement, it being understood that this note is a revolving credit
note; it being expressly contemplated that, by reason of prepayments hereon,
there may be times when no indebtedness is owing hereunder, but,
notwithstanding such occurrences, this note shall remain valid and shall be in
full force and effect as to loans or advances made subsequent to such
occurrences; and it being understood and agreed that advances and repayments of
principal under this note are not limited to the face amount of principal, but
to a maximum of the face amount of principal at any one time outstanding. Payee
may advance funds pursuant to this note from time to time, and from time to
time the undersigned will make repayments on the principal of this note, so
that no more than the face amount of principal shall be outstanding at any one
time. Each advance and each payment of principal hereunder shall be reflected by
a notation made by Payee in its business records. The aggregate unpaid
principal amount of advances reflected by the notations made in Payee's
business records shall be conclusive evidence of the principal amount owing
under this note, absent manifest error, which amount the undersigned
unconditionally promises to pay to the order of Payee under the terms hereof.
Except as otherwise provided in the Loan Agreement, Maker and any and
all sureties, guarantors and endorsers of this note and all other parties now
or hereafter liable hereon, severally waive grace, demand, presentment for
payment, protest, notice of any kind (including, but not limited to, notice of
dishonor, notice of protest, notice of intention to accelerate and notice of
acceleration) and diligence in collecting and bringing suit against any party
hereto, and agree (i) to all extensions and partial payments, with or without
notice, before or after maturity, (ii) to any substitution, exchange or release
of any security now or hereafter given for this note, (iii) to the release of
any party primarily or secondarily liable hereon, and (iv) that it will not be
necessary for Payee, in order to enforce payment of this note, to first
institute or exhaust Payee's remedies against Maker or any other party liable
therefor or against any security for this note.
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If this note or any installment hereof is not paid when due (whether
the same becomes due by acceleration or otherwise) and it is placed in the
hands of an attorney for collection (whether or not suit is filed), or if this
note is collected through legal proceedings including but not limited to suit,
probate, insolvency or bankruptcy proceedings, Maker agrees to pay all
reasonable attorneys' fees and all expenses of collection and costs of court.
It is the intention of the parties hereto to comply strictly with
applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this note or in any of the Loan Documents, in no event, shall this
note or any of the other Loan Documents require or permit the payment,
charging, taking, reserving, or receiving of any sums constituting interest
under applicable laws which exceed the maximum amount permitted by such laws. If
any such excess interest is contracted for, charged, taken, reserved, or
received in connection with the loan evidenced by this note or in any of the
other Loan Documents or otherwise relating hereto, or in any communication by
Payee or any other person to Maker or any responsible party liable for payment
of this note, or in the event all or part of the principal or interest hereof
shall be prepaid or accelerated, so that under any of such circumstances or
under any other circumstance whatsoever the amount of interest contracted for,
charged, taken, reserved, or received on the amount of principal actually
outstanding from time to time under this note shall exceed the maximum amount
of interest permitted by applicable usury laws, then in any such event it is
agreed as follows: (i) the provisions of this paragraph shall govern and
control, (ii) any such excess shall be canceled automatically to the extent of
such excess, and shall not be collected or collectible, (iii) any such excess
which is or has been received shall be credited against the then unpaid
principal balance hereof or refunded to Maker, at Payee's option, and (iv) the
effective rate of interest shall be automatically reduced to the maximum lawful
rate allowed under applicable laws as construed by courts having jurisdiction
hereof or thereof. Without limiting the foregoing, all calculations of the rate
of interest contracted for, charged, taken, reserved, or received in connection
herewith which are made for the purpose of determining whether such rate
exceeds the maximum lawful rate shall be made to the extent permitted by
applicable laws by amortizing, prorating, allocating and spreading during the
period of the full term of the loan, including all prior and subsequent
renewals and extensions, all interest at any time contracted for, charged,
taken, reserved, or received. The terms of this paragraph shall be deemed to
be incorporated in every Loan Document and communication relating to this note
and loan. The "applicable usury laws" shall mean such laws of the State of
Texas or the laws of the United States, whichever laws allow the higher rate of
interest, as such laws now exist; provided, however, that if such laws shall
hereafter allow higher rates of interest, then the applicable usury laws shall
be the laws allowing the higher rates, to be effective as of the effective date
of such laws.
V.T.C.A., Finance Code Section 346.003 shall not apply to this Note.
Except to the extent required by federal law, this note shall be
governed by and construed under the laws of the State of Texas.
Any check, draft, money order or other instrument given in payment of
all or any portion hereof may be accepted by Payee and handled in collection in
the customary manner, but the same shall not constitute payment hereunder or
diminish any rights of Payee except to the extent that actual cash proceeds of
such instrument are unconditionally received by Payee.
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To the extent that the interest rate laws of the State of Texas are
applicable to this note, the applicable interest rate ceiling is the weekly
ceiling determined in accordance with Chapter 303 of the Texas Finance Code, as
amended or recodified.
Maker represents and warrants to Payee and to all other owners and
holders of any indebtedness evidenced hereby that all loans evidenced by this
note are for business or commercial purposes as such terms are used or defined
in Texas Revised Civil Statutes, Section 303 of the Texas Finance Code and
Regulation Z promulgated by the Board of Governors of the Federal Reserve System
and under Titles I and V of the Consumer Credit Protection Act.
This note is unconditionally and irrevocably guaranteed by Jim C.
Hodge.
This note is secured as provided in the Loan Agreement and is entitled
to all of the benefits of the Loan Agreement.
MAKER:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGES
----------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGES
----------------------------
Name: Jim C. Hodges
Title: President
<PAGE> 1
EXHIBIT 10.2
LOAN AGREEMENT
THIS LOAN AGREEMENT dated effective as of April 30, 1996, is made by
and among ALLIED MORTGAGE CORPORATION, a Texas corporation (the "Company"),
ALLIED MORTGAGE CAPITAL CORPORATION, a Texas corporation ("Capital") (the
Company and Capital being called collectively, the "Borrowers" and
individually, "Borrower") and COASTAL BANC ssb (herein called "Lender");
WITNESSETH:
This Loan Agreement, as it may hereafter be supplemented, amended,
modified, or restated by one or more written agreements is called the Agreement
and amends and restates in its entirety that certain Amended and Restated Loan
Agreement dated as of April 29, 1994 by and between the Company and Lender, as
it has been heretofore amended, modified, supplemented, or restated.
ARTICLE 1: DEFINITIONS, GENERAL RULES
Section 1.1. Terms Defined Above. As used in this Agreement, the
terms "Borrower" and "Lender" shall have the meanings respectively indicated in
the opening recitals hereof.
Section 1.2. Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Advance" means a disbursement by Lender of any sum or sums
lent by Lender to either Borrower pursuant to the terms of this
Agreement.
"Affiliate" of any Person means (i) any other Person which,
directly or indirectly, controls, is controlled by, or is under common
control with, such Person, or (ii) any other Person who is a director,
officer or employee (a) of such Person, or (b) of any Person described
in the preceding clause (i). For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled
by" and "under common control with"), as used with respect to any
Person, shall mean the possession or ownership, directly or indirectly,
of (i) the power to (a) direct or cause the direction of the management
and policies of such Person, whether through the ownership of Voting
Shares or by contract or otherwise, or (b) vote 10% or more of the
Voting Shares of such Person, or (ii) the ownership of 10% or more of
any class of Voting Shares of such Person.
"Aged Mortgage Loan" means a Mortgage Loan which has been a
Pledged Mortgage Loan for more than 90 days.
"Aggregate Advances" means, at the time of any
determination, the outstanding and unpaid principal balances of all
Advances.
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"Appraisal" means, for any Mortgage Loan, a written
statement of the market value of the real property securing it.
"Appraisal Law" means any Governmental Requirement that is
applicable to appraisals of mortgaged-residential property in
connection with transactions involving that property, including,
without limitation, Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, the Federal Deposit Insurance
Corporation Improvement Act of 1991, 12 C.F.R. Chapter I, Part 34,
Subpart C, 12 C.F.R. Chapter II, Subchapter A, Part 225, Subpart G, and
12 C.F.R. Chapter III, Subchapter B, Part 323.
"Approved Custodian" means a Person acceptable to the Lender
from time to time in its sole discretion, who possesses Mortgage Loans
that secure Mortgaged-backed Securities.
"Assignment" means an assignment of a Mortgage, in form
sufficient under the laws of the United States of America and the state
of jurisdiction where the Mortgage is recorded to give notice to the
world of the assignment of the Mortgage, perfect the assignment and
establish its priority as a first perfected security interest relative
to other transactions in respect of the Mortgage assigned.
"Bailee Letter" has the meaning set forth in Section 2.6
hereof.
"Bailee Pledge Agreement" has the meaning set forth in
Section 2.3 hereof.
"Basic Rate" means, for any day, a variable per annum rate
of interest at all times equal to the LIBOR Rate for that day plus two
and one-half percent (2.50%) per annum.
"Business Day" means a day (other than Saturday, Sunday or a
legal holiday or a day on which Lender is authorized or obligated by
law or executive order to close) on which banks in Houston, Texas are
open for business.
"Cash Equivalents" mean any of the following: (a)
securities with maturities of 180 days or less from the date of
acquisition thereof issued or fully guaranteed or insured as to payment
of principal and interest by the United States of America or any agency
thereof, (b) certificates of deposit with maturities of 180 days or
less from the date of acquisition thereof issued by, in deposit
accounts at, any commercial bank having capital and surplus equal to or
greater than $250,000,000, (c) commercial paper of a domestic issuer
rated at least either A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investor Service, Inc. with maturities of 180 days or less from
the date of acquisition thereof, and (d) securities of a domestic
municipal issuer rated at least either AAA by Moody's Investor Service,
Inc. or AAA by Standard & Poor's Corporation with maturities of 180
days or less from the date of acquisition thereof.
"Closing Date" means the date on which all of the conditions
precedent stated in Article 2 hereof have been met to Lender's satisfaction and
the initial Advance hereunder is funded by Lender against the Note.
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"Code" means the Uniform Commercial Code of any relevant
jurisdiction, as amended from time to time.
"Collateral" means, on any day, all Mortgage Loans,
Mortgage-backed Securities and any other Property of each of the
Borrowers heretofore, now or hereafter pledged to secure the
Obligations.
"Collateral Documents" has the meaning set forth in Section
2.3 hereof.
"Collateral Value" means (a) with respect to each Eligible
Mortgage Loan, at the time of any determination, an amount equal to one
hundred percent (100%) of the lesser of (i) the actual out-of-pocket
cost of such Eligible Mortgage Loan to the Borrower that is pledging
such Eligible Mortgage Loan, i.e., the net amount actually funded
against such Eligible Mortgage Loan originated by the applicable
Borrower or the net purchase price of such Eligible Mortgage Loan
purchased by it, (ii) the amount at which an Investor has committed to
purchase the Eligible Mortgage Loan pursuant to a Purchase Commitment,
(iii) the principal balance of the Eligible Mortgage Loan, or (iv) the
Market Value of the Eligible Mortgage Loan; provided, that the
Collateral Value of any Eligible Mortgage Loan originated or acquired
by either Borrower, whether funded as a refinancing of an existing
residential Mortgage Loan or purchased by it for an amount in excess of
Par shall not exceed such Eligible Mortgage Loan's Par, even though the
applicable Borrower funded or paid more than Par for it and even if the
Purchase Commitment covering it specifies a purchase price for it
greater than Par; (b) all Pledged Mortgage Loans which are not or cease
to be Eligible Mortgage Loans shall have a Collateral Value equal to
zero; (c) with respect to Mortgage-backed Securities, an amount equal
to the lesser of (i) the sum of the principal balances of the Mortgage
Loans from which such Mortgage/backed Securities were created or (ii)
the amount which the Investor has committed to pay for such
Mortgage-backed Securities pursuant to a Purchase Commitment.
"Commercial Security Agreement" means the commercial
security agreement dated of even date herewith containing terms and
conditions acceptable to Lender, and otherwise being substantially in
the form of Exhibit "A", executed by the Borrowers to secure the
Obligations as the same may be amended, renewed, extended, increased,
restated, and/or replaced from time to time.
"Commitment" means the obligations of Lender to make
Advances to or for the benefit of each of the Borrowers pursuant to
this Agreement.
"Commitment Limit" means $5,000,000.00.
"Compliance Certificate" means the document in the form of
Exhibit "E" to be completed from time to time by each of the Borrowers
pursuant to this Agreement.
"Contingent Liabilities" means any and all liabilities of a
Person, direct or indirect, for or in connection with the obligations,
stock or dividends of a Person, whether by guaranty, endorsement,
agreement to purchase or repurchase, agreement to lease, agreement to
supply or advance funds (including, without limitation, agreements to
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maintain working capital, solvency or other balance sheet conditions or
agreements to purchase stock or make capital contributions) or
otherwise.
"Conventional Loan" means a conforming loan represented by a
Mortgage Note, the payment of which is not guaranteed by VA or insured
by FHA.
"Correction Period" means ten (10) calendar days for any
Collateral Documents for any Pledged Mortgage Loan shipped under
Section 2.18 of this Agreement for correction.
"Credit Request" means a request for an Advance executed by
a Borrower in substantially the form of Exhibit "B".
"Current Financials" means either (a) the Borrowers'
Financials for the year ended December 31, 1995 and the three months
ended March 31, 1996 or (b) at any time after the Borrowers' monthly
Financials are first delivered under Section 4.1 hereof, the Borrowers'
monthly Financials then most recently delivered to the Lender and annual
Financials then most recently delivered to the Lender.
"Debt" means, with respect to any Person and on any day, the
sum on that day of (a) all of that Person's debt (i) for borrowed
money, (ii) for the deferred purchase price of Property or services, or
(iii) which is evidenced by a bond, debenture, note or other instrument
plus (b) any debt secured by any lien or security interest existing on
any interest of that Person in Property owned subject to such lien
whether or not that Person is liable for the debt secured thereby plus
(c) all of that Person's obligations under all capitalized leases and
(d) all of that Person's obligations under all guaranties, endorsements
and other contingent obligations in respect of or any obligations to
purchase or otherwise acquire Debt of others.
"Debtor Laws" means all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership,
insolvency, reorganization or similar laws from time to time in effect
affecting the rights of creditors generally.
"Default" means the occurrence of any event or existence of
any condition which, but for the giving of notice, the lapse of time,
or both, would constitute an Event of Default.
"Discretionary Advances" has the meaning set forth in
Section 2.16 of this Agreement.
"Dividends" in respect of any corporation, means (a) cash
distributions or any other distributions on, or in respect of, any
class of capital stock of such corporation, except for distributions
made solely in shares of stock of the same class, and (b) any and all
funds, cash or other payments made in respect of the redemption,
repurchase or acquisition of such stock, unless such stock shall be
redeemed or acquired through the exchange of such stock with stock of
the same class.
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"Eligible Mortgage Loans" means, on any day, all fully
amortizing Mortgage Loans (a) which are made payable to the order of
either Borrower or have been endorsed payable to the order of either
Borrower and have been endorsed by such Borrower in blank, and for
which such Borrower holds Purchase Commitments, (b) which have original
terms to their stated maturity of thirty (30) years or less, (c) in
which Lender has been granted and continues to hold an enforceable
perfected first-priority security interest, (d) which are not in
default, (e) which otherwise satisfies all requirements and
representations and warranties of this Agreement, (f) which, conform in
all respects with all the requirements of the Purchase Commitments to
purchase such Mortgage Loans and are valid and enforceable in
accordance with their respective terms, (g) which are eligible either
for guaranty or insurance by the VA or FHA or for insurance (as to the
portion of the Mortgage Loan which initially exceeds an 80%
loan-to-collateral value ratio) by private mortgage insurance by an
insurer rated "A" or better by a nationally recognized rating agency,
or an uninsured conventional mortgage loan conforming to the maximum
loan amount and loan-to-collateral value ratio standards for guaranty
by FNMA or FHLMC and with both an initial and a current
loan-to-collateral value ratio no greater than 80%, (h) otherwise
satisfactory to Lender in its sole good faith discretion in all other
respects, (i) dated not more than thirty (30) days before the date on
which a Borrower has requested the Advance in connection with such
Mortgage Loan, and (j) as to which none of the events or conditions
described in Section 2.15 has occurred.
"Eligible Mortgage Pool" means a pool of Mortgage Loans that
will secure a " mortgage related security", as defined in Section
3(a)(41) of the Exchange Act administered or to be administered by a
trustee acceptable to Lender in its sole discretion where the Mortgage,
Mortgage Note and other documents relating to such Mortgage Loans are
held or to be held by an Approved Custodian.
"ERISA" means the Employee Retirement Income Security Act of
1974 and any successor statute, as amended from time to time, and all
rules and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) which, together with either of the Borrowers would be
treated as a single employer under Section 4001 of ERISA.
"Event of Default" means any of the events or conditions
specified in Section 6.1 of this Agreement, provided that any
requirement for notice or lapse of time or any other condition has been
satisfied.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time or any successor statute and all rules and
regulations promulgated under it.
"FHA" means the Federal Housing Administration of the
Department of HUD or its successor.
"FHA Loan" means a loan represented by a Mortgage Note,
payment of which is partially or completely insured by the FHA under
the National Housing Act or Title V
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of the Housing Act of 1949 or with respect to which there is a current,
binding and enforceable commitment for such insurance issued by the
FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation, a
wholly-owned corporate instrumentality of the United States of America
created pursuant to the Emergency Home Finance Act of 1970, or its
successor.
"Financials" means balance sheets, profit and loss
statements, statements of cash flow, changes in stockholders' equity
and any other financial statements, reports or information requested by
the Lender.
"FNMA" means the Federal National Mortgage Association, or
its successor.
"Funding Account" means the non-interest bearing demand
checking account established by Borrowers at Lender to be used for the
(a) deposit of proceeds of Advances, and (b) the funding of Pledged
Mortgage Loans.
"GAAP" means those generally accepted accounting principles
and practices which are recognized as such by the American Institute of
Certified Public Accountants acting through its Accounting Principles
Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently
applied for all periods after the date hereof so as to properly reflect
the financial condition, and the results of operations and changes in
financial position, of a Borrower, except that any accounting principle
or practice required to be changed by the said Accounting Principles
Board or Financial Accounting Standards Board (or other appropriate
board or committee of the said Boards) in order to continue as a
generally accepted accounting principle or practice may so be changed.
"GNMA" means the Governmental National Mortgage Association,
or its successor.
"Governmental Authority" means any foreign governmental
authority, the United States of America, any state of the United States
of America, and any political subdivision of any of them and any
agency, department, commission, board, bureau, court or other tribunal.
"Governmental Requirement" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other
direction or requirement (including, without limitation, any of the
foregoing which relate to environmental standards or controls, energy
regulations and occupational, safety and health standards or controls)
of any (domestic or foreign) federal, state, country, municipal or
other government, department, commission, board, court, agency or any
other instrumentality of any of them, which exercises jurisdiction over
either borrower or any of their Property or Lender.
"Guarantor" means Jim C. Hodge.
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"Guaranty" means an unconditional and irrevocable guaranty
agreement dated of even date herewith executed by the Guarantors in
favor of Lender in form and substance acceptable to Lender, as the same
may be amended, supplemented, modified, restated, and/or replaced from
time to time.
"HUD" means the Housing and Urban Development or its
successor.
"Investor" means any Person approved by Lender in its sole
discretion; provided that at any time thereafter by written notice to
the applicable Borrower, Lender may disapprove any Investor in its sole
discretion for any reason whereupon such Investor shall no longer be
qualified to be an Investor.
"LIBOR Rate" means the rate of interest per annum equal to
either (i) the London Interbank Offered Rate for U.S. Dollar deposits
for an interest period of thirty (30) days as quoted by Telerate,
Bloomberg, or any other rate quoting services or (ii) the published
LIBOR Rate for an interest period of thirty (30) days in the "Money
Rates" column published each day in The Wall Street Journal, either (i)
or (ii) will be selected by Lender, without notice to Borrower, in its
sole discretion. The Lender's determination of the LIBOR Rate for each
day shall be conclusive and binding, absent manifest error. The LIBOR
Rate shall fluctuate upward and downward automatically and concurrently
with day-to-day changes in such rate of interest quoted by the rate
quoting services listed above or published in The Wall Street Journal
as selected by the Lender. If the LIBOR Rate ceases to be quoted or
published altogether, Lender may choose a substitute interest rate
which is based on comparable information.
"Lien" means any lien, mortgage, security interest, tax
lien, pledge or encumbrance, or conditional sale or title retention
agreement, or any other interest in property designed to secure the
repayment of indebtedness, whether arising by agreement or under any
statute or law, or otherwise. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property.
"Loan" means the aggregate principal amount of all Advances
outstanding hereunder.
"Loan Documents" means this Agreement, the Note, the
Assignment, the Security Instruments and any other instruments,
documents and agreements executed and/or delivered pursuant to the
terms of or in connection with this Agreement, together with all
renewals, extensions, modifications, increases, restatements,
replacements, and rearrangements of any of them.
"Margin Stock" has the meaning assigned to that term in
Regulations G and U of the Board of Governors of the Federal Reserve
System as in effect from time to time.
"Market Value" of any Mortgage Loan means at any time the
market value of such Mortgage Loan based upon the then most recent
posted net yield furnished by FNMA and published and distributed by
Telerate Mortgage Services; provided, that if such posted net
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yield is not available from Telerate Mortgage Services, Lender shall
obtain such posted net yield from FNMA.
"Material Adverse Effect" means any material adverse effect
on (a) the validity or enforceability of this Agreement, the Note or
any Security Instrument, (b) the financial condition, the Property or
business operations of either Borrower, (c) the ability of either
Borrower to timely repay its debt or timely fulfill its other
obligations under this Agreement, the Note or any Security Instrument,
(d) any material item or part of the Collateral or its value, or (e)
the priority or perfection of Lender's Liens in any material item or
part of the Collateral.
"Maximum Rate" means the maximum lawful rate of
interest permitted by applicable usury laws now or hereafter enacted,
which interest rate shall change when and as said laws change, to the
extent permitted by said laws, effective on the day such change in
said laws becomes effective, provided, however, that the term "Maximum
Rate" means a rate of interest equal to eighteen percent (18%) per
annum if there is no Maximum Rate.
"Mortgage" means a mortgage, deed of trust, deed to secure
debt or other form of mortgage instrument, appropriate and effective
for the U.S. jurisdiction where the real estate is located to create,
perfect and maintain in full force and effect a first and prior
mortgage lien against it, in form and substance satisfactory to Lender,
securing a Mortgage Note and granting a perfected first-priority lien
on residential real property consisting of land and a one-to-four
family owner-occupied dwelling thereon which is completed and ready for
occupancy.
"Mortgage-backed Security" means FHLMC, GNMA or FNMA
securities that are backed by Mortgage Loans.
"Mortgage Loans" means residential Conventional Loans, FHA
Loans and VA Loans, or any combination of them.
"Mortgage Note" means a promissory note secured by a
Mortgage.
"Mortgage Pool" means a pool of Mortgage Loans that were
warehoused with the Lender, on the basis of which there is to be issued
a Mortgage-backed Security.
"Mortgagee's Title Insurance Policy" means an ALTA, CLTA or
TLTA (extended coverage) form lender's or mortgagee's title insurance
policy, including all of its riders and endorsements and all
endorsements as are required by applicable GNMA, FNMA or FHLMC
guidelines, in an amount at least equal to the face principal amount of
the Mortgage Note insuring its holder that the Mortgage is a valid
first lien on the real property described in the Mortgage, subject only
to (i) liens for real estate taxes and governmental improvements
assessments not delinquent, (ii) easements and restrictions that do not
adversely effect the market ability of title to such real property or
prohibit or interfere with its use as a one, two, three or four family
(whichever the case may be) dwelling, (iii) for real property that is a
unit in a condominium or a horizontal or vertical
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property regime, the provisions of the condominium or other property
regime, (iv) oil, gas or other mineral reservations and exceptions
provided they do not materially alter the contour of the property or
impair its value of usefulness for its intended purpose, (v) agreements
for installation, maintenance or repair of public utilities provided
they do not establish evidence or permit any Person to file or acquire
any Lien against the mortgaged property (unless the lender has
established and maintained an escrow account for the payment of such
Lien), and (vi) such other exceptions (if any) as are acceptable under
applicable GNMA, FNMA, FHLMC or private Investor guidelines.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA that is maintained for employees of the
Company or a Subsidiary of the Company.
"Net Worth" means the excess of a Person's total assets over
that Person's total liabilities as each is determined in accordance
with GAAP.
"Nonusage Fee" has the meaning set forth in Section 2.20
hereof.
"Note" means the promissory note of even date herewith
executed by Borrowers payable to the order of Lender in the original
principal sum of $5,500,000.00 and being substantially in the form of
Exhibit C", together with all renewals, extensions, modifications,
increases, replacements, and rearrangements thereof.
"Obligations" means all present and future indebtedness,
obligations and liabilities of each Borrower to Lender and all
renewals, extensions, increases, rearrangements, replacements, and
modifications thereof or any part thereof arising pursuant to this
Agreement and/or the other Loan Documents and/or represented by the
Note and all interest accruing thereon and all reasonable attorneys'
fees incurred in drafting, negotiating, enforcing or collecting
thereof, regardless of whether such debts, obligations or liabilities
are direct, indirect, fixed, contingent, liquidated, unliquidated,
joint, several or joint and several.
"Par" means (a) in its case of a residential Mortgage Loan
refinanced by either Borrower, an amount equal to the unpaid principal
balance of the residential Mortgage Loan refinanced or (b) in the case
of a purchased residential Mortgage Loan, its unpaid principal balance
on the date of purchase.
"Person" means any individual, corporation, partnership,
joint venture, trust, joint stock company, unincorporated business
entity or governmental department, administrative agency or
instrumentality.
"Plan" has the meaning set forth in Section 3.15 hereof.
"Pledged Mortgage Loans" means, for any day, all Mortgage
Loans pledged by each of the Borrowers to Lender to secure the
Obligations.
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"Power of Attorney" means a power of attorney dated of even date
herewith executed by each Borrower and being in substantially the form of
Exhibit "F" hereto.
"Prior Note" shall have the meaning set forth in Section 2.2 hereof.
"Property" means any interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Purchase Commitment" means a written commitment, in form and
substance satisfactory to the Lender, issued in favor of the Company by an
Investor pursuant to which that Investor commits to purchase Mortgage Loans or
Mortgage-backed Securities.
"Redemption Amount" has the meaning set forth in Section 2.10 hereof.
"Regulation Q" means Regulation Q promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R., Part 17.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Part 221.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Part 224.
"Security Instruments" means the Commercial Security Agreement, the
Assignments and the other instruments described in Article 2.7 of this Agreement
and any and all other instruments heretofore, now or hereafter executed in
connection with or as security for the payment of the Note, together with all
renewals, extensions, modifications, increases, restatements, replacements, and
rearrangements of any of them.
"Subsidiary" means any Person (other than a natural person) in which
any other Person (directly or through one or more other Subsidiaries or other
types of intermediaries), owns or controls: (a) more than fifty percent (50%) of
the total voting power or shares of stock entitled to vote in the election of
its directors, managers, or trustees; or (b) more than ninety percent (90%) of
the total assets or more than ninety percent (90%) of the total equity through
the ownership of capital stock (which may be nonvoting) or a similar device or
indicia of equity ownership.
"Termination Date" means the earlier to occur of (i) May 30, 1997 or
(ii) the date that the Commitment is cancelled or terminated in accordance with
this Agreement.
"Trust Receipt" means a Trust Receipt and Agreement executed and
delivered by a Borrower to Lender in substantially the form of Exhibit "G"
hereto.
"VA" means the Department of Veteran Affairs or its successor.
"VA Loan" means a loan represented by a Mortgage Note, payment of
which is partially or completely guaranteed by the VA under the Servicemen's
Readjustment Act
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of 1944 or Chapter 37 of Title 38 of the United States Code or with
respect to which there is a current binding and enforceable commitment
for such a guaranty issued by the VA.
"Warehouse Borrowings" means, at the time of any
determination, all Debt of any Person that is secured by, in whole or
in part, any combination of Mortgage Loans, Mortgage-backed Securities
and other mortgage-backed securities, including, without limitation,
this Loan.
"Warehouse Line Limit", with respect to each Eligible
Mortgage Loan, an amount equal to one hundred percent (100%) of any one
of the following selected by Lender, in its sole and absolute
discretion, at the time of funding the Advance in connection with such
Eligible Mortgage Loan: (a) the amount at which an Investor has
committed to purchase the Eligible Mortgage Loan pursuant to a Purchase
Commitment or (b) the principal balance of the Eligible Mortgage Loan.
"Wet Advance" means an Advance for which all of the
Collateral Documents have not been delivered to the Lender.
ARTICLE 2: COMMITMENT
Section 2.1. Loan. Subject to the terms and conditions and relying on
the representations and warranties contained in this Agreement, Lender agrees
to make Advances to either Borrower at any time, and from time to time, on any
Business Day prior to the Termination Date in such amounts as such Borrower may
request up to but not exceeding the Commitment Limit and each Borrower may
borrow, repay, and reborrow hereunder so long as the Aggregate Advances at any
one time outstanding shall not exceed the lesser of (a) the aggregate Warehouse
Line Limit for all Eligible Mortgage Loans, or (b) Commitment Limit. Lender's
Commitment shall terminate on the Termination Date or such earlier date
pursuant to the terms of this Agreement. All revolving loans made pursuant to
this Section 2.1 and all payments of principal with respect to all loans under
the Commitment shall be evidenced by notations made by Lender in its business
records. The Aggregate Advances reflected by the notations made in Lender's
business records shall be conclusive evidence of the principal amount owing and
unpaid on the Note.
Section 2.2. Note. All Advances hereunder shall be evidenced by the
Note. The principal amount from time to time outstanding on the Note shall bear
interest each day at the lesser of the Basic Rate or the Maximum Rate;
provided, all past due amounts, both principal and accrued and unpaid interest,
shall bear interest at the Maximum Rate from their due dates until paid. The
Note is given in renewal and extension, but not extinguishment, of the
outstanding principal balance of that certain November 7, 1995 promissory note
in the original principal sum of $5,500,000.00 executed by the Company payable
to the order of the Lender ("Prior Note"). Borrowers, jointly and severally,
agree to pay to Lender the note in accordance with its terms. All renewals,
extensions, modifications, increases and rearrangements of the Note, if any,
shall be deemed to be made pursuant to this Agreement and accordingly, shall be
subject to the terms and provisions hereof, and Borrower shall be deemed to
have ratified, as of such renewal, extension, modification, increase or
rearrangement date, all of the representations, warranties and
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agreements set forth herein. All liens, security interests, and assignments
securing the Prior Note are hereby ratified, confirmed, and brought forward as
security for the Note, in addition to and cumulative of all other security.
Section 2.3. Notice and Manner of Obtaining Advances. A Borrower may
obtain an Advance hereunder, subject to the satisfaction of the conditions set
forth in this Section 2.3, Sections 2.4 and 2.5 hereof and Exhibit "D" of this
Agreement, including, without limitation, delivery of all documents and other
items described on Exhibit "D" to the Lender (the "Collateral Documents").
Request for Advances shall be initiated by a Borrower delivering to the Lender
a properly completed and executed Credit Request together with all Collateral
Documents. The Credit Request and the Collateral Documents must be received by
the Lender no later than 2:00 p.m. Houston time in order for funding to occur
the same day. In the case of Wet Advances, Borrower shall comply with the
procedures and, at or prior to the Lender's making of such Wet Advance, must
deliver the documents set forth in Section II of Exhibit "D" together with a
properly completed and executed Bailee Pledge Agreement in the form of Exhibit
"K" hereto (the "Bailee Pledge Agreement"). In the case of Mortgage Loans
financed through a Wet Advance, Borrower shall cause all Collateral Documents
to be delivered to the Lender or its designee within one (1) calendar day after
the date of the Wet Advance relating thereto.
Section 2.4. Conditions Precedent to Initial Advance. The obligation
of Lender to make the initial Advance pursuant to this Agreement is subject to
the following condition precedent that Borrowers shall deliver to Lender all of
the following items, in form and substance satisfactory to Lender, shall have
been received by Lender:
(a) Note. The Note duly and validly issued, executed and
delivered by Borrowers.
(b) Agreement. This Agreement duly and validly issued,
executed and delivered by Borrowers.
(c) Commercial Security Agreement, Financing Statement, and
Guaranty. The Commercial Security Agreement, the UCC1 Financing
Statements, in form and substance acceptable to the Lender, and the
Powers of Attorney duly and validly issued, executed and delivered by
Borrowers. The Guaranty duly and validly issued, executed and delivery
by the Guarantors.
(d) Company Documents. A copy of (i) Company's articles or
certificates of incorporation and bylaws, including all amendments
thereto, all certified, in the case of the articles or certificates of
incorporation by the Secretary of State of Company's state of
incorporation and in the case of bylaws and other documents, by the
chief executive officer or Vice President and the Secretary or an
Assistant Secretary of Company as being in full force and effect on
the Closing Date, (ii) certificates of existence and good standing, or
equivalent, if any, issued by the Secretary of State and the
Comptroller of Public Accounts of the state of Company's
incorporation, (iii) a schedule listing, by state, all certificates of
authority and good standing issued by the appropriate Governmental
Authority in each state in which Company does business and where either
Company is authorized to do business or where doing business without
being duly authorized would
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potentially subject Company to a Material Adverse Effect, and (iv)
all other documents Lender may request relating to the existence,
qualification and good standing of Company.
(e) Resolutions of Company. A copy of the resolution or
resolutions passed by the Board of Directors of Company, certified by
the chief executive officer or Vice President and the Secretary or an
Assistant Secretary of Company as being in full force and effect on
the Closing Date, each of which corporate resolutions authorizing the
borrowings provided for herein and the execution, delivery and
performance of this Agreement, the Note, and the other Loan Documents,
and any other instrument or agreement required hereunder from such
Person, as the case may be, and providing as to the incumbency, and
containing the specimen signature or signatures, of the person or
persons authorized to execute and deliver this Agreement, the Note,
and the other Loan Documents and any other instrument or agreement
required hereunder.
(f) Capital Documents. A copy of (i) Capital's articles or
certificates of incorporation and bylaws, including all amendments
thereto, all certified, in the case of the articles or certificates of
incorporation by the Secretary of State of Capital's state of
incorporation and in the case of bylaws and other documents, by the
chief executive officer or Vice President and the Secretary or an
Assistant Secretary of Capital as being in full force and effect on
the Closing Date, (ii) certificates of existence and good standing, or
equivalent, if any, issued by the Secretary of State and the
Comptroller of Public Accounts of the state of Capital's
incorporation, (iii) a schedule listing, by state, all certificates of
authority and good standing issued by the appropriate Governmental
Authority in each state in which Capital does business and where
either Capital is authorized to do business or where doing business
without being duly authorized would potentially subject Capital to a
Material Adverse Effect, and (iv) all other documents Lender may
request relating to the existence, qualification and good standing of
Capital.
(g) Resolutions of Capital. A copy of the resolution or
resolutions passed by the Board of Directors of Capital, certified by
the chief executive officer or Vice President and the Secretary or an
Assistant Secretary of Capital as being in full force and effect on
the Closing Date, each of which corporate resolutions authorizing the
borrowings provided for herein and the execution, delivery and
performance of this Agreement, the Note, and the other Loan Documents,
and any other instrument or agreement required hereunder from such
Person, as the case may be, and providing as to the incumbency, and
containing the specimen signature or signatures, of the person or
persons authorized to execute and deliver this Agreement, the Note,
and the other Loan Documents and any other instrument or agreement
required hereunder.
(h) Legal Opinion. Written opinion or opinions, dated as of
the date hereof, of counsel for Borrower, in form and substance
satisfactory to Lender covering all such matters as Lender may
require.
(i) Tax, Lien and Judgment Search. A favorable tax, lien and
judgment search of the appropriate public records for the Borrower,
including a search of Code financing statements, which search shall
not have disclosed the existence of any prior Lien on the Collateral
other than in favor of the Lender or as permitted hereunder.
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(j) Other Evidence. Such other evidence as Lender may
reasonably request to establish the consummation of the transactions
contemplated hereby, the taking of all proceedings in connection
herewith and compliance with the conditions set forth in this
Agreement.
Section 2.5. Conditions Precedent to All Advances. The obligation of
Lender to make each Advance pursuant to this Agreement (including the Initial
Advance) in connection with any Mortgage Loan or Loans is subject to the
following further conditions precedent:
(a) Prior to 2:00 p.m. (Houston, Texas time) on the day of
the requested funding, Borrower shall have delivered a Credit Request
duly executed on behalf of Borrower and complied with the procedures
set forth in Exhibit "D" hereto.
(b) The representations and warranties of Borrower contained
in this Agreement or any Security Instrument shall be true and correct
in all material respects on and as of the date of such Advance.
(c) No Default or Event of Default shall have occurred and be
continuing as of the date of such Advance.
(d) There shall have been, in the sole opinion of Lender, no
Material Adverse Effect since the date of this Agreement.
(e) All legal matters incident to the transactions herein
contemplated shall be satisfactory to legal counsel to Lender.
(f) Borrower shall have paid to Lender the fees due and
payable pursuant to Sections 2.20 and 2.21 hereof.
(g) Each Mortgage Loan or Loans to which the Credit Request
relates is an Eligible Mortgage Loan.
(h) The Lender shall have received evidence satisfactory to
it as to the making and/or continuation of any book entry or the due
filing and recording in all appropriate offices of all financing
statements and other instruments as may be necessary to perfect the
security interest of the Lender in the Collateral under the Code.
(i) All other conditions precedent have been satisfied
including, without limitation, the conditions set forth in Section 2.4
hereof.
Each Credit Request shall be deemed to constitute a representation and warranty
by the applicable Borrower on the date of the requested Advance as to the facts
specified in Subsections (b) and (c) of this Section 2.5. Lender may reject, at
any time and from time to time, any Mortgage Loan or Loans and the Collateral
Documents delivered in connection therewith borrowed against hereunder as
unacceptable and ineligible and Borrowers shall pay to Lender in immediately
available funds an amount equal to the aggregate amount of all Advances made
hereunder against such Mortgage Loan or Loans designated by Lender as
unacceptable and ineligible. All other
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original documents executed in connection with each Mortgage Loan and not
delivered to Lender shall be held in trust by such Borrower for the benefit of
Lender and Lender and such Borrower shall specifically identify such items in
the Credit Request and upon request of Lender shall immediately deliver to
Lender such items. Neither failure to exercise nor delay in exercising on the
part of Lender, of its right to reject or designate any Mortgage Loan or any
Collateral Documents as unacceptable and ineligible shall operate as a waiver of
such right or Lender's right to exercise such right at any time. Each condition
precedent in this Agreement is material to the transactions contemplated in this
Agreement and time is of the essence in respect of each thereof. Lender may make
any Advance without all conditions being satisfied, but, to the extent permitted
by law, the same shall not be deemed a waiver of the requirement that each such
condition precedent be satisfied as a prerequisite for any subsequent Advance.
Section 2.6. Mandatory Prepayments. Without the prior written consent
of Lender, if at any time the outstanding principal balance of the Note exceeds
the aggregate Collateral Value of all Eligible Mortgage Loans then Borrower
shall forthwith prepay the amount of such excess for application towards
reduction of the outstanding principal balance of the Note.
Section 2.7. Optional Prepayments. Each Borrower, at its option,
without notice, premium or penalty (except as otherwise provided in the next
sentence of this section), may prepay the Note in full at any time or from time
to time in part; provided, however, that because the Note is a master revolving
credit note, the Note shall remain in full force and effect until terminated as
provided therein or until, at a time when no amounts, principal, interest or
otherwise, are then owing, Borrowers release Lender from any obligation to make
loans pursuant thereto.
Section 2.8. Security Interest in Mortgage-backed Securities. The
Company's ability to convert Mortgage Loans that are within the Collateral to
Mortgage-backed Securities are subject to the following conditions:
(a) Pledged Mortgages that are to be transferred to a pool
custodian in connection with the issuance of Mortgage-backed
Securities, shall be released from the Lender's security interest only
against payment to the Lender of the amount due the Lender in
connection with such Pledged Mortgages as determined in accordance with
Section 2.10 of this Agreement or against the issuance of such
Mortgage-backed Securities and the continuation of the Lender's first
priority, perfected security interest in such Mortgage-backed
Securities and the proceeds thereof until payment due the Lender in
respect of said Pledged Mortgages is made to the Lender.
(b) In the case of Mortgage-backed Securities created from
Pledged Mortgages, the Lender shall have the exclusive right to the
possession of the Mortgage-backed Securities or, if the
Mortgage-backed Securities are not to be issued in certificated form,
shall have the right to have the book entries for the Mortgage-backed
Securities issued in the Lender's name or the name or names of its
designees. Lender shall cause delivery of the Mortgage-backed
Securities to be made to the Investor or the book entries registered
in the name of the Investor or the Investor's designee only against
payment therefor. The Company acknowledges that the Lender may enter
into one or more standing arrangements with other financial
institutions for the issuance of Mortgage-backed
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Securities in book entry form in the name of such other financial
institutions, as agent for the Lender, and the Company agrees upon
request of the Lender, to execute and deliver to such other financial
institutions the Company's written concurrence in any such standing
arrangements.
Section 2.9. Delivery of Collateral Documents. The Lender or its
designee exclusively shall deliver Pledged Mortgages or Pledged Securities to
(a) an Investor that has issued a Purchase Commitment with respect thereto for
its examination and purchase, or (b) an Approved Custodian for purposes of
examination or delivery in connection with the issuance of Mortgage-backed
Securities. In such cases where the Lender must deliver documents to an Investor
or Approved Custodian, the Lender must receive signed shipping instructions (in
the form of Exhibit "I" attached hereto), no later than 2:00 p.m. Houston, Texas
time one (1) Business Day prior to the expiration of the appended Purchase
Commitment, in addition to any other documents listed in Section III of Exhibit
"D" in respect of the issuance of Mortgage-backed Securities. If shipping
instructions are received by Lender before 2:00 p.m. Houston, Texas time of any
Business Day, Lender will ship the documents together with the appropriate
bailee letter in form of Exhibit "J-1" or "J-2" ("Bailee Letter") to the
Investor or Approved Custodian on the same Business Day, otherwise Lender will
ship the documents the next Business Day following receipt of shipping
instructions. In any case in which an Advance has been made hereunder against
Pledged Mortgages, based on the existence of a Purchase Commitment covering such
Pledged Mortgages, the Company agrees that such Pledged Mortgages will not be
placed in any mortgage pool other than an Eligible Mortgage Pool, unless such
Pledged Mortgages have been redeemed from pledge as permitted hereunder or other
arrangements, satisfactory to the Lender in its sole discretion, have been made
for the redemption of such Pledged Mortgages from pledge hereunder. The Lender
may deliver any document relating to the Collateral to the Company for
correction or completion against a Trust Receipt in the form of Exhibit "G"
attached hereto executed by the Company. The Company hereby represents and
warrants to the Lender that any request by the Company for release of the
Collateral consisting of or relating to Mortgage Loans to the Company shall be
solely for the purposes of correcting clerical or non-substantial documentation
problems in preparation for returning such Collateral to the Lender for ultimate
sale or exchange; the Company shall request such release in compliance with all
of the terms and conditions of such release set forth herein; and the Company
will return to the Lender such documentation released to the Company pursuant to
Section 2.18 within ten (10) calendar days after such delivery.
Section 2.10. Right of Redemption from Pledge. So long as no Default
or Event of Default has occurred, the Company may redeem a Mortgage Loan or
Mortgage-backed Security by notifying the Lender of its intention to redeem such
Mortgage Loan or Mortgage-backed Security from pledge and by paying, or causing
an Investor to pay, to the Lender, for application to prepayment of the
principal balance of the Note, an amount (the "Redemption Amount") equal to the
amount of the Advances made with respect to or relating to such Mortgage Loan or
Mortgage-backed Security to be released as of the date of such application.
Section 2.11. Payments.
(a) All payments of principal of and interest on the Note
shall be made to Lender at its office at Eight Greenway Plaza, Suite
1500, Houston, Texas 77046.
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(b) Whenever any payment of principal of or interest on the
Note shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day
and interest shall be payable for such extended time at the rate of
interest with-respect thereto in effect at the due date.
Section 2.12. Computation of Interest. Subject to the provisions of
Section 7.11 hereof, interest on the unpaid principal amount of the Note from
time to time outstanding shall be computed on the basis of a year of three
hundred sixty (360) days and paid for the actual number of days elapsed.
Borrowers will not be required to maintain any deposit with Lender as a
condition for the borrowings hereunder.
Section 2.13. Security. Payment of the Note and the Obligations and
the performance of the covenants set forth in this Agreement will be secured,
directly or indirectly, by a first priority perfected security interest,
mortgage, assignment or lien, as the case may be, in and upon the Collateral,
as more particularly described in the Commercial Security Agreement.
Each of the Borrowers agrees to execute, acknowledge and deliver to
Lender such instruments, mortgages, chattel mortgages, deeds of trust, security
agreements, security agreement-pledges, guaranty agreements, statements,
assignments and financing statements, in form and substance acceptable to
Lender as in the good faith and discretion of counsel for Lender may be
necessary to enforce, grant to Lender and perfect in the United States the
security interests, liens, assignments and mortgages on the Collateral.
Section 2.14. No Default. Lender may, but shall not be required to,
make or continue any Advance if an event has occurred and is continuing which
constitutes a Default or breach of a covenant under this Agreement or any other
Loan Document.
Section 2.15. Ineligible Collateral. If any of the following events
shall occur or apply to any Pledged Mortgage Loan at any time then (i) such
Mortgage Loan shall no longer be an Eligible Mortgage Loan and (ii) Borrowers,
jointly and severally, agree to pay to Lender as a mandatory prepayment against
the Note, in immediately available funds, an amount equal to the Aggregate
Advances made hereunder against such Mortgage Loan:
(a) if it has become an Aged Mortgage Loan;
(b) twenty-one (21) days shall have lapsed from the date a
Mortgage Loan or a Mortgage-backed Security was delivered to an
Investor for examination and purchase, without the purchase being made
and its proceeds paid to Lender;
(c) a Mortgage Loan shall cease to be fully covered by a
Purchase Commitment or shall be ineligible for purchase pursuant to a
Purchase Commitment;
(d) ten (10) days shall have lapsed from the date any Basic
Mortgage Loan Document was delivered to either Borrower, as the case
may be, for correction or completion, without its having been returned
to Lender;
(e) a Mortgage Loan shall be in default;
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(f) Lender's security interest in such Pledged Mortgage Loan
shall have become other than first priority or shall have become
unenforceable or otherwise impaired; or
(g) any of the representations or warranties made in Section
3.10 shall be false in any material respect with respect to such
Pledged Mortgage Loan or Borrowers shall default in the performance of
or compliance with any covenant contained in this Agreement with
respect to such Pledged Mortgage Loan.
Section 2.16. Discretionary Advances. Notwithstanding the Commitment
Limit, the Lender shall have the right, but shall not be obligated, to make
Advances requested by either Borrower, which when added to all Aggregate
Advances as of the date of any request are in excess of the Commitment Limit,
in such amounts as such Borrower may request prior to the Termination Date up
to the maximum amount hereinafter stated and each Borrower may borrow, pay,
prepay, in whole or in part, and reborrow in respect thereof, provided, however,
the aggregate principal amount of all such discretionary Advances shall not
exceed at any one time outstanding the sum of $500,000.00 ("Discretionary
Advances"). Any request for an Advance hereunder by either Borrower, which when
added to all Aggregate Advances as of the date of such request is in excess of
the Line of Credit Commitment, shall be deemed to be a request for a
Discretionary Advance. Each request for a Discretionary Advance made by either
Borrower may be approved or denied, with or without cause, by the Lender in its
sole and absolute discretion. Lender's approval of any request for a
Discretionary Advance shall not be deemed to be a waiver of its right to deny
any subsequent request for a Discretionary Advance, with or without cause,
regardless of whether or not the same circumstances and factors which existed
at the time of Lender's approval of any previous request exist at the time of
any subsequent request. Each Discretionary Advance and all Mortgage Loans
pledged in connection therewith shall be subject to all terms, conditions,
representations, warranties, covenants, and agreements contained in this
Agreement applicable to any Advance hereunder and any Mortgage Loan pledged to
secure the Obligations. Discretionary Advances, and interest thereon, shall be
evidenced by the Note and shall be due and payable in accordance with the Loan
Documents. Discretionary Advances shall be secured by the Security Instruments
and any and all Collateral heretofore, now or hereafter given by the Borrowers
to secure any of the Obligations.
Section 2.17. Bailee. Lender appoints Borrower - and Borrower shall
act - as its (a) special agent for the sole and limited purpose of obtaining
and maintaining Appraisals for Pledged Mortgage Loans and (b) bailee to (i)
hold in trust for Lender (A) the original recorded copy of the mortgage, deed
of trust, or trust deed securing each Pledged Mortgage Loan, (B) a mortgagee
policy of title insurance (or binding unexpired and unconditional commitment to
issue such insurance if the policy has not yet been delivered to Borrower)
insuring the Borrower's perfected, first priority Lien created by that
mortgage, deed of trust, or trust deed, (C) the original insurance policies for
each Pledged Mortgage Loan as required hereunder, and (D) all other original
documents, including any undelivered Forward Sale Commitments, promissory
notes, and Mortgage-Backed Securities, and (ii) deliver to Lender any of the
foregoing items as soon as reasonably practicable upon Lender's request.
Section 2.18. Shipment for Correction. If no Default or Event of
Default exists or occurs as a result of the shipment and if shipment would not
result in any collateral documents for
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Pledged Mortgage Loans with more than a total face amount of $500,000.00 being
outstanding for correction, then Borrower may - by a Trust Receipt delivered to
Lender - request that Lender ship to Borrower the entire mortgage loan file of
Collateral Documents for any Pledged Mortgage Loan pledged by it so that
certain of those Collateral Documents may be corrected or replaced for clerical
or other non-substantive mistakes. If Lender has no actual knowledge that any
of the above conditions have not been satisfied, then and subject to the
limitations below, then Lender shall ship to Borrower the entire mortgage loan
file of Collateral Documents to be corrected or replaced. Borrower shall
redeliver to Lender the corrected Collateral Documents before the expiration of
the Correction Period for that Collateral. Collateral shipped under this
section, unless returned to Lender ceases to be Eligible Mortgage Loans (a) to
the extent that Collateral Documents for Pledged Mortgage Loans with more than
a total face amount of $500,000.00 are outstanding for correction at any time
and (b) upon the expiration of the Correction Period for that Collateral. The
Lender Liens on any Collateral shipped under this section continue in full
force and effect.
Section 2.19. Expiration of Commitment. Unless extended or terminated
earlier as permitted hereunder, the Commitment shall expire of its own term,
and without the necessity of action by the Lender, at the close of business on
the Termination Date. However, the remainder of this Agreement shall remain in
full force and effect until all amounts due on the Obligations have been paid
in full. The Lender has not made, and does not hereby make, any commitment to
renew, extend, rearrange or otherwise refinance the outstanding and unpaid
principal of the Note or accrued interest thereon. In the event, however, the
Lender from time to time renews, extends, rearranges, increases and/or
otherwise refinances any portion or all of any Obligation and any accrued
interest thereon at any time, such refinancing shall be evidenced by an
appropriate promissory note in form and substance satisfactory to the Lender
and, unless otherwise noted or modified at such time or times by the terms of
such promissory note or any agreements executed in connection therewith, any
such promissory note or notes and refinancing evidenced thereby shall be
governed in all respects by the terms of this Agreement.
Section 2.20. Non-Usage Fee. At the end of each month during the term
of this Agreement (i.e., from its effective date through the Termination Date),
the Lender shall determine average usage of the Commitment by calculating the
arithmetic daily average of the outstanding balance of Advances in that month.
The Lender shall then subtract the average usage (the "Used Portion") from the
Commitment (the result being called the "Unused Portion") and the Company shall
pay in arrears (without duplication of payment), on or before five (5) days
after the later of (a) the end of each month or (b) the Company's receipt of the
Lender's bill for such monthly period, a Non-Usage Fee equal to 0.125% per annum
on the total amount of the Unused Portion of the Commitment, as compensation to
the Lender for its agreement to make the Commitment available to the Company
during that month and not as compensation for the use, forbearance or detention
of money as a "true commitment fee" under Texas law); provided that such fee
shall be waived for any month if the Unused Portion for such month is equal to
or less than $2,000,000.00. Each calculation by the Lender of the amount of any
Non-Usage Fee shall be conclusive and binding on the Company, absent manifest
error.
Section 2.21. Miscellaneous Charges. At the end of each month during
the term of this Agreement, the Company shall pay to the Lender in arrears on or
before five (5) days after the later of (a) the end of each calendar month or
(b) the Company's receipt of the Lender's bill for
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such monthly period, a transaction fee equal to $25.00 per Pledged Mortgage
Loan held by Lender during such month and for which Lender has not previously
received a transaction fee, for the handling and administration of Advances and
Collateral. For the purposes hereof, each Borrower shall, at its sole cost and
expense, pay all miscellaneous charges and expenses such as charges for
security delivery fees and charges for overnight delivery of Collateral to
Investors. Miscellaneous charges are due when incurred, but shall not be
delinquent if paid within ten (10) days after receipt of an invoice or an
account analysis statement from the Lender.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make
Advances hereunder, each of the Borrowers represents and warrants to Lender
(which representations and warranties will survive the delivery of the Note and
the making of Advances hereunder against the Note):
Section 3.1. Organization, Standing, Qualification, Etc. of the
Borrowers. Each of the Borrowers:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas;
(b) has all requisite power and authority and all necessary
consents, approvals, licenses, permits, franchises and other
authorizations (i) to own and operate its properties and assets, (ii)
to carry on its business as now conducted and as presently proposed to
be conducted, (iii) to create and issue the Note and to execute and
deliver this Agreement, the Security Instruments and all other
documents and agreements referred to or mentioned herein or therein to
which it is a party, and (iv) to carry out and comply with the terms
of this Agreement, the Note, the Security Instruments and all other
instruments referred to or mentioned herein or therein to which it is
a party; and
(c) is duly qualified and authorized to transact business and
is in good standing as a foreign corporation in all jurisdictions
wherein the Property owned or the business transacted by it makes such
qualification necessary.
Section 3.2. Binding Obligation. All action on the part of each
Borrower or any other Person requisite for the due creation, issuance and
delivery of this Agreement, the Note, the Security Instruments and all other
instruments executed by each Borrower or any other Person in connection
herewith or therewith has been duly and effectively taken. This Agreement does,
and the Note, the Security Instruments and all other instruments to be executed
by each Borrower or any other Person in connection herewith or therewith when
executed and delivered will, constitute legal, valid and binding obligations of
each of the Borrowers and such Persons, enforceable in accordance with their
terms, except as enforceability may be limited by applicable Debtor Laws and
general principles of equity.
Section 3.3. No Conflicts or Consents. Neither the execution and
delivery of this Agreement, the Note or the Security Instruments, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and
provisions thereof, will materially contravene or conflict with any provision
of law,
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statute or regulation to which either or both Borrowers are subject or any
judgment, license, order or permit applicable to either or both Borrowers, or
any indenture, mortgage, deed of trust, or other agreement or instrument to
which either or both Borrowers are a party or by which either or both Borrowers
may be bound, or to which either or both Borrowers may be subject, or violate
any provision of the Articles of Incorporation or Bylaws of either Borrower or
contravene or conflict with any Governmental Requirement.
Section 3.4. Priority of Liens. All Collateral and all Purchase
Commitments applicable to the Collateral have been duly authorized and validly
issued to the applicable Borrower, as the case may be, comply with all
requirements of this Agreement and have been and will continue to be validly
pledged or assigned to Lender. Lender shall have and will continue to have
valid, enforceable, perfected, first priority liens and security interests in
such Collateral.
Section 3.5. No Liens. All Collateral is free and clear of all Liens
and other adverse claims of any nature other than Lender's Liens. The
applicable Borrower, as the case may be, has good and indefeasible title to the
Collateral.
Section 3.6. Financial Condition. The Current Financials were
prepared in accordance with GAAP and present fairly, in all material respects,
the financial condition, results of operations, and cash flows of the Borrowers
as of, and for the portion of the fiscal year ending on their date or dates
(subject only to normal year-end adjustments). All material liabilities of the
Borrowers as of the date or dates of the Current Financials are reflected in
them or notes to them. Except for transactions directly related to, or
specifically contemplated by, the Loan Documents, no subsequent material
adverse changes have occurred in the financial condition of the Borrowers from
that shown in the Current Financials, nor has any Borrower incurred any
subsequent material liability.
Section 3.7. Full Disclosure. There is no material fact that either
Borrower has not disclosed to Lender which could adversely affect the
properties, business, prospects or condition (financial or otherwise) of either
Borrower or could adversely affect the Collateral. Neither the financial
statements referred to in Section 3.6 hereof, nor any certificate or statement
delivered herewith or heretofore by either or both Borrowers to Lender in
connection with this Agreement and the other Loan Documents, contains any
untrue statement of material fact.
Section 3.8. No Litigation. There are no material actions, suits or
legal, equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrowers threatened, against either or both Borrowers.
Section 3.9. Taxes. All tax returns required to be filed by Borrowers
in any jurisdiction have been filed and all taxes, assessments, fees and other
governmental charges upon Borrowers or upon any of their properties, income or
franchises have been paid prior to the time that such taxes could give rise to
a lien thereon, unless protested in good faith by appropriate proceedings. To
the best of Borrowers' knowledge, there is no proposed tax assessment against
either Borrower.
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Section 3.10. Special Representations Concerning Collateral. As to
each Pledged Mortgage Loan:
(a) All of Basic Mortgage Loan Documents are genuine, duly
executed by a borrower of legal capacity, and properly completed, and
are legal, valid and binding obligations of the maker thereof,
enforceable in accordance with their terms; and all documents,
including documents pertaining to underwriting, with respect to such
Mortgage Loan which are required by the Investors, FHA, VA or any
private mortgage insurer ("PMI") to be in the loan files related to
such Mortgage Loan are contained therein and have been properly
completed and, where applicable, executed, attested and notarized.
(b) Each Mortgage securing each Mortgage Loan is a valid
first Lien on the property described in such Mortgage and is
enforceable in accordance with its terms and the laws of the
jurisdiction in which the property is located.
(c) The unpaid balance of the Mortgage Loan is as stated in
the records disclosed or delivered to Lender; no payment of principal
or interest on the Mortgage Loan has or will be forgiven, suspended or
rescheduled and no waiver, alteration or modification has been or will
be made to the terms or provisions of the Mortgage Note evidencing the
Mortgage Loan without Lender or Investor written approval, to the
extent such Investor approval is required; without Investor written
approval, no party responsible for payment in whole or in part has
been released in whole or in part and no part of the mortgaged
property has been or will be released; the full original principal
amount of the Mortgage Note evidencing the Mortgage Loan will be
advanced to the mortgagor or paid to third parties on his behalf in
accordance with Investor guidelines, regulations and requirements.
(d) Each Mortgage Loan is and will remain covered by an FHA
insurance certificate, VA guaranty certificate, or policy of PMI, as
required by the terms of any agreement or any Governmental Requirement
applicable to such Mortgage Loan; the applicable Borrower will comply
with all applicable provisions of the insurance or guaranty contract
or policy and all laws and regulations related thereto. With respect
to Mortgage Loans not yet endorsed by FHA for insurance and Mortgage
Loans for which the Borrower which pledged such Mortgage Loan has not
yet obtained evidence of guaranty from VA or insurance from FHA, the
applicable Borrower shall proceed diligently and promptly to comply
with the documentation requirements and all other applicable
requirements in order to procure the endorsement for insurance of or
evidence of guaranty by VA or insurance from FHA, as the case may be
and, in the event that the applicable Borrower ever has reason to
believe that any such endorsement or evidence will not be forthcoming,
Borrowers shall promptly notify Lender and withdraw the related FHA
Mortgage Loan or VA Mortgage Loan as Collateral, either replacing it
with other collateral which qualifies as Eligible Collateral or paying
down the Aggregate Advances in an appropriate amount.
(e) All fire, casualty, hazard, flood and other insurance
policies and guaranties required by an Investor, FHA, VA or PMI to be
maintained have been issued and are in full force and effect, and the
premium therefor has been paid, and such policies presently
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name and will continue to name the applicable Borrower, as the case
may be, as the insured under a standard mortgagee clause or for newly
purchased Mortgage Loans, a notice for endorsement changing the named
mortgagee has been submitted to the carrier and will be diligently
pursued until issued and there does not exist any event or condition
which could result in the revocation of any such policy or otherwise
impair the enforcement of such insurance or guarantee.
(f) There are no uninsured casualty losses or casualty losses
where coinsurance has been, or Borrowers have reason to believe it
will be, claimed by the insurance company or where the loss, exclusive
of contents, is greater than the net recovery from the fire insurance
carrier; casualty insurance proceeds have been used to reduce the
Mortgage Loan balance or as otherwise allowed by the Investor; all
damages with respect to which casualty insurance proceeds have been
received by or through the applicable Borrower, as the case may be,
have been properly repaired or are in the process of such repair with
such proceeds in accordance with Investor requirements and regulations
and guidelines.
(g) Each Mortgage Loan meets, or is exempt from applicable
state or federal laws, regulations and other requirements pertaining
to usury and no Mortgage Loan is usurious.
(h) All Pledged Mortgage Loans (i) have been originated in
conformity with the requirements of all applicable Governmental
Requirements including without limitation Real Estate Settlement
Procedures Act, the Equal Credit Opportunity Act and the Federal
Truth-in-Lending Act and Investor guidelines and requirements, (ii)
are and will continue to comply with the terms of this Agreement and
the Purchase Commitment, (iii) have not been modified or amended nor
have any requirements of them been waived, and (iv) are and will
continue to be valid and enforceable in accordance with their terms,
without defense or offset.
(i) Neither Borrowers have any knowledge of damage to the
property covered by any Mortgage securing any Mortgage Loan by fire,
windstorm or other casualty, or any other circumstances or conditions
which would cause any Mortgage Loan to become delinquent, or
materially adversely affect the value or marketability of the Mortgage
Loan; provided, however, that if timely repair is presently being
undertaken with casualty insurance proceeds or an insurance claim is
being processed with the insurance company, no breach of this warranty
shall occur as long as there will be no diminution in the collateral
value of the repaired property securing a Mortgage from the value it
had prior to the casualty loss.
(j) Each Mortgage Loan has not been originated in violation
of any applicable rules, regulations, requirements or underwriting
guidelines of the Investor or PMI which insures such Mortgage Loan,
FHA/VA or any regulatory agency having jurisdiction, the effect of
which violation, whether by act or omission, would: (1) impair,
invalidate, or reduce (i) any Investor approvals, (ii) any private
mortgage insurance, FHA insurance or VA guaranty or commitment of any
private mortgage insurer or FHA to insure or VA to guaranty, (iii) any
title insurance policy, (iv) any hazard insurance policy, (v) any
flood
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insurance policy required by the National Flood Insurance Act of 1968
as amended, or (vi) any fidelity bond, direct surety bond, or errors or
omissions insurance required by FHA/VA, any PMI, or any Investors; or
(2) result in Lender, or its permitted assigns, having to repurchase or
incur curtailment of full reimbursement or enter into any form of
indemnification agreement with respect to such Mortgage Loan, or pay a
fine.
(k) Neither Borrower has been informed that any property
subject to any Mortgage securing any Mortgage Loan has been or will be
condemned, except if such condemnation will not have a material
adverse effect on the value of such property or its status as security
for the Mortgage Loan.
(l) There are no properties securing any Mortgage Loan which
are subject to any homeowner's assessment which impairs or could
impair the applicable Borrower's, as the case may be, first lien
priority on such properties.
(m) Where applicable law requires the payment of interest on
escrow accounts, all such interest has been either properly paid or
credited to the mortgagor's account.
(n) Each Mortgage Loan and each Mortgage-backed Security
included in the Collateral meet all applicable requirements of a
Purchase Commitment and at all times there are and will continuously
be adequate and sufficient Purchase Commitments to cover one hundred
percent (100%) of all Mortgage Loans and Mortgage-backed Securities
which are pledged as Collateral from time to time. Each of the
Borrowers shall assure that Mortgage Loans pledged pursuant to this
Agreement and intended to be used in the formation of Mortgage-backed
Securities shall comply, before the formation of any such
Mortgage-backed Security, with the requirements of the governmental
instrumentality, department or agency (whether GNMA, FNMA, FHLMC or
another Person) which is contemplated to guaranty such Mortgage-backed
Security when issued.
(o) Upon delivery to Lender or its bailee of each Mortgage
Note evidencing a Mortgage Loan included in the Collateral, Lender
shall have valid, enforceable, perfected, first priority security
interest as Liens therein. Upon delivery to Lender or its bailee of
each Mortgage-backed Security in certificated form, Lender shall have
valid, enforceable, perfected, first priority Liens as security
interests in each Mortgage-backed Security. Upon completion of the
steps set forth in Section 2.5(b)(iv), Lender shall have valid,
enforceable, perfected, first priority Liens as security interest in
each such Mortgage-backed Security.
(p) Each Pledged Mortgage Loan meets the requirements of an
Eligible Mortgage Loans.
Section 3.11. Survival of Representations. All representations and
warranties by each of the Borrowers herein shall survive delivery of the Note
and the making of the Advances, and any investigation at any time made by or on
behalf of Lender shall not diminish Lender's right to rely thereon.
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Section 3.12. No Event of Default. No Default or Event of Default has
occurred and is continuing.
Section 3.13. Use of Proceeds; Business Loans. The proceeds of the
Advances will be used by each Borrower for the funding of each Borrower's
originations or purchases from others of Mortgage Loans which are Eligible
Mortgage Loans and for no other purpose. All loans evidenced by the Note are
and shall be "business loans", as such term is used in the Depository
Institutions Deregulation and Monetary Control Act of 1980, as amended, and
such loans are for business or commercial purposes and not primarily for
personal, family, household or agricultural use, as such terms are used or
defined in Texas Revised Civil Statutes, Article 5069-1.04, Texas Credit code,
Regulation Z promulgated by the Board of Governors of the Federal Reserve
System, and Titles I and V of the Consumer Credit Protection Act.
Section 3.14. Subsidiaries and Trade Names. Company has no
Subsidiaries or investments in any Person, other than Capital. Capital has no
Subsidiaries or investments in any Person. No Borrower has used or transacted
business under any other corporate or trade name in the six-month period
preceding the date of this Agreement.
Section 3.15. ERISA. All plans ("Plans") of a type described in
Section 3(3) of ERISA in respect of which the Company or any Subsidiary of the
Company is an "Employer," as defined in Section 3(5) of ERISA, are in
substantial compliance with ERISA, and none of such Plans is insolvent or in
reorganization, has an accumulated or waived funding deficiency within the
meaning of Section 412 of the Internal Revenue Code, and neither the Company
nor any Subsidiary of the Company has incurred any material liability
(including any material contingent liability) to or on account of any such Plan
pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA; and no
proceedings have been instituted to terminate any such Plan, and no condition
exists which presents a material risk to the Company or a Subsidiary of the
Company of incurring a liability to or on account of any such Plan pursuant to
any of the foregoing Sections of ERISA. No Plan or trust forming a part thereof
has been terminated since December 1, 1974.
Section 3.16. Solvency. Each of the Borrowers (a) is solvent, (b) is
able to and anticipate that it will be able to meet its debts as they mature,
(c) have adequate capital to conduct the businesses in which it is engaged,
and (d) own and will own property having a value, both at fair valuation and at
present fair saleable value, greater than the amount required to pay its debts
and obligations.
Section 3.17. Investment Company Act. Neither Borrower is subject to
regulation under the Investment Company Act of 1940, as amended, or the Public
Utility Holding Company Act of 1935, as amended.
Section 3.18. Appraisals. With respect to the property the subject of
any Mortgage Loan, the applicable Borrower, as the case may be, has obtained
Appraisals in material compliance with all Appraisal Laws.
Section 3.19. Eligibility. The Company has all requisite corporate
power and authority and all necessary licenses, permits, franchises and other
authorizations to own and operate its property and to carry on its business as
now conducted. If approved now or hereafter as a lender
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or seller/servicer for any one or more of the governmental agencies as set
forth below, the Company will remain at all times approved and qualified and in
good standing and meet all requirements applicable to such status:
(a) FNMA, approved seller/servicer of Mortgage Loans,
eligible to originate, purchase, hold, sell, and service Mortgage
Loans to be sold to FNMA.
(b) FHLMC approved seller/servicer of Mortgage Loans,
eligible to originate, purchase, hold, sell, and service Mortgage
Loans to be sold to FHLMC.
(c) GNMA approved seller/servicer of Mortgage Loans, eligible
to originate, purchase, hold, sell, and service Mortgage Loans to be
sold to GNMA.
(d) HUD approved lender, eligible to originate, purchase,
hold, sell and service FHA-insured Mortgage Loans.
Section 3.20. Place of Business. The principal place of business of
the Borrowers is 10601 Grant Road, Suite 211, Houston, Texas 77070, and the
chief executive office of the Borrowers and the office where each keeps its
respective financial books and records relating to its property and all
contracts relating thereto and all accounts arising therefrom is located at the
address set forth in Section 7.1 hereof
ARTICLE 4: COVENANTS
So long as the Commitment shall remain available to Borrowers, and
until the payment in full of the Note unless Lender shall otherwise consent in
writing, each of the Borrowers agrees that:
Section 4.1. Business and Financial Information. Each of the
Borrowers will promptly furnish to Lender from time to time such information
regarding the business and affairs and financial condition of each of the
Borrowers as Lender may reasonably request, and will furnish Lender:
(a) Monthly Financials of Borrowers. As soon as available but
in any event within twenty (20) days after the end of each calendar
month, Financials of each of the Borrowers as of the close of such
calendar month setting forth, in each case in comparative form, the
figures for the corresponding periods in the previous fiscal year as
well as year-to-date figures, all in such detail as Lender may
reasonably request and accompanied by (i) a statement of the President
or the principal financial officer of the applicable Borrower, as the
case may be, certifying that such statements present fairly the
financial position of the applicable Borrower at the close of such
period and the results of its operations for such period and (ii) a
Compliance Certificate.
(b) Annual Financials of Borrowers. As soon as available but
in any event within ninety (90) days after the close of each fiscal
year of each Borrower, the annual audited Financials of such Borrower
as at the end of such fiscal year setting forth, in each case in
comparative form, the figures for the previous fiscal year and
accompanied by (i)
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the report thereon of independent certified public accountants acceptable to
Lender, which report shall state that such financial statements have been
prepared in accordance with GAAP consistently applied and that the audit by
such accountants in connection with such financial statements has been made in
accordance with GAAP and (ii) a Compliance Certificate.
(c) Guarantor Financial Statements. Promptly when available
but at least within 90 days of each calendar year, financial
statements and statements of income and cash flow for Guarantor
prepared as of the end of the previous calendar year in form and
detail reasonably acceptable to the Lender.
(d) Notices. Immediately upon becoming aware of the existence
of (i) any Default under this Agreement, a written notice specifying
the nature and period of existence thereof and what action Borrowers
are taking or propose to take with respect thereto, or (ii) the
institution or threat of any action, suit or proceeding by or against
either or both of the Borrowers in or before any Governmental
Authority (excluding routine HUD or VA audits not undertaken for
cause), a written notice specifying the action, suit or proceeding,
the Governmental Authority involved, and what action Borrowers are
taking or propose to take with respect thereto.
(e) Mortgage Loans. As soon as available but in any event
within five (5) Business Days after the close of each calendar month
during the term of this Agreement, a schedule, certified as complete
and correct by the President or a principal financial officer of each
Borrower, listing each Pledged Mortgage Loan as of the end of such
calendar month and setting forth with respect to each such Pledged
Mortgage Loan (i) the number of days such Mortgage Loan has been
included in the Collateral, and (ii) the correct status of the
Purchase Commitment issued in connection with such Pledged Mortgage
Loan.
(f) Certificate of Warehouse Borrowings. Promptly and in any
event within fifteen (15) days after the request of Lender at any time
and from time to time, a certificate, executed by the president or
chief financial officer of Company, setting forth all of Company's
warehouse borrowings.
(g) Governmental Reporting. Copies of all regular or periodic
financial and other reports, if any (including any warranty or
indemnity claim reports), which either Borrower shall file with GNMA,
FNMA, FHLMC, HUD, VA or any other Governmental Authority, in such
detail and when and as Lender may request from time to time.
(h) Other Information. Such other information concerning the
business, properties or financial condition of either Borrower as
Lender may request.
Section 4.2. Pledged Mortgage Loans. Each of the Borrowers will
immediately notify Lender in writing of any of the following:
(a) upon the occurrence of any event or condition which
constitutes a default or an event of default under any Pledged
Mortgage Loan;
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(b) upon the purchase or payment of any Pledged Mortgage Loan
pursuant to the terms of a Purchase Commitment or otherwise;
(c) upon any prepayment, whether in whole or in part, of any
of the Pledged Mortgage Loans;
(d) upon default by any Investor in the performance and/or
observance of any of its obligations under a Purchase Commitment
relating to a Pledged Mortgage Loan or Loans; or
(e) any Purchase Commitment relating to a Pledged Mortgage
Loan or Loans ceases to be in full force and effect.
Section 4.3. Further Assurances. Each of the Borrowers will promptly
cure any defects in the creation and issuance of the Note and the execution and
delivery of this Agreement, the Security Instruments or any other instruments
referred to or mentioned herein or therein and do, execute, acknowledge and
deliver all such further acts, documents and assurances as Lender in its
discretion shall request or require to more fully, completely or effectively
evidence or effect the pledge and assignment to Lender of the Mortgage Loans
intended by this Agreement to be pledged and assigned or for carrying out the
intention or facilitating the performance of the terms of this Agreement and the
other Loan Documents. Each of the Borrowers will do all acts and things, and
will execute and file or record, all instruments requested by Lender, to
establish, perfect, maintain and continue first priority perfected security
interests in and upon the Collateral. Each of the Borrowers will pay the costs
and expenses of all filings and recordings and all searches deemed necessary by
Lender to establish and determine the validity and the priority of the Liens
created or intended to be created by the Security Instruments; and each of the
Borrowers will satisfy all other claims and charges which in the opinion of
Lender might prejudice, impair or otherwise affect any of the Collateral or
Lender's Lien thereon.
Section 4.4. Reimbursement of Expenses. Each of the Borrowers, jointly
and severally, agree to pay to Lender, upon demand, all expenses of the Lender
(including, without limitation, reasonable fees, expenses, and disbursements of
counsel for the Lender) in connection with the preparation, negotiation,
enforcement, operation, or administration of this Agreement, the Note, the other
Loan Documents or any documents executed in connection therewith or any waiver,
modification, or amendment of any provision hereof or thereof. Each of the
Borrowers, jointly and severally, agrees, upon demand, promptly to reimburse the
Lender for all amounts expended, advanced, or incurred by the Lender to satisfy
any obligation of either or both of the Borrowers under this Agreement or any of
the other Loan Documents, or to protect the Collateral, or to collect the Note,
or to enforce the rights of the Lender under this Agreement, the Security
Instruments, or any other instrument referred to or mentioned herein or therein
or executed in connection herewith or therewith, which amounts will include,
without limitation, all court costs, reasonable attorneys fees, fees of auditors
and accountants and investigation expenses reasonably incurred by the Lender in
connection with such matters. Such sums shall be due and payable upon demand
together with interest at the Maximum Rate on each such amount from the date
that the same is expended, advanced, or incurred by the Lender until the date it
is repaid. In addition to and not in substitution of any other rights, remedies,
and recourses of the Lender hereunder, under the other Loan Documents, at law or
in equity, if Borrowers fail to pay any of the sums
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due and payable under this Section 4.4 hereof, upon demand, the Lender is
hereby authorized, at any time and from time to time, without notice to the
Borrowers (any such notice being expressly waived by each of the Borrowers) and
regardless of the existence of an Event of Default or Default or whether or not
the Obligations have matured, to offset and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender to or for the credit or the
account of either or both of the Borrowers against any and all of the amounts
due and payable pursuant to this Section 4.4 hereof.
Section 4.5. Inspection. At any and all reasonable times, upon the
request of Lender, each of the Borrowers will permit Lender or any agents or
representatives designated by Lender:
(a) to examine the books of accounts, records, reports and
other papers of such Borrower (and to make copies and extracts
therefrom);
(b) to audit such Borrower's books and records pertaining to
the Mortgage Loans;
(c) to inspect any Property of such Borrower; and
(d) to discuss the business and affairs of such Borrower with
its officers and its independent certified public accountants.
Section 4.6. Maintenance. Each of the Borrowers shall (a) maintain its
existence in good standing and all of its rights, privileges, licenses and
franchises; and (b) observe and comply in all material respects with all
Governmental Requirements.
Section 4.7. Insurance. Each of the Borrowers shall maintain with
financially sound and reputable insurers, insurance with respect to its
Properties and business against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated but in
no event less than what is necessary to satisfy prevailing GNMA, FNMA, FHLMC,
FHA and VA requirements, including, without limitation, errors and omissions
insurance or mortgage impairment insurance and a fidelity bond or bonds, in
form and with coverage and with companies satisfactory to Lender. Upon request
of Lender, each of the Borrowers shall furnish or cause to be furnished to
Lender from time to time a summary of the insurance coverage of Borrowers in
form and substance satisfactory to Lender and if requested shall furnish lender
copies of the applicable policies.
Section 4.8. Accounts and Records. Each of the Borrowers shall keep
books of record and account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and
activities, in accordance with GAAP.
Section 4.9. Payment of Other Loan Obligations. Each of the Borrowers
shall pay and perform all obligations under the terms of each loan, credit or
similar agreement, promissory note, mortgage, security agreement, indenture or
other debt or security instrument by which each of the Borrowers is bound or to
which it or any of its Property is subject, if failure to perform
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such obligations could reasonably be expected to have a Material Adverse Effect
(either by itself or in combination with other existing or reasonably
anticipated circumstances).
Section 4.10. Use of Proceeds; Margin Stock. The proceeds of the
Advances shall be used by each of the Borrowers for the funding of its
originations and purchases from others of Mortgage Loans which are Eligible
Mortgage Loans and none other. None of such proceeds shall be used for the
purpose of purchasing or carrying any "margin stock" as defined in Regulation
U, or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning
of such Regulation U. Neither of the Borrowers shall take any action in
violation of Regulation U or Regulation X or shall violate the Exchange Act or
any rule or regulation thereunder, in each case as now in effect or as the same
may hereinafter be in effect.
Section 4.11. Payment of Debt, Taxes, etc. Each of the Borrowers
agrees to pay when due and before delinquency (a) all taxes and other
governmental charges or levies imposed on its income or profits or any of its
Property, (b) all lawful claims for labor, materials and supplies which, if
unpaid, might become a Lien upon any of its Properties, and (c) all Debts,
accounts, liabilities, debts and charges now or hereafter owing by it. Each of
the Borrowers agrees to maintain appropriate accruals and reserves for all
Debts and all other liabilities, debts, and charges in a timely fashion in
accordance with GAAP. Provided, each of the Borrowers may delay paying any such
taxes, levies, claims, accounts, Debts or other liabilities, debts and charges
(excluding those owing to Lender, all of which must be paid when due) if, to
the extent that and for so long as (i) it is contesting their validity
diligently, in good faith and by appropriate proceedings, (ii) it has posted
such bond or other security as shall be fully effective to prevent or stay any
attachment, garnishment, sequestration or seizure of any of its Property during
the pendency of such proceedings, (iii) it has set aside on its books adequate
reserves in accordance with GAAP, and (iv) it pays such taxes, levies, claims,
accounts, Debts or other liabilities, debts and charges before any of its
Property can lawfully and effectively be garnisheed, attached or sold to secure
or satisfy them and before any judgment in respect of them against it or any of
its Property becomes final.
Section 4.12. Covenants Concerning Collateral. Each of the Borrowers
agrees to:
(a) service all Pledged Mortgage Loans which such Borrower
has the right or obligation to service in accordance with standard
industry requirements and all applicable GNMA, FNMA, FHLMC, FHA and VA
requirements, including taking all actions necessary to enforce the
obligations or the obligors under such Pledged Mortgage Loans;
(b) timely comply in all material respects with all terms and
conditions of all Purchase Commitments covering Pledged Mortgage Loans
(and all renewals, extensions or modifications of them or
substitutions of them), and cause the Pledged Mortgage Loans covered
by and intended to be sold under each Purchase Commitment to be
delivered to the Investor who issued the Purchase Commitment before
its expiration in the manner and order contemplated by the Purchase
Commitment;
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(c) warrant and forever defend to Lender, its successors and
assigns (i) title to the Collateral and (ii) the Liens in and upon the
Collateral granted to Lender;
(d) promptly discharge and perform all of such Borrower's, as
the case may be, obligations with respect to any of the Collateral and
all Purchase Commitments relating to Pledged Mortgage Loans; and
(e) execute and deliver to Lender (i) such Code financing
statements, amendments and continuation statements with respect to the
Collateral as Lender may from time to time request and (ii) such
further instruments of sale, pledge or assignment or transfer and such
powers of attorney as Lender may from time to time request, and do or
perform all matters and things necessary or desirable to be done or
observed, for the purpose of effectively creating, maintaining and
preserving the Liens granted to or intended to be granted to Lender
pursuant to the terms and conditions of this Agreement. Lender shall
have all the rights and remedies of a secured party under the Code and
all other applicable governmental requirements in addition to all
rights and remedies provided for in the Loan Documents.
ARTICLE 5: NEGATIVE COVENANTS
Each of the Borrowers shall at all times comply with the covenants
contained in this Article 5, from the date hereof and for so long as any part
of the Obligations or the Commitment of Lender is outstanding:
Section 5.1. No Merger. No Borrower may, without the prior written
consent of Lender, merge or consolidate with or into any corporation, or
acquire by purchase or otherwise all or substantially all of the assets or
capital stock of any Person if, as a result thereof, such Borrower would not be
in compliance with the representations, warranties, and covenants set forth in
this Agreement in all respects or a Material Adverse Effect occurs or will
occur.
Section 5.2. Limitation on Indebtedness. No Borrower may, without the
prior written consent of Lender, incur, create, contract, assume, have
outstanding, guarantee or otherwise be or become, directly or indirectly,
liable in respect of any indebtedness, except (i) the Obligations, (ii) current
liabilities for taxes and assessments, (iii) current amounts payable or accrued
(other than for borrowed funds or purchase money obligations) which have been
incurred in the ordinary course of business; provided that all such
liabilities, accounts and claims shall be promptly paid and discharged when due
or in conformity with customary trade terms, unless the same shall be contested
in good faith by such Borrower, (iv) indebtedness owing to Lender, and (v) any
other indebtedness incurred by any Borrower so long as such Borrower remains at
all times in compliance with the representations, warranties, and covenants set
forth in this Agreement in all respect or no Material Adverse Effect occurs as
a result of incurring any such indebtedness.
Section 5.3. Line of Business. No Borrower may, without the prior
written consent of Lender, directly or indirectly engage in any business other
than that currently engaged in by such Borrower or any other business
customarily engaged in by other Persons in the mortgage banking business. Each
of the Borrowers shall not make or acquire any direct outright ownership
interest participation or other creditor's interest in any commercial real
estate loan, wrap-around real
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estate loan, unimproved real estate loan, personal property loan, oil and gas
loan, commercial loan, acquisition, development or construction loan.
Section 5.4. Liquidations, Mergers, Consolidations and Dispositions of
Substantial Assets. No Borrower may, without the prior written consent of
Lender, dissolve or liquidate or sell, transfer, lease or otherwise dispose of
any material portion of its property or assets or business.
Section 5.5. Actions with Respect to Collateral. No Borrower may,
without the prior written consent of Lender:
(a) Compromise, extend, release, or adjust payments on any
Collateral, accept a conveyance of mortgaged property in full or
partial satisfaction of any Pledged Mortgage Loan or release any
Mortgage securing or underlying any Collateral;
(b) Agree to the amendment or termination of any Purchase
Commitment in which Lender has a security interest or to substitution
of a Purchase Commitment in which Lender has a security interest
hereunder, if such amendment, termination or substitution may
reasonably be expected (as determined by Lender in its reasonable
discretion) to have a Material Adverse Effect;
(c) Transfer, sell, assign or deliver any Collateral pledged
to Lender to any Person other than Lender, except pursuant to Purchase
Commitments; or
(d) Grant, create, incur, permit or suffer to exist any lien
upon any Collateral except for liens granted to Lender to secure the
Note and Obligations and such liens as may be deemed to arise as a
matter of law pursuant to any Purchase Commitment.
Section 5.6. Restrictions on Dividends. Company shall not directly or
indirectly declare or make, or incur any liability to make, any Dividend if, as
a result thereof, Company would not be in compliance with the representations,
warranties, and covenants set forth in this Agreement in all respects or a
Material Adverse Effect occurs or will occur.
Section 5.7. Limitations on Liens. No Borrower may create, assume or
suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance of any kind upon any of its properties or assets, whether now owned
or hereafter acquired except as permitted in writing by Lender, other than the
Lien or Liens granted to Lender hereunder if, as a result thereof, such
Borrower would not be in compliance with the representations, warranties, and
covenants set forth in this Agreement in all respects or a Material Adverse
Effect occurs or will occur.
Section 5.8. Limitations on Contingent Liabilities. No Borrower may
create, assume or suffer to exist any Contingent Liabilities, except (i) as
permitted hereunder, (ii) for endorsements of instruments for collection in the
ordinary course of business, and (iii) any such liability in favor of Lender
if, as a result thereof, such Borrower would not be in compliance with the
representations, warranties, and covenants set forth in this Agreement in all
respects or a Material Adverse Effect occurs or will occur.
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Section 5.9. Loans, Advances and Investments. No Borrower may make or
permit to remain outstanding any advances, loans or extensions of credit to, or
purchase or own any stock, bonds, notes, debentures, or other securities of, or
make any investments in, any Person, except (if and only if the making of an
investment described below would not violate any other provision of this
Agreement or have a Material Adverse Effect on the following) (a) Mortgage
Loans, (b) investments in Cash Equivalents and (c) any acquisition in the
ordinary course of such Borrower's business of (i) servicing portfolios and
related assets, (ii) Mortgage-backed Securities or (iii) Mortgage Loans.
Section 5.10. Subordination of Claims. No Borrower may subordinate or
permit to be subordinated any claim against, or obligation of, another Person
held or owned by it to any other claim against, or obligation of, such other
Person.
Section 5.11. ERISA Compliance. No Borrower may permit at any time any
Plan maintained by it to
(a) engage in any "prohibited transaction", as such term is
defined in Section 4975 of the Code;
(b) incur any "accumulated funding deficiency", as such term
is defined in Section 3.02 of ERISA; or
(c) terminate any such Plan in a manner which could result in
the imposition of a lien on the property of such Borrower pursuant to
Section 4068 of ERISA.
Section 5.12. Transactions with Affiliates and Other Persons. Each of
the Borrowers shall not engage in any transaction with an Affiliate on terms
less favorable to it than would be obtainable at the time in comparable
transactions with Persons not affiliated with such Borrower.
Section 5.13. Net Worth. The Net Worth of the Company may never be
less than $800,000.00.
Section 5.14. Warehouse Borrowings to Net Worth Ratio. The ratio of
the Borrowers' Warehouse Borrowings to the Company's Net Worth may never exceed
11.0 to 1.0.
ARTICLE 6: EVENTS OF DEFAULT
Section 6.1. Events. Any of the following events shall be considered
an "Event of Default" as that term is used herein:
(a) default is made in the payment or prepayment when due of any
installment of principal or interest on the Note or payment of any fee,
expense, or other amount due under any of the Loan Documents and such default
shall continue for a period of five (5) calendar days after written notice of
such default to Borrowers by Lender; or
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(b) default is made in the payment of any mandatory prepayment
required hereunder and such default shall continue for a period of five (5)
calendar days after written notice of such default to Borrowers by Lender; or
(c) any representation or warranty made by either or both of the
Borrowers in this Agreement, the Loan Documents, or in any other document
executed in connection herewith or therewith proves to have been untrue in any
material respect as of the date hereof or thereof; or any representation,
statement (including financial statements), certificate or data furnished or
made by either or both of the Borrowers hereunder or thereunder proves to have
been untrue in any material respect as of the date as of which the facts
therein set forth were stated or certified; or
(d) default is made in the due observance or performance by either or
both of the Borrowers of any of the covenants, terms or agreements contained in
any of the Loan Documents or in any other document or agreement executed in
connection herewith or therewith and such default shall continue for a period
of thirty (30) days after written notice of such default to Borrowers by
Lender; or
(e) Either of the Borrowers dissolves or terminates its existence or
discontinues its usual business; or
(f) any involuntary case or other proceeding is commenced against
either of the Borrowers which seeks liquidation, reorganization or other relief
with respect to it or its debts or other liabilities under any bankruptcy,
insolvency or similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its Property, or an order for relief against either
of the Borrowers is entered in any such case under the Federal Bankruptcy Code;
or
(g) Either of the Borrowers commences a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts or other liabilities under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its Property or consents to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or makes a general assignment for the
benefit of creditors, or fails generally to, or admits in writing its inability
to, pay its debts generally as they become due or takes any corporate action to
authorize or effect any of the foregoing; or
(h) any event or condition occurs which constitutes an Event of
Default under any of the Security Instruments or any other instrument or
agreement executed in connection herewith or therewith; or
(i) Either of the Borrowers defaults in the payment of principal of or
interest on any other Debt beyond the period of grace, if any, provided with
respect thereto or in the performance or observance of any other term, condition
or agreement contained in any
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instrument or agreement evidencing, securing or relating thereto if
the effect of such default is to cause such obligation to become due
prior to its stated maturity or to permit the holder or holders of
such obligations (or a trustee or agent on behalf of such holder or
holders) to cause such obligation to become due prior to its stated
maturity, whether or not such default or failure to perform should be
waived by the holder or holders of such obligation or such trustee; or
(j) one or more judgments for the payment of money in excess
of $10,000 in the aggregate are rendered against either of the
Borrowers or both and such judgment or judgments remain unsatisfied,
undischarged or unstayed and in effect for a period of thirty (30)
days; or
(k) this Agreement at any time after its execution and
delivery and for any reason, ceases to be in full force and effect or
is declared by a court of competent jurisdiction to be null and void;
or
(l) any of the Security Instruments, at any time after their
respective execution and delivery and for any reason, cease to
constitute valid and subsisting first liens and/or valid and perfected
first security interests in and to the Property purported to be
subject to such Security Instruments and such default shall continue
for a period of ten (10) calendar days after written notice of such
default to Borrowers by Lender; or
(m) a Material Adverse Effect occurs.
Section 6.2. Optional Acceleration. Upon the occurrence of any Event
of Default (other than those described in Section 6.1 (f) or (g)), the
Commitment of Lender shall immediately terminate and the holder of the Note, at
its option, without notice to Borrowers, may declare the principal of and
interest accrued and unpaid on the Note to be forthwith due and payable,
whereupon the same shall become due and payable without any presentment,
demand, protest, notice of protest, notice of intent to accelerate, notice of
acceleration, or notice of any kind (except notice required pursuant to this
Agreement or otherwise by law), all of which are hereby waived, and may
exercise any and all other rights, remedies, privileges and recourses granted
under the Loan Documents or now or hereafter existing in equity, at law, by
virtue of statute or otherwise.
Section 6.3. Automatic Acceleration. Upon the occurrence of any Event
of Default set forth in Subsection 6.1 (f) or (g) hereof, the Commitment of
Lender shall automatically terminate and the principal of and interest accrued
and unpaid on the Note shall be immediately and automatically due and payable
without notice or demand of any kind, and the same shall be due and payable
immediately without any presentment, acceleration, demand, protest, notice of
intent to accelerate, notice of acceleration, notice of protest or notice of
any kind (except notice required pursuant to this Agreement or otherwise by
law), all of which are hereby waived, and the holder of the Note may exercise
any and all other rights, remedies, privileges and recourses granted under the
Loan Documents or now or hereafter existing in equity, at law, by virtue of
statute or otherwise.
Section 6.4. Right of Set-Off. Upon the occurrence and during the
continuance of any Event of Default, or if Borrowers become insolvent, however
evidenced, Lender is hereby
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authorized at any time and from time to time, without notice to Borrowers (any
such notice being expressly waived by Borrowers), to set-off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by Lender to or for the
credit or the account of either or both of the Borrowers against any and all of
the indebtedness of each of the Borrowers to Lender, irrespective of whether or
not Lender shall have made any demand under this Agreement or the Note and
although such obligations may be unmatured. The rights of Lender under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
ARTICLE 7: MISCELLANEOUS
Section 7.1. Notices. All notices, requests and communications
hereunder shall be given to or made upon the respective parties hereto as
follows:
If to Borrowers: Allied Mortgage Corporation
Attn: Jim C. Hodge, President
10601 Grant Road, Suite 211
Houston, Texas 77070
Allied Mortgage Capital Corporation
Attn: Jim C. Hodge, Vice President
10601 Grant Road, Suite 211
Houston, Texas 77070
If to Lender: Coastal Banc ssb
Attn: Gary R. Garrett
8 Greenway Plaza, Suite 1500
Coastal Banc Tower
Houston, Texas 77046
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given to any party upon receipt (or when delivery is refused) when delivered
by fax or by hand, within three (3) calendar days of being deposited in the
U.S. Mail (registered or certified mail), if by mail, or when delivered to the
telegraph company, if by telegram, in each case addressed to such party as
provided herein or in accordance with the latest unrevoked direction from such
party.
Section 7.2. Deviation from Covenants. This Agreement may not be
amended without the written consent of Borrowers and Lender. The observance or
performance of any covenant, condition or obligation imposed on Borrowers
hereunder may not be waived without the written consent of Lender.
Section 7.3. Invalidity. In the event any one or more of the
provisions contained in this Agreement, the Security Instruments, the Note or
in any other instrument referred to herein or therein or executed in connection
herewith or therewith shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not
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affect any other provision of this Agreement, the Security Instruments, the
Note or any other instrument referred to herein or therein or executed in
connection herewith or therewith.
Section 7.4. Survival of Agreement. All representations, warranties,
covenants, and agreements of each of the Borrowers herein, shall survive the
execution and delivery of the Loan Documents.
Section 7.5. Successors and Assigns. All covenants and agreements
herein contained by or on behalf of each of the Borrowers shall bind its legal
representatives, successors and assigns and shall inure to the benefit of Lender
and its successors and assigns, except Borrowers may not, directly or
indirectly, assign or transfer, or attempt to assign or transfer, any of its
rights, duties or obligations under any Loan Documents without the prior
written consent of Lender.
Section 7.6. Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Note shall apply with equal force and effect to
each and all promissory notes hereinafter executed which in whole or in part
represent a renewal, extension or rearrangement of any part of the indebtedness
originally represented by the Note.
Section 7.7. Waivers. No waiver of any Default or Event of Default
shall be deemed a waiver of any other Default or Event of Default. No course of
dealing on the part of Lender, its officers or employees, nor any failure or
delay by Lender with respect to exercising any right, power or privilege of
Lender under this Agreement, the Security Instrument or the Note shall operate
as a waiver thereof. Rights and remedies of Lender under this Agreement, the
Security Instruments and the Note shall be cumulative and the exercise or
partial exercise of any such right or remedy shall not preclude the exercise of
any other right or remedy.
Section 7.8. Termination. This Agreement shall remain in effect until
full and complete payment of the Note and all other Indebtedness.
Section 7.9. Governing Law. This Agreement, the Note, the Security
Instruments and the other Loan Documents shall be governed by, construed and
interpreted in accordance with the laws of the State of Texas, without
reference to its principles of conflicts of law and except to the extent that
the federal laws of the United States of America may apply.
Section 7.10. Controlling Document. In the event of actual conflict
in the terms and provisions of this Agreement, the Note, the Security
Instruments and the other Loan Documents, the terms and provisions of this
Agreement will control.
Section 7.11. Savings Clause. It is the intention of the parties
hereto to comply strictly with applicable usury laws; accordingly,
notwithstanding any provision to the contrary in the Note or in any of the
documents securing the payment thereof or otherwise relating hereto, in no
event shall the Note or such documents require or permit the payment, charging,
taking, reserving, or receiving of any sums constituting interest under
applicable laws which exceed the maximum amount permitted by such laws. If any
such excess interest is contracted for, charged, taken, reserved, or received
in connection with the Loan evidenced by the Note or in any of the documents
securing the payment hereof or otherwise relating hereto, or in any
communication
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by Lender or any other person to Borrowers or any other party liable for
payment of the Note, or in the event all or part of the principal or interest
hereof shall be prepaid or accelerated, so that under any of such circumstances
or under any other circumstance whatsoever the amount of interest contracted
for, charged, taken, reserved, or received on the amount of principal actually
outstanding from time to time under the Note shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such event it is
agreed as follows: (i) the provisions of this paragraph shall govern and
control, (ii) any such excess shall be canceled automatically to the extent of
such excess, and shall not be collected or collectible, (iii) any such excess
which is or has been received shall be credited against the then unpaid
principal balance hereof or refunded to Borrowers, at Lender's option, and (iv)
the effective rate of interest shall be automatically reduced to the maximum
lawful rate allowed under applicable laws as construed by courts having
jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved,
or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating
and spreading during the period of the full term of the loan, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, reserved, or received. The terms of this
paragraph shall be deemed to be incorporated in every loan document, security
instrument, and communication relating to the Note and Loan. The term
"applicable usury laws" shall mean such laws of the State of Texas or the laws
of the United States, whichever laws allow the higher rate of interest, as such
laws now exist; provided, however, that if such laws shall hereafter allow
higher rates of interest, then the applicable usury laws shall be the laws
allowing the higher rates, to be effective as of the effective date of such
laws.
Chapter 4 of the Texas Credit Code (relating to installment loans),
codified at Articles 5069-4.01 to 5069-4.04, as amended, Texas Revised Civil
Statutes, shall not apply to this agreement.
Chapter 15 of the Texas Credit Code (relating to revolving loans and
revolving triparty accounts), codified at Articles 5069-15.01 to 5069-15.11, as
amended, Texas Revised Civil Statutes, shall not apply to this agreement.
Section 7.12. Consent or Approval of Lender. Except as otherwise
specifically provided, any consent or approval of Lender required under any of
the Loan Documents may be granted or withheld by Lender in its sole and
absolute discretion.
Section 7.13. No Third Party Beneficiary. This Agreement is for the
sole benefit of Lender and Borrowers and is not for the benefit of any third
party.
Section 7.14. Counterparts. This Agreement may be executed in several
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute one and the same
agreement.
SECTION 7.15. INDEMNITY. THE BORROWERS SHALL, JOINTLY AND SEVERALLY,
INDEMNIFY AND HOLD THE LENDER, ITS SUCCESSORS, ASSIGNS, AGENTS, AND EMPLOYEES,
HARMLESS FROM AND AGAINST ANY AND ALL
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CLAIMS, ACTIONS, SUITS, PROCEEDINGS, COSTS, EXPENSES, DAMAGES, FINES,
PENALTIES, AND LIABILITIES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND
COSTS, ARISING OUT OF, CONNECTED WITH, OR RESULTING FROM (A) THE OPERATION OF
THE BORROWERS' BUSINESSES, (B) THE LENDER'S PRESERVATION OR ATTEMPTED
PRESERVATION OF COLLATERAL, AND (C) ANY FAILURE OF THE SECURITY INTERESTS AND
LIENS IN THE COLLATERAL GRANTED TO THE LENDER PURSUANT TO THIS AGREEMENT TO BE
OR TO REMAIN PERFECTED OR TO HAVE THE PRIORITY AS CONTEMPLATED THEREIN
REGARDLESS OF WHETHER THE CLAIM IS CAUSED BY OR ARISES OUT OF, IN WHOLE OR IN
PART, THE NEGLIGENCE OF THE LENDER OR MAY BE BASED ON THE STRICT LIABILITY OF
THE LENDER. THIS INDEMNITY SHALL NOT APPLY TO THE EXTENT THE SUBJECT OF THE
INDEMNIFICATION IS CAUSED BY OR ARISES OUT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE LENDER. AT THE LENDER'S REQUEST, THE BORROWERS SHALL, JOINTLY
AND SEVERALLY, AT THEIR OWN COST AND EXPENSE, DEFEND OR CAUSE TO BE DEFENDED
ANY AND ALL SUCH ACTIONS OR SUITS THAT MAY BE BROUGHT AGAINST THE LENDER AND,
IN ANY EVENT, SHALL SATISFY, PAY, AND DISCHARGE ANY AND ALL JUDGMENTS, AWARDS,
PENALTIES, COSTS, AND FINES THAT MAY BE RECOVERED AGAINST THE LENDER IN ANY
SUCH ACTION, PLUS ALL ATTORNEYS' FEES AND COSTS RELATED THERETO TO THE EXTENT
PERMITTED BY APPLICABLE LAW; PROVIDED, HOWEVER, THAT THE LENDER SHALL GIVE THE
BORROWERS (TO THE EXTENT THE LENDER SEEKS INDEMNIFICATION THEREFOR FROM THE
BORROWERS UNDER THIS SECTION 7.15) WRITTEN NOTICE OF ANY SUCH CLAIM, DEMAND, OR
SUIT AFTER THE LENDER HAS RECEIVED WRITTEN NOTICE THEREOF, AND THE LENDER SHALL
NOT SETTLE ANY SUCH CLAIM, DEMAND, OR SUIT, IF THE LENDER SEEKS INDEMNIFICATION
THEREFOR FROM THE BORROWERS, WITHOUT FIRST GIVING NOTICE TO THE BORROWERS OF
THE LENDER'S DESIRE TO SETTLE AND OBTAINING THE CONSENT OF THE BORROWERS TO THE
SAME, WHICH CONSENT THE BORROWERS HEREBY AGREE NOT TO UNREASONABLY WITHHOLD.
ALL OBLIGATIONS OF THE BORROWERS UNDER THIS SECTION 7.15 SHALL SURVIVE THE
PAYMENT OF THE NOTE AND THE OBLIGATIONS.
Section 7.16. Waiver of Jury Trial. Company hereby expressly waives
any right to a trial by jury in any action or legal proceeding arising out of
or relating to this Agreement or any other Loan Document for the transactions
contemplated hereby or thereby.
Section 7.17. Limitation of Liability. Notwithstanding anything herein,
in the Note or in any of the other Loan Documents to the contrary, Capital shall
be liable upon the indebtedness evidenced by the Note or arising under the other
Loan Documents, and for performance of all of the covenants and agreements of
Borrowers contained therein, to the full extent (but only to the extent) of all
Collateral pledged by Capital which constitutes security for the payment of such
indebtedness and Lender shall not be entitled to recover any deficiency judgment
against Capital if the foreclosure or recovery of or against the collateral
securing the Note is not sufficient to pay the amounts owed by Borrowers;
provided, however, Capital shall be fully liable to Lender for: (a) the amount
of damages, if any, caused by fraudulent or deceitful actions, misstatements or
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<PAGE> 40
omissions; (b) waste of the Collateral securing the Note; and (c) all costs,
court costs and reasonable attorneys' fees incurred by Lender in collecting any
of the foregoing. Nothing herein is intended or construed to in any way limit,
affect, diminish, reduce or impair, in any manner whatsoever, the liability of
the Company for the full payment of the indebtedness evidenced by the Note or
arising under this Agreement or the other Loan Documents and performance of all
covenants and agreements contained therein.
SECTION 7.18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTE,
THE OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH 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.
WITNESS THE EXECUTION HEREOF, as of the date first above written.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, Vice President
LENDER:
COSTAL BANC ssb
By: /s/ W. M. TREADWAY
-------------------------------------
W. M. TREADWAY, Senior Vice President
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<PAGE> 1
EXHIBIT 10.3
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty") by JIM C. HODGE
("Guarantor"), is in favor of COASTAL BANC ssb (such bank, together with its
successors and assigns herein called the "Lender") whose address is 5718
Westheimer, Suite 100, Houston, Texas 77057, Attn: Gary R. Garrett, Executive
Vice President. This Guaranty is executed and delivered pursuant to that
certain Loan Agreement dated as of even date herewith (as amended, supplemented
or otherwise modified from time to time, the "Loan Agreement") by and among
ALLIED MORTGAGE CORPORATION, a Texas corporation, and ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation (collectively, the "Borrowers" and
individually, the "Borrower") and the Lender. All capitalized terms used herein
but not defined herein shall have the meanings ascribed to them in the Loan
Agreement.
W I T N E S S E T H:
WHEREAS, the Lender will extend credit and financial accommodations
to Borrowers pursuant to the Loan Agreement, pursuant to which the Lender has
agreed to extend loans to the Borrowers in the aggregate principal amount of up
to $5,500,000.00 upon the terms and subject to the conditions set forth therein
(the "Credit Facility");
WHEREAS, the Guarantor will derive substantial direct and indirect
benefits from the Credit Facility;
WHEREAS, it is a condition precedent to the obligation of the Lender
to extend the Credit Facility under the Loan Agreement that the Guarantor shall
have executed and delivered this Guaranty to the Lender;
NOW, THEREFORE, (i) to induce Lender, at any time from time to time,
to loan monies, with or without security to or for the account of either
Borrower, (ii) at the special insistence and request of Lender, and (iii) for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor hereby agrees as follows:
1. Guarantor hereby absolutely and unconditionally guarantees the
prompt and punctual payment and performance when due (whether at its maturity,
by lapse of time, by acceleration or otherwise) of the Guaranteed Obligations
(hereinafter defined).
Continuing Guaranty. This is a continuing guaranty applicable
to and guaranteeing any and all indebtedness, obligations, and
liabilities of every kind and character of each Borrower to Lender
whether now existing or hereafter arising, whether due and owing or to
become due and owing, howsoever created or arising or evidenced,
whether joint or several, or joint and several, whether absolute or
contingent, and all renewals, extensions, increases, and
rearrangements of such indebtedness, obligations or liabilities,
including any and all amounts owing or which may hereafter become
owing thereon or in connection therewith, including, without
limitation, any and all amounts of principal, pre- and post-maturity
interest (including without limitation, all post-petition interest if
any Borrower voluntarily
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or involuntarily files for protection under any Debtor Law), attorneys'
fees, costs of collection and other amounts owing thereunder including,
without limitation, any and all indebtedness, obligations, and
liabilities of each Borrower now or hereafter arising on account of (i)
the revolving credit note (the "Note") dated as of even date herewith
executed by the Borrowers payable to the order of the Lender in the
original principal sum of $5,500,000.00, as the same may be renewed,
extended, modified, rearranged, increased, restated or replaced; (ii)
the Loan Agreement, as the same may be renewed, extended, modified,
rearranged, restated or replaced, (iii) any other document executed in
connection with or as security for payment of the Note or any renewal,
extension, modification, rearrangement, restatement or replacement
thereof, and (iv) all costs, attorney's fees and other expenses
incurred by Lender by reason of any default by any Borrower under any
of the foregoing. All of the foregoing is hereinafter called the
"Guaranteed Obligations".
2. Guarantor hereby waives marshalling of assets and liabilities, sale
in inverse order of alienation, notice of acceptance of this Guaranty and of
any indebtedness, obligation or liability to which it applies or may apply, and
waives presentment and demand for payment thereof, notice of dishonor or
nonpayment thereof, notice of intention to accelerate, notice of acceleration,
protest, and notice thereof and all other notices and demands, collection or
instigation of suit or any other action by the Lender in collection thereof,
including any notice of default in payment thereof or other notice to, or
demand of payment therefor on, any party. Further, Guarantor expressly waives
each and every right to which it may be entitled by virtue of the suretyship
law of the State of Texas including without limitation, any rights it may have
pursuant to Rule 31, Texas Rules of Civil Procedure, V.T.C.A., Civil Practice
and Remedies Code Section 17.01, Chapter 34 of the Texas Business and Commerce
Code.
3. Guarantor agrees to pay to the Lender its collection costs,
including any additional amount for attorneys' fees, but in no event to exceed
the maximum amount permitted by law, if the Guaranteed Obligations are not paid
by Guarantor upon demand when due as required herein or if this Guaranty is
enforced by suit or through probate or bankruptcy court or through any judicial
proceedings whatsoever, and should it be necessary to reduce the Lender's claim
to judgment, such judgment shall bear interest at the rate of 10% per annum or
such greater maximum rate, if any, allowed by applicable laws.
4. This is an absolute and unconditional guaranty of payment and not of
collection, by Guarantor, jointly and severally with any guarantor of the
Guaranteed Obligations in each and every particular, and Guarantor waives any
right to require that (a) any action be brought against the Borrowers or any
other person or entity, (b) the Lender enforce its rights against any other
guarantor of the Guaranteed Obligations, (c) the Lender proceed or enforce its
rights against or exhaust any security given to secure the Guaranteed
Obligations, (d) the Lender have the Borrowers joined with Guarantor or any
other guarantor of all or part of the Guaranteed Obligations in any suit arising
out of this Guaranty and/or the Guaranteed Obligations, or (e) the Lender pursue
any other remedy in the Lender's powers whatsoever. The Lender shall not be
required to mitigate damages or take any action to reduce, collect or enforce
the Guaranteed Obligations. Guarantor waives any defense arising by reason of
any disability, lack of corporate authority or power, or other defense of any
Borrower or any other guarantor of the Guaranteed
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Obligations, and shall remain liable hereon regardless of whether any Borrower
or any other guarantor be found not liable thereon for any reason. Should the
Lender seek to enforce the obligations of Guarantor by action in any court,
Guarantor waives any necessity, substantive or procedural, that a judgment
previously be rendered against the Borrowers or any other person or entity or
that the Borrowers or any other person or entity be joined in such cause or
that a separate action be brought against the Borrowers or any other person or
entity. The obligations of Guarantor hereunder are several from those of the
Borrowers or any other person or entity (including without limitation any other
surety for the Borrowers), and are primary obligations concerning which
Guarantor is the principal obligor. All waivers herein contained shall be
without prejudice to the Lender at its option to proceed against the Borrowers
or any other person or entity, whether by separate action or by joinder. The
payment by Guarantor of any amount pursuant to this Guaranty shall not in
anywise entitle Guarantor to any right, title or interest (whether by way of
subrogation or otherwise) in and to any of the Guaranteed Obligations or any
proceeds thereof, or any security therefor, unless and until the full amount
owing to the Lender on the Guaranteed Obligations has been fully paid, but when
the same has been fully paid Guarantor shall be subrogated as to any payments
made by him to the rights of the Lender as against the Borrowers and/or any
endorsers, sureties or other guarantors.
5. Guarantor agrees that suit may be brought against Guarantor and any
other guarantors of the Guaranteed Obligations, jointly and severally, and
against one or more of them, less than all, without impairing the rights of the
Lender, its successors or assigns, against the other guarantors; nor shall the
Lender be required to join any Borrower or any other guarantor or liable party
in a suit against a particular guarantor; and the Lender may release any
Borrower and/or one or more guarantor(s) or settle with such persons or
entities as the Lender deems fit without releasing or impairing the rights of
the Lender to demand and collect the balance of such indebtedness from the
other remaining guarantors not so released.
6. Guarantor hereby consents and agrees to each of the following to
the fullest extent permitted by law, and agrees that the Guarantor's
obligations under this Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any rights
(including without limitation rights to notice) which Guarantor might otherwise
have as a result of or in connection with any of the following:
(a) Any renewal, extension, modification, increase,
decrease, alteration or rearrangement of all or any part of the Guaranteed
Obligations or any instrument executed in connection therewith, or any contract
or understanding between the Borrowers and the Lender, or any other person or
entity, pertaining to the Guaranteed Obligations;
(b) Any adjustment, indulgence, forbearance or compromise
that might be granted or given by the Lender to any Borrower or Guarantor or
any person or entity liable on the Guaranteed Obligations;
(c) The insolvency, bankruptcy arrangement, adjustment,
composition, liquidation, disability, dissolution, death or lack of power of
any Borrower or Guarantor or any other person or entity at any time liable for
the payment of all or part of the Guaranteed Obligations; or any dissolution of
any Borrower or Guarantor, or any sale, lease or transfer of any or all of the
assets of any Borrower or Guarantor, or any changes in the shareholders,
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<PAGE> 4
partners, or members of any Borrower or Guarantor; or any reorganization of any
Borrower or Guarantor;
(d) The invalidity, illegality or unenforceability of all or
any part of the Guaranteed Obligations, or any document or agreement executed
in connection with the Guaranteed Obligations, for any reason whatsoever,
including without limitation the fact that the Guaranteed Obligations, or any
part thereof, exceed the amount permitted by law, the act of creating the
Guaranteed Obligations or any part thereof is ultra vires, the officers or
representatives executing the documents or otherwise creating the Guaranteed
Obligations acted in excess of their authority, the Guaranteed Obligations
violate applicable usury laws, any Borrower has valid defenses, claims or
offsets (whether at law, in equity or by agreement) which render the Guaranteed
Obligations wholly or partially uncollectible from such Borrower, the creation,
performance or repayment of the Guaranteed Obligations (or the execution,
delivery and performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed Obligations) is
illegal, uncollectible, legally impossible or unenforceable, or the documents
or instruments pertaining to the Guaranteed Obligations have been forged or
otherwise are irregular or not genuine or authentic;
(e) Any full or partial release of the liability of any
Borrower on the Guaranteed Obligations or any part thereof, of any
co-guarantors, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Guaranteed Obligations or any
part thereof, it being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Obligations in full without
assistance or support of any other person or entity, and Guarantor has not been
induced to enter into this Guaranty on the basis of a contemplation, belief,
understanding or agreement that other parties other than the Borrowers will be
liable to perform the Guaranteed Obligations, or the Lender will look to other
parties to perform the Guaranteed Obligations;
(f) The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Guaranteed Obligations;
(g) Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment of any collateral, property or
security, at any time existing in connection with, or assuring or securing
payment of, all or any part of the Guaranteed Obligations;
(h) The failure of the Lender or any other person or entity
to exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security;
(i) The fact that any collateral, security, security
interest or lien contemplated or intended to be given, created or granted as
security for the repayment of the Guaranteed Obligations shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to any
other security interest or lien, it being recognized and agreed by Guarantor
that Guarantor is not entering into this Guaranty in reliance on, or in
contemplation of the benefits
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<PAGE> 5
of, the validity, enforceability, collectibility or value of any of the
collateral for the Guaranteed Obligations;
(j) Any payment by any Borrower to the Lender is held to
constitute a preference under the bankruptcy laws, or for any reason the Lender
is required to refund such payment or pay such amount to such Borrower or
someone else;
(k) Any other action taken or omitted to be taken with
respect to the Guaranteed Obligations, or the security and collateral therefor,
whether or not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Guaranteed Obligations
pursuant to the terms hereof; it being the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed
Obligations when due, notwithstanding any occurrence, circumstance, event,
action, or omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Guaranteed Obligations; or
(l) The fact that all or any of the Guaranteed Obligations
cease to exist by operation of law, including without limitation by way of a
discharge, limitation or tolling thereof under applicable bankruptcy laws.
7. In the event any payment by any Borrower or any other guarantor of
all or part of the Guaranteed Obligations to the Lender is held to be a
preference under the bankruptcy laws, or if for any other reason the Lender is
required to refund such payment or pay the amount thereof to any other party,
such payment by such Borrower or by such guarantor to the Lender shall not
constitute a release of Guarantor from any liability respecting payment of the
Guaranteed Obligations, and Guarantor agrees to pay such amount to the Lender
upon demand.
8. It is the intention of the parties hereto to comply with applicable
usury laws; accordingly, it is agreed that notwithstanding any provision to the
contrary in the Guaranteed Obligations or in this Guaranty, in any note or
other instrument, or in any documents securing payment thereof or hereof, or
otherwise relating thereto or hereto, no such provision shall require the
payment or permit the collection of interest in excess of the maximum permitted
by such laws. If any excess of interest in such respect is provided for, or
shall be adjudged to be so provided for, then in such event (a) the provisions
of this paragraph shall govern and control, (b) neither Guarantor nor
Guarantor's heirs, successors, or assigns or any other party liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is the excess of the maximum amount permitted by such laws, (c)
any such excess which may have been collected shall be, at the Lender's option,
either applied as a credit against the then unpaid principal amount owing on the
Guaranteed Obligations, or refunded, and (d) the effective rate of interest
covered by this Guaranty shall be automatically subject to reduction to the
maximum lawful rate allowed under applicable usury laws.
9. This Guaranty is for the benefit of the Lender, and for such other
persons and entities as may from time to time become or be the holders of any
Guaranteed Obligations; and this Guaranty shall be transferable and negotiable,
with the same force and effect and to the same extent as the Guaranteed
Obligations may be transferable, it being understood that upon the
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assignment or transfer by the Lender of any Guaranteed Obligations, the legal
holder of such Guaranteed Obligations shall have all of the rights granted to
the Lender under this Guaranty.
10. Payment of all amounts hereunder shall be made at the offices of
the Lender.
11. Any notice, request or other communication required or permitted to
be given hereunder shall be given in writing by delivering the same against
receipt therefor or by depositing the same in the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties at the address shown below or to such other
address as the intended recipient may have specified in a prior written notice
received by the sender (and if so given, shall be deemed given when mailed).
12. This Guaranty shall not be wholly or partially satisfied or
extinguished by Guarantor's partial payment of any amount due on the Guaranteed
Obligations, but shall continue in full force and effect as against Guarantor
for the full amount of the Guaranteed Obligations until payment in full thereof.
13. This Guaranty shall be binding upon Guarantor, his heirs,
devisees, executors, administrators, personal representatives, successors and
assigns and shall inure to the benefit of, and be enforceable by, the Lender
and its successors and assigns and each and every other person who shall from
time to time be or become the owner or holder of any of the Guaranteed
Obligations, and each and every reference herein to "the Lender" shall also
include each and every successor, assign, owner or holder. Guarantor shall not
assign or delegate its obligations hereunder without the prior written consent
of the Lender.
14. Guarantor understands and agrees that Guarantor may revoke his
future obligations under this Guaranty at any time by giving Lender written
notice that Guarantor will not be liable hereunder for any indebtedness or
obligations of any Borrower incurred on or after the effective date of such
revocation. Such revocation shall be deemed to be effective on the day
following the day Lender receives such notice delivered either by: (a) personal
delivery to the address of Lender identified above, or (b) United States mail,
registered or certified, return receipt requested, postage prepaid, addressed
to Lender at the address shown above. Notwithstanding such revocation,
Guarantor shall remain liable on his obligations hereunder until payment in
full to Lender of (x) all of the Guaranteed Obligations that is outstanding on
the effective date of such revocation, and any renewals and extensions thereof,
and (y) all loans, advances and other extensions of credit made to or for the
account of each Borrower on or after the effective date of such revocation
pursuant to the obligation of Lender under a commitment or agreement made to or
with such Borrower prior to the effective date of such revocation. The terms
and conditions of this Guaranty shall remain in effect with respect to the
Guaranteed Obligations described in the preceding sentence in the same manner
as if such revocation had not been made by Guarantor.
15. In the event of the death of Guarantor, any duly authorized
representative of the estate of Guarantor may revoke Guarantor's future
obligations under this Guaranty by giving Lender written notice of Guarantor's
death and that the estate of Guarantor shall not be liable hereunder for any
indebtedness or obligations of any Borrower incurred on or after the effective
date of such revocation. Such revocation shall be deemed to be effective on the
day following
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the day Lender receives such notice delivered either by: (a) personal delivery
to the address of Lender identified above, or (b) United States mail,
registered or certified, return receipt requested, postage prepaid, addressed
to Lender at the address shown above. Notwithstanding such revocation, the
obligations of the deceased Guarantor shall continue as an obligation against
his estate as to (x) all of the Guaranteed Obligations that is outstanding on
the effective date of such revocation, and any renewals or extensions thereof,
and (y) all loans, advances and other extensions of credit made to or for the
account of each Borrower on or after the effective date of such revocation
pursuant to an obligation of Lender under a commitment or agreement made to or
with such Borrower prior to the effective date of such revocation. The terms
and conditions of this Guaranty shall remain in effect with respect to the
Guaranteed Obligations described in the preceding sentence in the same manner
as if such revocation had not been made.
16. The release by the Lender of any Borrower or one or more other
guarantors of all or part of the Guaranteed Obligations shall not affect the
Guarantor, who shall remain fully liable in accordance with the terms of this
Guaranty.
17. This Guaranty, whether continuing, specific, and/or limited, shall
be in addition to and cumulative of, and not in substitution, novation or
discharge of, any and all prior or contemporaneous guaranty agreements by
Guarantor or other persons or entities, in favor of the Lender or assigned to
the Lender by others.
18. Guarantor represents and warrants that (i) this Guaranty is not
given with actual intent to hinder, delay or defraud any entity to which
Guarantor is or will become, on or after the date hereof, indebted; (ii)
Guarantor has received at least a reasonably equivalent value in exchange for
the giving of this Guaranty; (iii) Guarantor is not insolvent on the date
hereof and will not become insolvent as a result of the giving of this
Guaranty; (iv) Guarantor is not engaged in a business or transaction, nor is
about to engage in a business or transaction, for which any property remaining
with Guarantor constitute an unreasonably small amount of capital; or (v)
Guarantor does not intend to incur debts that will be beyond the Guarantor's
ability to pay as such debts mature.
19. This Guaranty shall be governed by and construed and interpreted
in accordance with the laws of the United States of America and the State of
Texas. Harris County, Texas shall be the proper place of venue to enforce
payment or performance under this Guaranty. Guarantor irrevocably agrees that
any legal proceeding arising out of or in connection with this Guaranty shall
be brought in the state district courts of Harris County, Texas or in the
United States District Court for the District in which Harris County, Texas is
located.
20. Guarantor shall furnish to the Lender all such financial
statements and other information relating to the financial condition,
properties and affairs of Guarantor as the Lender may from time to time
request.
21. Guarantor will not change his address, name or identity without
notifying the Lender of such change in writing at least thirty (30) days prior
to the effective date of such change.
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22. No delay on the part of the Lender in exercising any right
hereunder or failure to exercise the same shall operate as a waiver of such
right, nor shall any single or partial exercise of any right, power or privilege
bar any further or subsequent exercise of the same or any other any right, power
or privilege.
23. This Guaranty shall not be changed orally, but shall be changed
only by agreement in writing signed by the person against whom enforcement of
such change is sought.
24. The masculine and neuter genders used herein shall each include
the masculine, feminine and neuter genders and the singular number used herein
shall include the plural number. The words "person" and "entity" shall include
without limitation individuals, corporations, partnerships, joint ventures,
associations, joint stock companies, trusts, unincorporated organizations, and
governments and any agency or political subdivision thereof. The term
"guarantor" shall include, without limitation, the Guarantor.
25. If any provision of this Guaranty is determined to be invalid by
any court of competent jurisdiction or to be in violation of any applicable law,
such invalidity or violation shall have no effect on any other provisions of
this Guaranty (which shall remain valid and binding and in full force and
effect) or in any other jurisdiction, and to that end the provisions of this
Guaranty shall be considered severable.
26. If this Guaranty is given by a corporation, then the undersigned
guaranteeing corporation does hereby acknowledge that it has investigated fully
the benefits and advantages which will be derived by the undersigned from
execution of this Guaranty, and the Board of Directors of the undersigned
corporation has decided that, and the undersigned corporation does hereby
acknowledge, warrant and represent that, a direct or an indirect benefit will
accrue to the undersigned by reason of execution of this Guaranty.
27. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR
THE GUARANTEED OBLIGATIONS.
EXECUTED this 30th day of April, 1996.
/s/ JIM C. HODGE
----------------------------------------
JIM C. HODGE
Address: Rt 1 Box 629
------------------------------
Hockley 77447-9772
------------------------------
Tax I.D. No.: ----
---------------------------
Driver's License No.\State: 04383334 TEX
-------------
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STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on this 30 day of April,
1996, by JIM C. HODGE.
/s/ PETUNIA M. CATES
-----------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
[SEAL]
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EXHIBIT 10.4.a
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the ___ day of September, 1999, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used
but not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by those certain Modification Agreements dated February 18,
1997, May 30, 1997, September 8, 1997, October 31, 1997, January 8, 1998,
February 1, 1998, April 2, 1998, May 28, 1998, and June 1, 1999 respectively,
among the Borrower, Guarantor and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to
renew and extend the Commitment and amend certain other provisions of the
Credit Agreement. Therefore, Borrowers, Guarantor and Lender hereby agree as
follows, intending to be legally bound;
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) The definition of "Commitment Limit" in Section 1.2 of the
Credit Agreement is hereby deleted in its entirety therefrom and the
following is substituted in lieu thereof:
"'Commitment Limit' means $16,000,000.00."
(b) The Revolving Credit Note ("Credit Note") dated
September 1, 1999, in the original principal sum of $17,600,000.00
executed by Borrowers payable to the order of Lender is given in
renewal and extension of the Revolving Credit Note dated June 1, 1999,
in the original principal sum of $30,000,000.00 executed by Borrowers
payable to the order of Lender and not in novation or discharge
thereof. The definition of the term "Note" in the Credit Agreement is
hereby amended to mean the Credit Note and all renewals, extensions,
modifications, increases, rearrangements, and replacements thereof.
(c) Section 5.13 Net Worth of the Credit Agreement is hereby
deleted in is entirety therefrom and the following is substituted in
lieu thereof:
"Section 5.13 Net Worth. Borrowers will maintain a
combined positive Net Worth of not less than (a) $1,200,000.00
from the date hereof through and including June 29, 1999, (b)
$1,500,000.00 from June 30, 1999 through and including November
29, 1999, and (c) $1,000,000.00 from November 30, 1999 and
thereafter, computed as of the end of each calendar month."
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<PAGE> 2
(d) The following Section 2.16 Discretionary Advances, of
the Credit Agreement is hereby added to Article 2 of the Credit
Agreement for all purposes:
"Section 2.16 Discretionary Advances. Notwithstanding
the Commitment Limit, the Lender shall have the right, but
shall not be obligated, to make Advances requested by
Borrower, which when added to all Aggregate Advances as of the
date of any request are in excess of the Commitment Limit, in
such amounts as Borrower may request prior to the Termination
Date up to the maximum amount hereinafter stated and Borrower
may borrow, pay, prepay, in whole or in part, and reborrow in
respect thereof; provided, however, the aggregate principal
amount of all such discretionary Advances shall not exceed at
any one time outstanding the sum of $1,600,000.00
("Discretionary Advances"). Any request for an Advance
hereunder by Borrower, which when added to all Aggregate
Advances as of the date of such request is in excess of the
Commitment Limit, shall be deemed to be a request for a
Discretionary Advance. Each request for a Discretionary
Advance made by Borrower may be approved or denied, with or
without cause, by the Lender in its sole and absolute
discretion. Lender's approval of any request for a
Discretionary Advance shall not be deemed to be a waiver of
its right to deny any subsequent request for a Discretionary
Advance, with or without cause, regardless of whether or not
the same circumstances and factors which existed at the time
of Lender's approval of any previous request exist at the time
of any subsequent request. Each Discretionary Advance and all
Mortgage Loans pledged in connection therewith shall be
subject to all terms, conditions, representations, warranties,
covenants, and agreements contained in this Agreement
applicable to any Advance hereunder and any Mortgage Loan
pledged to secure the Obligations. Discretionary Advances, and
interest thereon, shall be evidenced by the Note and shall be
due and payable in accordance with the Loan Documents.
Discretionary Advances shall be secured by the Security
Instruments and any and all Collateral now or hereafter given
by the Borrower to secure any of the Obligations."
(e) The following section 5.6 Restrictions on Dividends
of the Credit Agreement is hereby deleted in its entirety and the
following is substituted in lieu thereof for all purposes:
"Section 5.6 Restrictions on Dividends. Borrowers
shall not directly or indirectly declare or make, or incur any
liability to make, any Dividend."
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<PAGE> 3
(f) All references in any Loan Document to Chapter 1D, of the
Texas Credit Title shall be deemed to be references to Section 303 of
the Texas Finance Code. All references in any Loan Document to the
Texas Credit Title shall be deemed to be references to the Texas
Finance Code.
(g) Borrowers acknowledge and agree that they are currently in
Default ("Specified Defaults") under the Credit Agreement for failing
to comply with the provisions of Section 5.13 and 5.14 of the Credit
Agreement. Lender agrees that it will forbear from declaring an Event
of Default and exercising its remedies because of such Specified
Defaults until November 30, 1999; provided, however, that (i) the
foregoing shall not waiver of Lender's rights to declare any other
Default or Event of Default existing now or hereafter under the Credit
Agreement and exercise its rights, remedies and/or recourses under the
Loan Documents at law, in equity, or otherwise in connection therewith
and (ii) if Borrowers are not in compliance with Sections 5.13 and 5.14
of the Credit Agreement on November 30, 1999 or thereafter, Lender will
declare an Event of Default and exercise its remedies because of such
non-compliance and such Specified Defaults.
(h) The sublimit for "B", "C", and "D" Mortgage Loans
established in Section 2.1 Loan of the Credit agreement is hereby
amended to reduce the sublimit from $6,000,000.00 to $1,500,000.00.
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as the date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement unless amended here by or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement", the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof. Any
reference in the other Loan Documents to the "Agreement", the "Line of Credit
Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be deemed to be
references to the Credit Agreement as amended through the date hereof. Any
reference in the Credit Agreement, this Modification Agreement, or the other
Loan Documents to the "Note" shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectiveley, first, prior, valid and subsisting liens, security interests and
assignments against the Collateral and secure all indebtedness
Page 3
<PAGE> 4
and obligations of Borrowers to Lender under the Note, the Credit Agreement, all
other Loan Documents, as modified herein; (iii) there are no claims or offsets
against, or defenses or counterclaims to, the terms or provisions of the Loan
Documents, and the other obligations created or evidenced by the Loan Documents;
(iv) neither the Borrowers nor the Guarantor have any claims, offsets, defenses
or counterclaims arising from any of the Lender's acts or omissions with respect
to the Loan Documents, or the Lender's performance under the Loan Documents; (v)
the representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrowers, as of the date hereof; (vi)
Borrowers promise to pay to the order of Lender the indebtedness evidenced by
the Note according to the terms thereof; and (vii) Lender is not in default and
no event has occurred which, with the passage of time, giving of notice, or
both, would constitute a default by Lender of Lender's obligations under the
terms and provisions of the Loan Documents. IN CONSIDERATION OF THE MODIFICATION
OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE
OTHER BENEFITS RECEIVED BY BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND
GUARANTOR HEREBY RELEASE, RELINQUISH AND FOREVER DISCHARGE LENDER, ITS
PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS, PRINCIPALS, PARENTS,
SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF AND FROM ANY
AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND EVERY KIND OF
CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH BORROWERS AND
GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST LENDER RELEASED
PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL TRANSACTIONS RELATING TO
THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS OCCURRING PRIOR TO THE DATE
HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR DETRIMENT, OF ANY KIND OR
CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH OR IN AY WAY RESULTING
FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER RELEASED PARTIES, AND
INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY BREACH OF FIDUCIARY
DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF COMPETENCE, BREACH OF
FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF
INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER
INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF
EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH CORPORATE GOVERNMENTS
OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE WITH CONTRACTUAL
RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER,
CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING, COLLECTING OR
RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE TO THE
LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR STATE LAW, ANY
VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR REGULATIONS, INCLUDING,
BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B, EQUAL CREDIT OPPORTUNITY,
BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE ENTERPRISE ANTITRUST ACT
OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR (i) CONSENTS TO THE TERMS
AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii) RATIFIES AND CONFIRMS HIS
GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE WITH ITS TERMS, AND (iii)
ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY AGREEMENTS OF THE
GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT AGREEMENT ARE NOT SUBJECT TO
ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF ANY NATURE WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be held
to be invalid, illegal or unenforceable in
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<PAGE> 5
any respect, the validity, enforceability and legality of the remaining
provisions contained herein and therein shall not be affected in any way or
impaired thereby and shall be enforceable in accordance with their respective
terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that the
resolutions and affidavits previously delivered to Lender, in connection with
the execution and delivery of the Credit Agreement, are and remain in full force
and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and,
to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS, AS
MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Page 5
<PAGE> 6
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------
Name: JIM C. HODGE
-----------------------------
Title: President
----------------------------
GUARANTOR:
/s/ JIM C. HODGE
-----------------------------------
JIM C. HODGE
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
-------------------------------
DON MACH, Vice President
Page 6
<PAGE> 1
EXHIBIT 10.4.b
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into effective
as of the 1st day of June, 1999, by and among ALLIED MORTGAGE CORPORATION, a
Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL CORPORATION, a Texas
corporation ("Capital") (the Company and Capital being called collectively the
"Borrowers" and individually, a "Borrower"), JIM C. HODGE ("Guarantor"), and
COASTAL BANC ssb ("Lender"). Capitalized terms used but not defined herein have
the meanings assigned to them in that certain Loan Agreement dated effective as
of April 30, 1996, by and among the Borrowers and Lender, as amended by those
certain Modification Agreements dated February 18, 1997, May 30, 1997, September
8, 1997, October 31, 1997, January 8, 1998, February 1, 1998, April 2, 1998,
and May 28, 1998 respectively, among the Borrower, Guarantor and Lender ("Credit
Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to renew and
extend the Commitment and amend certain other provisions of the Credit
Agreement. Therefore, Borrowers, Guarantor and Lender hereby agree as follows,
intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as follows:
(a) The definition of "Commitment Limit" in Section 1.2 of the Credit
Agreement is hereby deleted in its entirety therefrom and the following is
substituted in lieu thereof:
"Commitment Limit" means, at the time of any determination, the
lesser of (a) the Legal Loan Limit or (b) $25,000,000.00; provided,
however that such amount shall increase up to but not exceeding
$30,000,000.00 to the extent and only to the extent that Lender sells
(it being agreed that Lender has no obligation to sell) up to
$5,000,000.00 in participation interests in the Commitment to one or
more Persons acceptable to the Lender in it sole discretion."
(b) The Revolving Credit Note ("Credit Note") dated June 1, 1999, in
the original principal sum of $30,000,000.00 executed by Borrowers payable
to the order of Lender is given in renewal and extension of the Revolving
Credit Note dated May 28, 1998, in the original principal sum of
$23,000,000.00 executed by Borrowers payable to the order of Lender and not
in novation or discharge thereof. The definition of the term "Note" in the
Credit Agreement is hereby amended to mean the Credit Note and all
renewals, extensions, modifications, increases, rearrangements, and
replacements thereof.
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<PAGE> 2
(c) Section 5.13 Net Worth of the Credit Agreement is hereby deleted
in is entirety therefrom and the following is substituted in lieu thereof:
"Section 5.13 Net Worth. Borrowers will maintain a combined
positive Net Worth of not less than (a) $1,200,000.00 from the date
hereof through and including June 29, 1999 and (b) $1,500,000.00 from
June 30, 1999 and thereafter."
(d) The definition of "Termination Date" in Section 1.2 of the Credit
Agreement is hereby deleted in its entirety therefrom and the following is
substituted in lieu thereof:
"'Termination Date' means the earlier to occur of (i) May 31,
2000 or (ii) the date that the Commitment is canceled or terminated
in accordance with this Agreement."
(e) The following sentence is hereby added to Section 4.8 Accounts
and Records. of the Credit Agreement for all purposes:
"Commencing with the fiscal year 1999, Borrowers shall take
whatever steps or actions are necessary to make their respective
fiscal year ending dates end on the same date."
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby
are true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all
other Loan Documents are and remain in full force and effect in accordance
with their respective terms. All of the terms used herein have the same
meanings as set out in the Credit Agreement, unless amended hereby or unless
the context clearly requires otherwise. References in the Credit Agreement
to the "Agreement," the "Loan Agreement," "hereof," "herein" and words of
similar import shall be deemed to be references to the Credit Agreement as
amended through the date hereof. Any reference in the other Loan Documents
to the "Agreement", the "Line of Credit Agreement", "Warehouse Agreement",
or the "Loan Agreement" shall be deemed to be references to the Credit
Agreement as amended through the date hereof. Any reference in the Credit
Agreement, this Modification Agreement, or the other Loan Documents to the
"Note" shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan
Documents are, respectively, first, prior, valid and
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<PAGE> 3
subsisting liens, security interests and assignments against the Collateral
and secure all indebtedness and obligations of Borrowers to Lender under the
Note, the Credit Agreement, all other Loan Documents, as modified herein;
(iii) there are no claims or offsets against, or defenses or counterclaims
to, the terms or provisions of the Loan Documents, and the other obligations
created or evidenced by the Loan Documents; (iv) neither the Borrowers nor
the Guarantor have any claims, offsets, defenses or counterclaims arising
from any of the Lender's acts or omissions with respect to the Loan
Documents, or the Lender's performance under the Loan Documents; (v) the
representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrowers, as of the date hereof;
(vi) Borrowers promise to pay to the order of Lender the indebtedness
evidenced by the Note according to the terms thereof; and (vii) Lender is
not in default and no event has occurred which, with the passage of time,
giving of notice, or both, would constitute a default by Lender of Lender's
obligations under the terms and provisions of the Loan Documents. IN
CONSIDERATION OF THE MODIFICATION OF CERTAIN PROVISIONS OF THE LOAN
DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE OTHER BENEFITS RECEIVED BY
BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND GUARANTOR HEREBY RELEASE,
RELINQUISH AND FOREVER DISCHARGE LENDER, ITS PREDECESSORS, SUCCESSORS,
ASSIGNS, SHAREHOLDERS, PRINCIPALS, PARENTS, SUBSIDIARIES, AGENTS, OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY, THE
"LENDER RELEASED PARTIES"), OF AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS
AND CAUSES OF ACTION OF ANY AND EVERY KIND OR CHARACTER, WHETHER KNOWN OR
UNKNOWN, PRESENT OR FUTURE, WHICH BORROWERS AND GUARANTOR, OR ANY ONE OR
MORE OF THEM, HAVE, OR MAY HAVE AGAINST LENDER RELEASED PARTIES, ARISING OUT
OF OR WITH RESPECT TO ANY AND ALL TRANSACTIONS RELATING TO THE CREDIT
AGREEMENT, AND THE OTHER LOAN DOCUMENTS OCCURRING PRIOR TO THE DATE HEREOF,
INCLUDING ANY OTHER LOSS, EXPENSE AND/OR DETRIMENT, OF ANY KIND OR
CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH OR IN ANY WAY
RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER RELEASED
PARTIES, AND INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY
BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF
COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC
COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE,
VIOLATIONS OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS ACT,
INTENTIONAL OR NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS,
TORTIOUS INTERFERENCE WITH CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS
ADVANTAGE, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, BREACH OF
CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY, THE
CHARGING, CONTRACTING FOR, TAKING, RESERVING, COLLECTING OR RECEIVING OF
INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE TO THE LOAN
DOCUMENTS (IE., USURY), ANY VIOLATIONS OF FEDERAL OR STATE LAW, ANY
VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR REGULATIONS,
INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B, EQUAL CREDIT
OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS.
GUARANTOR (i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION
AGREEMENT, (ii) RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND
EFFECT IN ACCORDANCE WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE
GUARANTY AND ALL OTHER GUARANTY AGREEMENTS OF THE GUARANTOR EXECUTED IN
CONNECTION WITH THE CREDIT AGREEMENT ARE NOT SUBJECT TO ANY CLAIMS, OFFSETS,
DEFENSES, OR COUNTERCLAIMS OF ANY NATURE WHATSOEVER.
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<PAGE> 4
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be
held to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs
and expenses of Lender in connection with the preparation, operation,
administration and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are
and remain in full force and effect in accordance with their respective
terms and that all Collateral is unimpaired by this Modification Agreement
and secures the payment and performance of all indebtedness and obligations
of Borrowers under the Note, the Credit Agreement, and all other Loan
Documents, as modified hereby. Each of the undersigned officers of Borrowers
executing this Modification Agreement represents and warrants that he has
full power and authority to execute and deliver this Modification Agreement
on behalf of Borrowers that such execution and delivery has been duly
authorized and that the resolutions and affidavits previously delivered to
Lender, in connection with the execution and delivery of the Credit
Agreement, are and remain in full force and effect and have not been
altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore
arising and currently continuing shall continue after the execution and
delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be governed
by and construed in accordance with the laws of the State of Texas and, to
the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together
shall be deemed to constitute one and the same instrument.
Section 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS,
AS MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Page 4
<PAGE> 5
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
----------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION, a
Texas corporation
By: /s/ JIM C. HODGE
---------------------------------
Name: JIM C. HODGE
-------------------------------
Title: President
------------------------------
GUARANTOR:
/s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE
LENDER:
COASTAL BANC, ssb
By:
------------------------------------
DON MACH, Vice President
Page 5
<PAGE> 1
EXHIBIT 10.4.c
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 16th day of October, 1998, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used but
not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by those certain Modification Agreements dated February 18,
1997, May 30, 1997, September 8, 1997, October 31, 1997, January 8, 1998,
February 1, 1998, April 2, 1998, and May 28, 1998 respectively, among the
Borrowers, Guarantor and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
the Credit Agreement to increase the Repurchase Advance sublimit and increase
the Basic Rate with respect to Repurchase Advances. Therefore, Borrowers,
Guarantor and Lender hereby agree as follows, intending to be legally bound.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) Section 2.1. Loan. of the Credit Agreement is hereby
deleted therefrom and the following is substituted in lieu thereof
for all purposes:
"Subject to the terms and conditions and relying on
the representations and warranties contained in this
Agreement, Lender agrees to make Advances to either Borrower
at any time, and from time to time, on any Business Day prior
to the Termination Date in such amounts as such Borrower may
request up to but not exceeding the Commitment Limit and each
Borrower may borrow, repay, and reborrow hereunder so long as
the Aggregate Advances at any one time outstanding shall not
exceed the Commitment Limit. No Advance shall be made against
a Mortgage Loan that is not an Eligible Mortgage Loan. The
amount of any Advance made hereunder against an Eligible
Mortgage Loan shall not exceed such Eligible Mortgage Loan's
Warehouse Line Limit. Lender's Commitment shall terminate on
the Termination Date or such earlier date pursuant to the
terms of this Agreement. All revolving loans made pursuant to
this Section 2.1 and all payments of principal with respect to
all loans under the Commitment shall be evidenced by notations
made by Lender in its business records. The Aggregate Advances
reflected by the notations made in Lender's business records
shall be conclusive evidence of the principal amount owing and
unpaid on the Note. The Aggregate Advances against "B, C, & D"
Mortgage Loans outstanding at any one time shall not exceed
$6,000,000.00. The Aggregate Advances against FHA Title I
Mortgage Loans outstanding at any one time shall not exceed
$1,000,000.00. The aggregate amount of all Repurchased
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Advances outstanding at any one time shall not exceed
$350,000.00. Notwithstanding anything to the contrary
contained in this Agreement or otherwise, Capital shall
not be permitted at any time to receive any Repurchase Advance
hereunder."
(b) The Basic Rate, with respect to Aggregate Advances
relating to Repurchase Mortgage Loans, means, for any day, the LIBOR
Rate for that day plus 4.00%.
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set
out in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof.
Any reference in the other Loan Documents to the "Agreement", the "Line of
Credit Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be
deemed to be references to the Credit Agreement as amended through the date
hereof. Any reference in the Credit Agreement, this Modification Agreement, or
the other Loan Documents to the "Note" shall be deemed references to the
Revolving Credit Note dated May 28, 1998 in the original principal sum of
$23,000,000.00 executed by Borrowers payable to the order of the Lender.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, first, prior, valid and subsisting liens, security interests and
assignments against the Collateral and secure all indebtedness and obligations
of Borrowers to Lender under the Note, the Credit Agreement, all other Loan
Documents, as modified herein; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Loan Documents, and
the other obligations created or evidenced by the Loan Documents; (iv) neither
the Borrowers nor the Guarantor have any claims, offsets, defenses or
counterclaims arising from any of the Lender's acts or omissions with respect to
the Loan Documents, or the Lender's performance under the Loan Documents; (v)
the representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrowers, as of the date hereof;
(vi) Borrowers promise to pay to the order of Lender the indebtedness evidenced
by the Note according to the terms thereof; and (vii) Lender is not in default
and no event has occurred which, with the passage of time, giving of notice, or
both, would constitute a default by Lender of Lender's obligations under the
terms and provisions of the Loan Documents. IN CONSIDERATION OF THE MODIFICATION
OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS, ALL IS HEREIN PROVIDED, AND THE
OTHER BENEFITS RECEIVED BY BORROWERS AND GUARANTOR
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<PAGE> 3
HEREUNDER, BORROWERS AND GUARANTOR HEREBY RELEASE, RELINQUISH AND FOREVER
DISCHARGE LENDER, ITS PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS,
PRINCIPALS, PARENTS, SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF
AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND
EVERY KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH
BORROWERS AND GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST
LENDER RELEASED PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL
TRANSACTIONS RELATING TO THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS
OCCURRING PRIOR TO THE DATE HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR
DETRIMENT, OF ANY KIND OR CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH
OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER
RELEASED PARTIES, AND INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY
BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF
COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC
COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS
OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR
NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH
CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE
WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES,
LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING,
COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE TO THE LOAN DOCUMENTS (i.e., USURY), ANY VIOLATIONS OF FEDERAL OR
STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR
REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B,
EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR
(i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii)
RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE
WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY
AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT AGREEMENT ARE
NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF ANY NATURE
WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be held
to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and
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<PAGE> 4
warrants that he has full power and authority to execute and deliver this
Modification Agreement on behalf of Borrowers that such execution and delivery
has been duly authorized and that the resolutions and affidavits previously
delivered to Lender, in connection with the execution and delivery of the Credit
Agreement, are and remain in full force and effect and have not been altered,
amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and,
to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
Section 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS, AS
MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF
THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JAMEY HODGE
------------------------------------
JAMEY HODGE, President
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GUARANTOR:
/s/ JIM C. HODGE
----------------------------------------
JIM C. HODGE
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
------------------------------------
DON MACH, Vice President
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EXHIBIT 10.4.d
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 28th day of May, 1998, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used but
not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by those certain Modification Agreements dated February 18,
1997, May 30, 1997, September 8, 1997, October 31, 1997, January 8, 1998,
February 1, 1998, and April 2, 1998, respectively, among the Borrower, Guarantor
and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) The definition of "Commitment Limit" in Section 1.2 of the
Credit Agreement is hereby deleted in its entirety therefrom and the
following is substituted in lieu thereof:
""Commitment Limit" means, at the time of any
determination, the lesser of (a) the Legal Loan Limit or (b)
$23,000,000.00."
(b) Section 2.16 Discretionary Advances. of the Credit
Agreement is hereby deleted in its entirety from the Credit Agreement
for all purposes.
(c) Section 7.17 Limitation of Liability. of the Credit
Agreement is hereby deleted in its entirety from the Credit Agreement
for all purposes. The Borrowers are and shall be jointly and severally
liable for the payment and performance of all Obligations of Borrowers.
(d) The Revolving Credit Note ("Credit Note") dated May 28,
1998, in the original principal sum of $23,000,000.00 executed by
Borrowers payable to the order of Lender is given in renewal and
extension of the Revolving Credit Note dated April 2, 1998, in the
original principal sum of $20,900,000.00 executed by Borrowers payable
to the order of Lender and not in novation or discharge thereof. The
definition of the term "Note" in the Credit Agreement is hereby amended
to mean the Credit Note and all renewals, extensions, modifications,
increases, rearrangements, and replacements thereof.
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(e) The definition of "Net Worth" in Section 1.2 of the Credit
Agreement is hereby deleted in its entirety therefrom and the following
is substituted in lieu thereof:
""Net Worth" means, with respect to any Person at any
date, the sum of the total shareholders' equity in such Person
(including capital stock, additional paid-in capital, and
retained earnings, but excluding treasury stock, if any), on a
consolidated basis; less the aggregate book value of all
intangible assets of such Person (as determined in accordance
with GAAP), including without limitation, goodwill,
trademarks, trade names, service marks, copyrights, patents,
licenses, franchises, and servicing rights, each to be
determined in accordance with GAAP; provided that, for
purposes of this Agreement, there shall be excluded from total
assets, advances or loans to shareholders, officers or
Affiliates, investments in Affiliates, assets pledged to
secure any liabilities not included in the debt of such Person
and those other assets which would be deemed by HUD to be
non-acceptable in calculating adjusted net worth in accordance
with its requirements in the Audit Guide for Audit of Approved
Non-Supervised Mortgagees", as in effect as of such date."
(f) The following definition of "Legal Loan Limit" is hereby
added to Section 1.2 of the Credit Agreement for all purposes:
""Legal Loan Limit", for any day, means the maximum
amount the Lender is permitted to lend to the Borrowers on
that day under applicable Governmental Requirements."
(g) The following Section 4.13 Year 2000 Compliance. is hereby
added to the end of Article 4: Covenants of the Credit Agreement for
all purposes:
"Section 4.13. Year 2000 Compliance. Borrowers shall
ensure that the following are Year 2000 Compliant in a timely
manner, but in no event later than December 31, 1999: (a) the
Collateral; (b) each Borrower itself; and (c) any other major
commercial properties and entities in which any Borrower holds
a controlling interest. Borrowers shall further make
reasonable inquiries of and request reasonable validation that
each of the following are similarly Year 2000 Compliant: (i)
all major entities from which any Borrower receives payments;
and (y) all major contractors, suppliers, service providers,
and vendors of any Borrower. As used in this paragraph,
"major" shall mean properties or entities the failure of which
to be Year 2000 Compliant would have a material adverse
economic impact upon any Borrower. The term "Year 2000
Compliant" shall mean, in regard to any property or entity,
that all software, hardware, equipment, goods or systems
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<PAGE> 3
utilized by or material to the physical operations, business
operations, or financial reporting of such property or entity
(collectively, the "Systems") will properly perform date
sensitive functions before, during, and after the year 2000,
In furtherance of this covenant, Borrowers shall, in addition
to any other necessary actions perform a comprehensive review
and assessment of all Systems of each Borrower and the
Collateral, and shall adopt a detailed plan, with itemized
budget, for the testing, remediation, and monitoring of such
Systems. Borrowers shall, within twenty (20) calendar days
after the end of each calendar quarter, provide to Lender such
certifications or other evidence of Borrowers' compliance with
the terms of this paragraph as Lender may from time to time
reasonably require."
(h) Section 5.14 Warehouse Borrowings to Net Worth Ratio of
the Credit Agreement is hereby deleted in is entirety therefrom and the
following is substituted in lieu thereof:
"Section 5.14 Warehouse Borrowings to Net Worth
Ratio. Borrowers shall not permit at any time the ratio of
their combined Warehouse Borrowings to their combined Net
Worth to exceed 20.0 to 1.0, computed as of the end of each
calendar month."
(i) Section 5.13 Net Worth of the Credit Agreement is hereby
deleted in is entirety therefrom and the following is substituted in
lieu thereof:
"Section 5.13 Net Worth. Borrowers will maintain a
combined positive Net Worth of not less than (a)
$1,150,000.00 from the date hereof through and including
August 31, 1998 and (b) $1,200,000.00 from September 1, 1998
and thereafter."
(j) The definition of "Termination Date" in Section 1.2 of the
Credit Agreement is hereby deleted in its entirety therefrom and the
following is substituted in lieu thereof:
"'Termination Date' means the earlier to occur of (i)
May 31, 1999 or (ii) the date that the Commitment is canceled
or terminated in accordance with this Agreement."
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the
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<PAGE> 4
same meanings as set out in the Credit Agreement, unless amended hereby or
unless the context clearly requires otherwise. References in the Credit
Agreement to the "Agreement," the "Loan Agreement," "hereof," "herein" and words
of similar import shall be deemed to be references to the Credit Agreement as
amended through the date hereof. Any reference in the other Loan Documents to
the "Agreement", the "Line of Credit Agreement", "Warehouse Agreement", or the
"Loan Agreement" shall be deemed to be references to the Credit Agreement as
amended through the date hereof. Any reference in the Credit Agreement, this
Modification Agreement, or the other Loan Documents to the "Note" shall be
deemed references to the Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, first, prior, valid and subsisting liens, security interests and
assignments against the Collateral and secure all indebtedness and obligations
of Borrowers to Lender under the Note, the Credit Agreement, all other Loan
Documents, as modified herein; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Loan Documents, and
the other obligations created or evidenced by the Loan Documents; (iv) neither
the Borrowers nor the Guarantor have any claims, offsets, defenses or
counterclaims arising from any of the Lender's acts or omissions with respect to
the Loan Documents, or the Lender's performance under the Loan Documents; (v)
the representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrowers, as of the date hereof; (vi)
Borrowers promise to pay to the order of Lender the indebtedness evidenced by
the Note according to the terms thereof; and (vii) Lender is not in default and
no event has occurred which, with the passage of time, giving of notice, or
both, would constitute a default by Lender of Lender's obligations under the
terms and provisions of the Loan Documents. IN CONSIDERATION OF THE MODIFICATION
OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE
OTHER BENEFITS RECEIVED BY BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND
GUARANTOR HEREBY RELEASE, RELINQUISH AND FOREVER DISCHARGE LENDER, ITS
PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS, PRINCIPALS, PARENTS,
SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF AND FROM ANY
AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND EVERY KIND OR
CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH BORROWERS AND
GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST LENDER RELEASED
PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL TRANSACTIONS RELATING TO
THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS OCCURRING PRIOR TO THE DATE
HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR DETRIMENT, OF ANY KIND OR
CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH OR IN ANY WAY RESULTING
FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER RELEASED PARTIES, AND
INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY BREACH OF FIDUCIARY
DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF COMPETENCE, BREACH OF
FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF
INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER
INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF
EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH CORPORATE GOVERNMENTS
OR PROSPECTIVE BUSINESS
Page 4
<PAGE> 5
ADVANTAGE, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT,
DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING
FOR, TAKING, RESERVING, COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE TO THE LOAN DOCUMENTS (I.E., USURY), ANY
VIOLATIONS OF FEDERAL OR STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING
RULES, LAWS OR REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF
REGULATION B, EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF
THE TEXAS FREE ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST
ACTS. GUARANTOR (i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION
AGREEMENT, (ii) RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT
IN ACCORDANCE WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL
OTHER GUARANTY AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE
CREDIT AGREEMENT ARE NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR
COUNTERCLAIMS OF ANY NATURE WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be held
to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that the
resolutions and affidavits previously delivered to Lender, in connection with
the execution and delivery of the Credit Agreement, are and remain in full force
and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and,
to the extent applicable, by federal law.
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Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
Section 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS, AS
MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
------------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
/s/ JIM C. HODGE
----------------------------------------
JIM C. HODGE
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LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
------------------------------------
DON MACH, Vice President
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<PAGE> 8
[COASTAL BANC ssb LETTERHEAD]
June 16, 1998
Mr. Jim Hodge
Allied Mortgage Corporation
10601 Grant Road, Suite 211
Houston, TX 77070
Dear Jim:
Coastal Banc, ssb has approved a temporary increase in the Subprime sublimit
under the existing $23MM warehouse line of credit. The modification will
increase the Subprime sublimit from $6MM to $7MM effective immediately. However,
please keep in mind that the increase is only temporary and will expire
September 30, 1998. At that time the Subprime sublimit will go back to $6MM.
We are pleased to be able to provide additional funding to Allied under the
Subprime sublimit. Our decision is based upon the proactive approach you are
taking in providing additional training and tracking tools for the closing and
shipping departments. We wish you continued success and look forward to
assisting you with another record year.
Best Regards,
/s/ DON MACH
Don Mach
Vice President
<PAGE> 1
EXHIBIT 10.4.e
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 2nd day of April, 1998, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used
but not defined herein have the meanings assigned to them in that certain
Loan Agreement dated effective as of April 30, 1996, by and among the
Borrowers and Lender, as amended by those certain Modification Agreements
dated February 18, 1997, May 30, 1997, September 8, 1997, October 31, 1997,
January 8, 1998, and February 1, 1998, respectively, among the Borrower,
Guarantor and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers,
Guarantor and Lender hereby agree as follows, intending to be legally
bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) The definition of "Commitment Limit" in Section 1.2 of the
Credit Agreement is hereby deleted in its entirety therefrom and the
following is substituted in lieu thereof:
""Commitment Limit" means $19,000,000.00."
(b) Section 2.16 Discretionary Advances. of the Credit Agreement
is hereby deleted therefrom and the following is substituted in lieu
thereof for all purposes:
"Section 2.16. Discretionary Advances. Notwithstanding the
Commitment Limit, the Lender shall have the right, but shall not
be obligated, to make Advances requested by either Borrower, which
when added to all Aggregate Advances as of the date of any request
are in excess of the Commitment Limit, in such amounts as such
Borrower may request prior to the Termination Date up to the
maximum amount hereinafter stated and each Borrower may borrow,
pay, prepay, in whole or in part, and reborrow in respect thereof;
provided, however, the aggregate principal amount of all such
discretionary Advances shall not exceed at any one time
outstanding the sum of $1,900,000.00 ("Discretionary Advances").
Any request for an Advance hereunder by either Borrower,
which when added to all Aggregate Advances as of the date of such
request is in excess of the Line of Credit Commitment, shall be
deemed to be a request for a Discretionary Advance. Each request
for a Discretionary Advance
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made by either Borrower may be approved or denied, with or
without cause, by the Lender in its sole and absolute discretion.
Lender's approval of any request for a Discretionary Advance
shall not be deemed to be a waiver of its right to deny any
subsequent request for a Discretionary Advance, with or without
cause, regardless of whether or not the same circumstances and
factors which existed at the time of Lender's approval of any
previous request exist at the time of any subsequent request.
Each Discretionary Advance and all Mortgage Loans pledged in
connection therewith shall be subject to all terms, conditions,
representations, warranties, covenants, and agreements contained
in this Agreement applicable to any Advance hereunder and any
Mortgage Loan pledged to secure the Obligations. Discretionary
Advances, and interest thereon, shall be evidenced by the Note
and shall be due and payable in accordance with the Loan
Documents. Discretionary Advances shall be secured by the
Security Instruments and any and all Collateral heretofore, now
or hereafter given by the Borrowers to secure any of the
Obligations."
(c) The Revolving Credit Note ("Credit Note") dated April 2,
1998, in the original principal sum of $20,900,000.00 executed by
Borrowers payable to the order of Lender is given in renewal and
extension of the Revolving Credit Note dated January 8, 1998, in the
original principal sum of $16,500,000.00 executed by Borrowers
payable to the order of Lender and not in novation or discharge
thereof. The definition of the term "Note" in the Credit Agreement is
hereby amended to mean the Credit Note and all renewals, extensions,
modifications, increases, rearrangements, and replacements thereof.
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby
are true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all
other Loan Documents are and remain in full force and effect in accordance
with their respective terms. All of the terms used herein have the same
meanings as set out in the Credit Agreement, unless amended hereby or unless
the context clearly requires otherwise. References in the Credit Agreement
to the "Agreement," the "Loan Agreement," "hereof," "herein" and words of
similar import shall be deemed to be references to the Credit Agreement as
amended through the date hereof. Any reference in the other Loan Documents
to the "Agreement", the "Line of Credit Agreement", "Warehouse Agreement",
or the "Loan Agreement" shall be deemed to be references to the Credit
Agreement as amended through the date hereof. Any reference in the Credit
Agreement, this Modification Agreement, or the other Loan Documents to the
"Note" shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect
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<PAGE> 3
the obligations of Borrowers, Guarantor, or any third party to Lender, as
evidenced by the Loan Documents. Borrowers and Guarantor hereby acknowledge,
agree, and represent that (i) Borrowers are indebted to Lender pursuant to
the terms of the Credit Note; (ii) the liens, security interests and
assignments created and evidenced by the Loan Documents are, respectively,
first, prior, valid and subsisting liens, security interests and assignments
against the Collateral and secure all indebtedness and obligations of
Borrowers to Lender under the Credit Note, the Credit Agreement, all other
Loan Documents, as modified herein; (iii) there are no claims or offsets
against, or defenses or counterclaims to, the terms or provisions of the
Loan Documents; and the other obligations created or evidenced by the Loan
Documents; (iv) neither the Borrowers nor the Guarantor have any claims,
offsets, defenses or counterclaims arising from any of the Lender's acts or
omissions with respect to the Loan Documents, or the Lender's performance
under the Loan Documents; (v) the representations and warranties contained
in the Loan Documents are true and correct representations and warranties of
Borrowers, as of the date hereof; (vi) Borrowers promise to pay to the order
of Lender the indebtedness evidenced by the Credit Note according to the
terms thereof; and (vii) Lender is not in default and no event has occurred
which, with the passage of time, giving of notice, or both, would constitute
a default by Lender of Lender's obligations under the terms and provisions
of the Loan Documents. IN CONSIDERATION OF THE MODIFICATION OF CERTAIN
PROVISIONS OF THE LOAN DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE OTHER
BENEFITS RECEIVED BY BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND
GUARANTOR HEREBY RELEASE, RELINQUISH AND FOREVER DISCHARGE LENDER, ITS
PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS, PRINCIPALS, PARENTS,
SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF AND FROM
ANY AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND EVERY
KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH
BORROWERS AND GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE
AGAINST LENDER RELEASED PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND
ALL TRANSACTIONS RELATING TO THE CREDIT AGREEMENT, AND THE OTHER LOAN
DOCUMENTS OCCURRING PRIOR TO THE DATE HEREOF, INCLUDING ANY OTHER LOSS,
EXPENSE AND/OR DETRIMENT, OF ANY KIND OR CHARACTER, GROWING OUT OF OR IN ANY
WAY CONNECTED WITH OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR
OMISSIONS OF THE LENDER RELEASED PARTIES, AND INCLUDING ANY LOSS, COST OR
DAMAGE IN CONNECTION WITH ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY
OF FAIR DEALING, BREACH OF COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE
INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD
FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER INFLUENCE AND CORRUPT
ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF EMOTIONAL OR
MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH CORPORATE GOVERNMENTS OR
PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE WITH CONTRACTUAL
RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER,
CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING, COLLECTING OR
RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE TO THE
LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR STATE LAW, ANY
VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR REGULATIONS,
INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B, EQUAL CREDIT
OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS.
GUARANTOR (i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION
AGREEMENT, (ii) RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND
EFFECT IN ACCORDANCE WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE
GUARANTY AND ALL OTHER GUARANTY AGREEMENTS OF THE GUARANTOR EXECUTED IN
CONNECTION WITH THE CREDIT
Page 3
<PAGE> 4
AGREEMENT ARE NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS
OF ANY NATURE WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be
held to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs
and expenses of Lender in connection with the preparation, operation,
administration and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are
and remain in full force and effect in accordance with their respective
terms and that all Collateral is unimpaired by this Modification Agreement
and secures the payment and performance of all indebtedness and obligations
of Borrowers under the Note, the Credit Agreement, and all other Loan
Documents, as modified hereby. Each of the undersigned officers of Borrowers
executing this Modification Agreement represents and warrants that he has
full power and authority to execute and deliver this Modification Agreement
on behalf of Borrowers that such execution and delivery has been duly
authorized and that the resolutions and affidavits previously delivered to
Lender, in connection with the execution and delivery of the Credit
Agreement, are and remain in full force and effect and have not been
altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore
arising and currently continuing shall continue after the execution and
delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas
and, to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together
shall be deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE CREDIT NOTE, THE GUARANTY, AND THE OTHER LOAN
DOCUMENTS, AS MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR ORAL AGREEMENTS OF THE PARTIES.
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<PAGE> 5
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION, a
Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION, a
Texas corporation
By: /s/ JIM C. HODGE
----------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
/s/ JIM C. HODGE
----------------------------------------
JIM C. HODGE
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
-------------------------------------
DON MACH, Vice President
Page 5
<PAGE> 1
EXHIBIT 10.4.f
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 1 day of February, 1998, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used but
not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by those certain Modification Agreements dated February 18,
1997, May 30, 1997, September 8, 1997, October 31, 1997, and January 8, 1998,
respectively, among the Borrower, Guarantor and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) Section 2.1. Loan. of the Credit Agreement is hereby
deleted therefrom and the following is substituted in lieu thereof for
all purposes:
"Subject to the terms and conditions and relying on the
representations and warranties contained in this Agreement, Lender
agrees to make Advances to either Borrower at any time, and from time
to time, on any Business Day prior to the Termination Date in such
amounts as such Borrower may request up to but not exceeding the
Commitment Limit and each Borrower may borrow, repay, and reborrow
hereunder so long as the Aggregate Advances at any one time outstanding
shall not exceed the Commitment Limit. No Advance shall be made against
a Mortgage Loan that is not an Eligible Mortgage Loan. The amount of
any Advance made hereunder against an Eligible Mortgage Loan shall not
exceed such Eligible Mortgage Loan's Warehouse Line Limit. Lender's
Commitment shall terminate on the Termination Date or such earlier date
pursuant to the terms of this Agreement. All revolving loans made
pursuant to this Section 2.1 and all payments of principal with respect
to all loans under the Commitment shall be evidenced by notations made
by Lender in its business records. The Aggregate Advances reflected by
the notations made in Lender's business records shall be conclusive
evidence of the principal amount owing and unpaid on the Note. The
Aggregate Advances against "B, C, & D" Mortgage Loans outstanding at
any one time shall not exceed $6,000,000.00. The Aggregate Advances
against FHA Title I
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<PAGE> 2
Mortgage Loans outstanding at any one time shall not exceed
1,000,000.00. The aggregate amount of all Repurchased Advances
outstanding at any one time shall not exceed $100,000.00.
Notwithstanding anything to the contrary contained in this Agreement
or otherwise, Capital shall not be permitted at any time to receive any
Repurchased Advance hereunder"
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof. Any
reference in the other Loan Documents to the "Agreement", the "Line of Credit
Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be deemed to be
references to the Credit Agreement as amended through the date hereof.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, first, prior, valid and subsisting liens, security interests and
assignments against the Collateral and secure all indebtedness and obligations
of Borrowers to Lender under the Note, the Credit Agreement, all other Loan
Documents, as modified herein; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Loan Documents, and
the other obligations created or evidenced by the Loan Documents; (iv) neither
the Borrowers nor the Guarantor have any claims, offsets, defenses or
counterclaims arising from any of the Lender's acts or omissions with respect to
the Loan Documents, or the Lender's performance under the Loan Documents; (v)
the representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrowers, as of the date hereof; (vi)
Borrowers promise to pay to the order of Lender the indebtedness evidenced by
the Note according to the terms thereof; and (vii) Lender is not in default and
no event has occurred which, with the passage of time, giving of notice, or
both, would constitute a default by Lender of Lender's obligations under the
terms and provisions of the Loan Documents. IN CONSIDERATION OF THE MODIFICATION
OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE
OTHER BENEFITS RECEIVED BY BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND
GUARANTOR HEREBY RELEASE, RELINQUISH AND FOREVER DISCHARGE LENDER, ITS
PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS, PRINCIPALS, PARENTS,
SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
Page 2
<PAGE> 3
REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF AND FROM ANY
AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND EVERY KIND OR
CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH BORROWERS AND
GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST LENDER RELEASED
PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL TRANSACTIONS RELATING TO
THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS OCCURRING PRIOR TO THE DATE
HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR DETRIMENT, OF ANY KIND OR
CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH OR IN ANY WAY RESULTING
FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER RELEASED PARTIES, AND
INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY BREACH OF FIDUCIARY
DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF COMPETENCE, BREACH OF
FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF
INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER
INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF
EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH CORPORATE GOVERNMENTS
OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE WITH CONTRACTUAL
RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER,
CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING, COLLECTING OR
RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE TO THE
LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR STATE LAW, ANY
VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR REGULATIONS, INCLUDING,
BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B, EQUAL CREDIT OPPORTUNITY,
BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE ENTERPRISE ANTITRUST ACT
OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR (i) CONSENTS TO THE TERMS
AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii) RATIFIES AND CONFIRMS HIS
GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE WITH ITS TERMS, AND (iii)
ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY AGREEMENTS OF THE
GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT AGREEMENT ARE NOT SUBJECT TO
ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF ANY NATURE WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be held
to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and
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<PAGE> 4
that the resolutions and affidavits previously delivered to Lender, in
connection with the execution and delivery of the Credit Agreement, are and
remain in full force and effect and have not been altered, amended or repealed
in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and,
to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS, AS
MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
---------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
---------------------------------
JIM C. HODGE, Vice President
Page 4
<PAGE> 5
GUARANTOR:
/s/ JIM C. HODGE
-----------------------------------
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
-------------------------------
DON MACH, Vice President
Page 5
<PAGE> 1
EXHIBIT 10.4.g
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into effective
as of the 8th day of January, 1998, by and among ALLIED MORTGAGE CORPORATION, a
Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL CORPORATION, a Texas
corporation ("Capital") (the Company and Capital being called collectively the
"Borrowers" and individually, a "Borrower"), JIM C. HODGE ("Guarantor"), and
COASTAL BANC ssb ("Lender"). Capitalized terms used but not defined herein have
the meanings assigned to them in that certain Loan Agreement dated effective as
of April 30, 1996, by and among the Borrowers and Lender, as amended by those
certain Modification Agreements dated February 18, 1997, May 30, 1997, September
8, 1997, and October 1, 1997, respectively, among the Borrower, Guarantor and
Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as follows:
(a) The definition of "Commitment Limit" in Section 1.2 of the Credit
Agreement is hereby deleted in its entirety therefrom and the following is
substituted in lieu thereof:
""Commitment Limit" means $15,000,000.00."
(b) Section 2.16 Discretionary Advances. of the Credit Agreement is
hereby deleted therefrom and the following is substituted in lieu thereof
for all purposes:
"Section 2.16. Discretionary Advances. Notwithstanding the
Commitment Limit, the Lender shall have the right, but shall not be
obligated, to make Advances requested by either Borrower, which when
added to all Aggregate Advances as of the date of any request are in
excess of the Commitment Limit, in such amounts as such Borrower may
request prior to the Termination Date up to the maximum amount
hereinafter stated and each Borrower may borrow, pay, prepay, in whole
or in part, and reborrow in respect thereof; provided, however, the
aggregate principal amount of all such discretionary Advances shall
not exceed at any one time outstanding the sum of $1,500,000.00
("Discretionary Advances"). Any request for an Advance hereunder by
either Borrower, which when added to all Aggregate Advances as of the
date of such request is in excess of the Line of Credit Commitment,
shall be deemed to be a request for a Discretionary Advance. Each
request for a Discretionary Advance
Page 1
<PAGE> 2
made by either Borrower may be approved or denied, with or without
cause, by the Lender in its sole and absolute discretion. Lender's
approval of any request for a Discretionary Advance shall not be
deemed to be a waiver of its right to deny any subsequent request for
a Discretionary Advance, with or without cause, regardless of whether
or not the same circumstances and factors which existed at the time of
Lender's approval of any previous request exist at the time of any
subsequent request. Each Discretionary Advance and all Mortgage Loans
pledged in connection therewith shall be subject to all terms,
conditions, representations, warranties, covenants, and agreements
contained in this Agreement applicable to any Advance hereunder and
any Mortgage Loan pledged to secure the Obligations. Discretionary
Advances, and interest thereon, shall be evidenced by the Note and
shall be due and payable in accordance with the Loan Documents.
Discretionary Advances shall be secured by the Security Instruments
and any and all Collateral heretofore, now or hereafter given by the
Borrowers to secure any of the Obligations."
(c) The Revolving Credit Note ("Credit Note") dated January 8, 1998,
in the original principal sum of $16,500,000.00 executed by Borrowers
payable to the order of Lender is given in renewal and extension of the
Revolving Credit Note dated October 31, 1997, in the original principal sum
of $12,100,000.00 executed by Borrowers payable to the order of Lender and
not in novation or discharge thereof. The definition of the term "Note" in
the Credit Agreement is hereby amended to mean the Credit Note and all
renewals, extensions, modifications, increases, rearrangements, and
replacements thereof.
(d) The definition of "Aged Mortgage Loan" in Section 1.2 of the
Credit Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
""Aged Mortgage Loan" means (a) an "A" Mortgage Loan or FHA Title
I Mortgage Loan that has been a Pledged Mortgage Loan for more than
120 days; (b) a "B, C, & D" Mortgage Loan that has been a Pledged
Mortgage Loan for more than 60 days; and (c) a Repurchased Mortgage
Loan that has been a Pledged Mortgage Loan for more than 365 days.
(e) The definition of "Collected Balances" is hereby added to Section
1.2 of the Credit Agreement for all purposes:
""Collected Balances" means, for each day during any calendar
month, that month's average daily collected balances of immediately
available sums of money on deposit with Lender in noninterest bearing
trust account or accounts maintained by the Borrowers with Lender for
that month as determined by Lender less
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<PAGE> 3
amounts necessary (a) to satisfy reserve and deposit insurance
requirements allocable to that month and (b) to compensate Lender for
services rendered to the Borrowers for that month, with each element
calculated in accordance with Lender's system of allocating reserve
and deposit insurance requirements and charges for services and as
that system may be changed from time to time without notice. Lender's
determination of the Collected Balances for each day during any month
shall be conclusive and binding on the Borrowers, absent manifest
error."
(f) The definition of "Collected Balances Credit" is hereby added to
Section 1.2 Certain Definitions of the Credit Agreement for all purposes:
""Collected Balances Credit" means, for any month, an amount
equal to the interest that would have been earned by the Borrowers for
the actual days during that month if the Collected Balances for that
month had earned interest during that month equal to the average
weekly interest rate established or quoted by the Lender to be paid on
its commercial money market investment accounts for that month."
(g) Section 4.1(a) Monthly Financial Statements of Borrowers and
Section 4.1(b) Annual Financial Statements of the Company are hereby
deleted in their entirety and the following is substituted in lieu thereof
for all purposes:
"(a) Monthly Financial Statements of Borrowers. As soon as
available but in any event within thirty (30) days after the end of
each calendar month, a Compliance Certificate and the balance sheet of
each Borrower as of the close of such calendar month and the
statements of income, changes in financial position, and surplus of
each Borrower for such calendar month, setting forth, in each case in
comparative form, the figures for the corresponding periods in the
previous fiscal year as well as year-to-date figures, all in such
detail as Lender may reasonably request and accompanied by a statement
of the President or the principal financial officer of each Borrower
certifying that such statements present fairly the financial position
of such Borrower at the close of such period and the results of its
operations for such period.
(b) Annual Financial Statements of Borrowers. As soon as
available but in any event within one hundred twenty (120) days after
the close of each fiscal year of each Borrower, a Compliance
Certificate and the annual audited financial statements of each
Borrower (consisting of at least audited balance sheets of each
Borrower as at the end of such fiscal year and the audited statements
of income, cash flow, retained earnings, and surplus of each Borrower
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<PAGE> 4
for such fiscal year, setting forth, in each case in comparative form,
the figures for the previous fiscal year and accompanied by the report
thereon of independent certified public accountants acceptable to
Lender, which report shall state that such financial statements have
been prepared in accordance with GAAP consistently applied and that
the audit by such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards."
(h) Section 2.20 Non-Usage Fee of the Credit Agreement is hereby
deleted in is entirety therefrom and the following is substituted in lieu
thereof:
"Section 2.20 Non-Usage Fee. At the end of each month during the
term of this Agreement (i.e., from its effective date through the
Termination Date), the Lender shall determine average usage of the
Commitment by calculating the arithmetic daily average of the
outstanding balance of Advances in that month. The Lender shall then
subtract the average usage (the "Used Portion") from the Commitment
Limit (the result being called the "Unused Portion") and the Borrowers
shall pay in arrears (without duplication of payment), on or before
five (5) days after the later of (a) the end of each month or (b) the
Borrowers' receipt of the Lender's bill for such monthly period, a
Non-Usage Fee equal to 0.125% per annum on the total amount of the
Unused Portion of the Commitment, as compensation to the Lender for
its agreement to make the Commitment available to the Borrowers during
that month and not as compensation for the use, forbearance or
detention of money (i.e. as a "true commitment fee" under Texas law);
provided that such fee shall be waived for any month if the Used
Portion for such month is equal to or more than $5,000,000.00. Each
calculation by the Lender of the amount of any Non-Usage Fee shall be
conclusive and binding on the Borrowers, absent manifest error."
(i) Section 5.14 Warehouse Borrowings to Net Worth Ratio of the
Credit Agreement is hereby deleted in is entirety therefrom and the
following is substituted in lieu thereof:
"Section 5.14 Warehouse Borrowings to Net Worth Ratio. Borrowers
shall not permit at any time the ratio of their combined Warehouse
Borrowings to their combined Net Worth to exceed 15.0 to 1.0, computed
as of the end of each calendar month."
(j) Section 5.13 Net Worth of the Credit Agreement is hereby deleted
in is entirety therefrom and the following is substituted in lieu thereof:
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<PAGE> 5
"Section 5.13 Net Worth. Borrowers will maintain a combined
positive Net Worth of not less than the greater of (i) the minimum net
worth requirements of FNMA, FHLMC, GNMA, an FHA or (ii)
$1,000,000.00."
(k) The definition of "Basic Rate" in Section 1.2 of the Credit
Agreement is hereby deleted therefrom and the following is substituted in
lieu thereof:
"Basic Rate" means, for any day, (a) with respect to Aggregate
Advances relating to "A" Mortgage Loans and FHA Title I Mortgage Loans
that are not Aged Mortgage Loans, the LIBOR Rate for that day plus
2.50%; (b) with respect to Aggregate Advances relating to "B, C, & D"
Mortgage Loans and Repurchased Mortgage Loans that are not Aged
Mortgage Loans, the LIBOR Rate for that day plus 3.00%; and (c) with
respect to Aggregate Advances relating to Aged Mortgage Loans, the
LIBOR Rate for that day plus 4.00%; PROVIDED, that, for each calendar
month, Borrowers shall receive a credit against interest due and
payable on the Note for any calendar month equal to the Collected
Balances Credit, if any, for such month.
Lender's determination of the Basic Rate on any day shall be
conclusive and binding on the Borrowers, absent manifest error."
(l) Lender shall not be obligated to make Receivables Advances from
and after the date hereof.
Section 3. Representations. Borrowers represent and warrant that all of the
representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof. Any
reference in the other Loan Documents to the "Agreement", the "Line of Credit
Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be deemed to be
references to the Credit Agreement as amended through the date hereof. Any
reference in the Credit Agreement, this Modification Agreement, or the other
Loan Documents to the "Note" shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan
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<PAGE> 6
Documents. Borrowers and Guarantor hereby acknowledge, agree, and represent
that (i) Borrowers are indebted to Lender pursuant to the terms of the Credit
Note; (ii) the liens, security interests and assignments created and evidenced
by the Loan Documents are, respectively, first, prior, valid and subsisting
liens, security interests and assignments against the Collateral and secure all
indebtedness and obligations of Borrowers to Lender under the Credit Note, the
Credit Agreement, all other Loan Documents, as modified herein, (iii) there are
no claims or offsets against, or defenses or counterclaims to, the terms or
provisions of the Loan Documents, and the other obligations created or evidenced
by the Loan Documents; (iv) neither the Borrowers nor the Guarantor have any
claims, offsets, defenses or counterclaims arising from any of the Lender's acts
or omissions with respect to the Loan Documents, or the Lender's performance
under the Loan Documents; (v) the representations and warranties contained in
the Loan Documents are true and correct representations and warranties of
Borrowers, as of the date hereof; (vi) Borrowers promise to pay to the order of
Lender the indebtedness evidenced by the Credit Note according to the terms
thereof; and (vii) Lender is not in default and no event has occurred which,
with the passage of time, giving of notice, or both, would constitute a default
by Lender of Lender's obligations under the terms and provisions of the Loan
Documents. IN CONSIDERATION OF THE MODIFICATION OF CERTAIN PROVISIONS OF THE
LOAN DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE OTHER BENEFITS RECEIVED BY
BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND GUARANTOR HEREBY RELEASE,
RELINQUISH AND FOREVER DISCHARGE LENDER, ITS PREDECESSORS, SUCCESSORS, ASSIGNS,
SHAREHOLDERS, PRINCIPALS, PARENTS, SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED
PARTIES"), OF AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION
OF ANY AND EVERY KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE,
WHICH BORROWERS AND GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE
AGAINST LENDER RELEASED PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL
TRANSACTIONS RELATING TO THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS
OCCURRING PRIOR TO THE DATE HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR
DETRIMENT, OF ANY KIND OR CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH
OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER
RELEASED PARTIES, AND INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY
BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF
COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC
COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS
OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR
NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH
CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE
WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES,
LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING,
COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE TO THE LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR
STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR
REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B,
EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR
(i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii)
RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE
WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY
AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT
Page 6
<PAGE> 7
AGREEMENT ARE NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF
ANY NATURE WHATSOEVER.
Section 6. Severability. In the event any one or more provisions contained
in the Credit Agreement or this Modification Agreement should be held to be
invalid, illegal or unenforceable in any respect, the validity, enforceability
and legality of the remaining provisions contained herein and therein shall not
be affected in any way or impaired thereby and shall be enforceable in
accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify and
confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that the
resolutions and affidavits previously delivered to Lender, in connection with
the execution and delivery of the Credit Agreement, are and remain in full force
and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and, to the
extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement maybe executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT, THE
CREDIT AGREEMENT, THE CREDIT NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS,
AS MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF
THE PARTIES.
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<PAGE> 8
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
/s/ JIM C. HODGE
-----------------------------------------
JIM C. HODGE
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
-------------------------------------
DON MACH, Vice President
Page 8
<PAGE> 1
EXHIBIT 10.4.h
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 31st day of October, 1997, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used but
not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by those certain Modification Agreements dated February 18,
1997, May 30, 1997, and September 8, 1997, respectively, among the Borrower,
Guarantor and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) The definition of "Commitment Limit" in Section 1.2 of the
Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof:
""Commitment Limit" means (a) commencing from
October 31, 1997 and ending on December 31, 1997, the Commitment
Limit shall be $11,000,000.00 and (b) thereafter until the
Termination Date, the Commitment Limit shall be $9,000,000.00."
(b) Each reference to $900,000.00 found in Section 2.16
Discretionary Advances of the Credit Agreement is hereby amended to
read $1,100,000.00 until December 31, 1997 at which time such
reference shall be amended to read $900,000.00
(c) The Revolving Credit Note ("Credit Note") dated October 31,
1997, in the original principal sum of $12,100,000.00 executed by
Borrowers payable to the order of Lender is given in renewal and
extension of the Revolving Credit Note dated September 8, 1997, in the
original principal sum of $9,900,000.00 executed by Borrowers payable
to the order of Lender and not in novation or discharge thereof. The
definition of the term "Note" in the Credit Agreement is hereby amended
to mean the Credit Note and all renewals, extensions, modifications,
increases, rearrangements, and replacements thereof.
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents
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<PAGE> 2
executed pursuant thereto or contemplated thereby are true and correct in all
material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof. Any
reference in the other Loan Documents to the "Agreement", the "Line of Credit
Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be deemed to be
references to the Credit Agreement as amended through the date hereof. Any
reference in the Credit Agreement or the other Loan Documents to the "Note"
shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Credit Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan Documents
are, respectively, first, prior, valid and subsisting liens, security interests
and assignments against the Collateral and secure all indebtedness and
obligations of Borrowers to Lender under the Credit Note, the Credit Agreement,
all other Loan Documents, as modified herein; (iii) there are no claims or
offsets against, or defenses or counterclaims to, the terms or provisions of the
Loan Documents, and the other obligations created or evidenced by the Loan
Documents; (iv) neither the Borrowers nor the Guarantor have any claims,
offsets, defenses or counterclaims arising from any of the Lender's acts or
omissions with respect to the Loan Documents, or the Lender's performance under
the Loan Documents; (v) the representations and warranties contained in the Loan
Documents are true and correct representations and warranties of Borrowers, as
of the date hereof; (vi) Borrowers promise to pay to the order of Lender the
indebtedness evidenced by the Credit Note according to the terms thereof; and
(vii) Lender is not in default and no event has occurred which, with the passage
of time, giving of notice, or both, would constitute a default by Lender of
Lender's obligations under the terms and provisions of the Loan Documents. IN
CONSIDERATION OF THE MODIFICATION OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS,
ALL AS HEREIN PROVIDED, AND THE OTHER BENEFITS RECEIVED BY BORROWERS AND
GUARANTOR HEREUNDER, BORROWERS AND GUARANTOR HEREBY RELEASE, RELINQUISH AND
FOREVER DISCHARGE LENDER, ITS PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS,
PRINCIPALS, PARENTS, SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF
AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND
EVERY KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH
BORROWERS AND GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST
LENDER RELEASED PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL
TRANSACTIONS RELATING TO THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS
OCCURRING PRIOR TO THE DATE HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR
DETRIMENT, OF ANY KIND OR CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH
OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF THE
Page 2
<PAGE> 3
LENDER RELEASED PARTIES, AND INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION
WITH ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF
COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC
COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS
OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR
NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH
CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE
WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES,
LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING,
COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE TO THE LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR
STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR
REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B,
EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR
(i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii)
RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE
WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY
AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT AGREEMENT ARE
NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF ANY NATURE
WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be held
to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that the
resolutions and affidavits previously delivered to Lender, in connection with
the execution and delivery of the Credit Agreement, are and remain in full force
and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
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<PAGE> 4
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and,
to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE CREDIT NOTE, THE GUARANTY, AND THE OTHER LOAN
DOCUMENTS, AS MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
--------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
--------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
By: /s/ JIM C. HODGE
--------------------------------
JIM C. HODGE
Page 4
<PAGE> 5
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
------------------------------------
DON MACH, Vice President
Page 5
<PAGE> 1
EXHIBIT 10.4.i
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 8th day of September, 1997, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used but
not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by those certain Modification Agreements dated February 18,
1997 and May 30, 1997, respectively, among the Borrower, Guarantor and Lender
("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) Each reference to $6,000,000.00 found in the Credit
Agreement is hereby amended to read $9,000,000.00
(b) Each reference to $600,000.00 found in Section 2.16
Discretionary Advances of the Credit Agreement is hereby amended to
read $900,000.00.
(c) The Revolving Credit Note ("Credit Note") dated September
8, 1997, in the original principal sum of $9,900,000.00 executed by
Borrowers payable to the order of Lender is given in renewal and
extension of the Revolving Credit Note dated May 30, 1997, in the
original principal sum of $6,600,000.00 executed by Borrowers payable
to the order of Lender and not in novation or discharge thereof. The
definition of the term "Note" in the Credit Agreement is hereby
amended to mean the Credit Note and all renewals, extensions,
modifications, increases, rearrangements, and replacements thereof.
(d) Section 2.1. Loan. of the Credit Agreement is hereby
deleted therefrom and the following is substituted in lieu thereof for
all purposes:
"Subject to the terms and conditions and relying on the
representations and warranties contained in this Agreement,
Lender agrees to make Advances to either Borrower at any time,
and from time to time, on any Business Day prior to the
Termination Date in such amounts as such Borrower may request
up to but not exceeding the Commitment Limit and each Borrower
may borrow, repay, and reborrow hereunder so long as the
Aggregate Advances at any one time outstanding shall not
exceed the Commitment Limit. No
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<PAGE> 2
Advance shall be made against a Mortgage Loan that is not an
Eligible Mortgage Loan. The amount of any Advance made
hereunder against an Eligible Mortgage Loan shall not exceed
such Eligible Mortgage Loan's Warehouse Line Limit. Lender's
Commitment shall terminate on the Termination Date or such
earlier date pursuant to the terms of this Agreement. All
revolving loans made pursuant to this Section 2.1 and all
payments of principal with respect to all loans under the
Commitment shall be evidenced by notations made by Lender in
its business records. The Aggregate Advances reflected by the
notations made in Lender's business records shall be
conclusive evidence of the principal amount owing and unpaid
on the Note. The Aggregate Advances against "B,C, & D"
Mortgage Loans outstanding at any one time shall not exceed
$4,000,000.00. The Aggregate Advances against FHA Title I
Mortgage Loans outstanding at any one time shall not exceed
$1,000,000.00. The aggregate amount of all Receivables
Advances outstanding at any one time shall not exceed the
Receivables Loan Value. The aggregate amount of all
Repurchased Advances oustanding at any one time shall not
exceed $4,000.00. Notwithstanding anything to the contrary
contained in this Agreement or otherwise, Capital shall not be
permitted at any time to receive any Receivable Advance or
Repurchased Advance hereunder"
Section 3. Representations. Borrowers represent and warrant that all
of the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be
deemed to be references to the Credit Agreement as amended through the date
hereof. Any reference in the other Loan Documents to the "Agreement," the "Line
of Credit Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be
deemed to be references to the Credit Agreement as amended through the date
hereof. Any reference in the Credit Agreement or the other Loan Documents to
the "Note" shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Credit Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan Documents
are, respectively, first, prior, valid and
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subsisting liens, security interests and assignments against the Collateral and
secure all indebtedness and obligations of Borrowers to Lender under the Credit
Note, the Credit Agreement, all other Loan Documents, as modified herein; (iii)
there are no claims or offsets against, or defenses or counterclaims to, the
terms or provisions of the Loan Documents, and the other obligations created or
evidenced by the Loan Documents; (iv) neither the Borrowers nor the Guarantor
have any claims, offsets, defenses or counterclaims arising from any of the
Lender's acts or omissions with respect to the Loan Documents, or the Lender's
performance under the Loan Documents; (v) the representations and warranties
contained in the Loan Documents are true and correct representations and
warranties of Borrowers, as of the date hereof; (vi) Borrowers promise to pay to
the order of Lender the indebtedness evidenced by the Credit Note according to
the terms thereof; and (vii) Lender is not in default and no event has occurred
which, with the passage of time, giving of notice, or both, would constitute a
default by Lender of Lender's obligations under the terms and provisions of the
Loan Documents. IN CONSIDERATION OF THE MODIFICATION OF CERTAIN PROVISIONS OF
THE LOAN DOCUMENTS, ALL AS HEREIN PROVIDED, AND THE OTHER BENEFITS RECEIVED BY
BORROWERS AND GUARANTOR HEREUNDER, BORROWERS AND GUARANTOR HEREBY RELEASE,
RELINQUISH AND FOREVER DISCHARGE LENDER, ITS PREDECESSORS, SUCCESSORS, ASSIGNS,
SHAREHOLDERS, PRINCIPALS, PARENTS, SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED
PARTIES"), OF AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION
OF ANY AND EVERY KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE,
WHICH BORROWERS AND GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE
AGAINST LENDER RELEASED PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL
TRANSACTIONS RELATING TO THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS
OCCURRING PRIOR TO THE DATE HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR
DETRIMENT, OF ANY KIND OR CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH
OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER
RELEASED PARTIES, AND INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION WITH ANY
BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF
COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC
COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS
OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR
NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH
CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE
WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES,
LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING,
COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE TO THE LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR
STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR
REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B,
EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR
(i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii)
RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE
WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY
AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT AGREEMENT ARE
NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF ANY NATURE
WHATSOEVER.
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Section 6. Severability. In the event anyone or more provisions
contained in the Credit Agreement or this Modification Agreement should be
held to be invalid, illegal or unenforceable in an respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs
and expenses of Lender in connection with the preparation, operation,
administration and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures
the payment and performance of all indebtedness and obligations of Borrowers
under the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that
the resolutions and affidavits previously delivered to Lender, in connection
with the execution and delivery of the Credit Agreement, are and remain in full
force and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waive. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore
arising and currently continuing shall continue after the execution and
delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas
and, to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement maybe executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
Section 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT,
THE CREDIT AGREEMENT, THE CREDIT NOTE, THE GUARANTY, AND THE OTHER LOAN
DOCUMENTS, AS MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
---------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
---------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
/s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE
LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
---------------------------------
DON MACH, Vice President
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Exhibit 10.4.j
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 30th day of May, 1997, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used
but not defined herein have the meanings assigned to them in that certain Loan
Agreement dated effective as of April 30, 1996, by and among the Borrowers and
Lender, as amended by that certain Modification Agreement dated February 18,
1997 among the Borrower, Guarantor and Lender ("Credit Agreement").
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) Each reference to $5,000,000.00 found in the Credit
Agreement is hereby amended to read $6,000,000.00
(b) Each reference to $500,000.00 found in Section 2.16
Discretionary Advances of the Credit Agreement is hereby amended to
read $600,000.00.
(c) The Revolving Credit Note ("Credit Note") dated May 30,
1997, in the original principal sum of $6,600,000.00 executed by
Borrowers payable to the order of Lender is given in renewal and
extension of the Revolving Credit Note dated April 30, 1996, in the
original principal sum of $5,500,000.00 executed by Borrowers payable
to the order of Lender and not in novation or discharge thereof. The
definition of the term "Note" in the Credit Agreement is hereby
amended to mean the Credit Note and all renewals, extensions,
modifications, increases, rearrangements, and replacements thereof.
(d) The definition of "Basic Rate" in Section 1.2 of the
Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof for all purposes:
"'Basic Rate' means, for any day, (a) with respect
to Aggregate Advances relating to "A" Mortgage Loans and FHA
Title I Mortgage Loans, the LIBOR Rate for that day plus
2.50%; (b) with respect to Aggregate Advances that are
Receivables Advances, the LIBOR Rate for that day plus 2.75%;
and (c) with respect to Aggregate Advances relating to "B, C,
& D" Mortgage Loans and Repurchased Mortgage Loans, the LIBOR
Rate for that day plus 3.00%."
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(e) The definition of "Collateral Value" in Section 1.2 of
the Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof for all purposes:
"'Collateral Value' means
(a) with respect to each Eligible Mortgage Loan, at
the time of any determination, an amount equal to one hundred
percent (100%) of the least of (1) the actual out-of-pocket
cost of such Mortgage Loan to the Borrower that is pledging
such Mortgage Loan, i.e., the net amount actually funded
against such Mortgage Loan originated by such Borrower or the
net purchase price of such Mortgage Loan purchased by it, (2)
the amount at which an Investor has committed to purchase
such Mortgage Loan pursuant to a Purchase Commitment, (3) the
principal balance of such Mortgage Loan, or (4) the Market
Value of such Mortgage Loan; provided, that the Collateral
Value of such Mortgage Loan originated or acquired by the
pledging Borrower, whether funded as a refinancing of an
existing residential Mortgage Loan or purchased by it for an
amount in excess of Par shall not exceed such Mortgage Loan's
Par, even though the pledging Borrower funded or paid more
than Par for it and even if the Purchase Commitment covering
it specifies a purchase price for it greater than Par.
(b) with respect to all Pledged Mortgage Loans that
are not or cease to be Eligible Mortgage Loans, such Mortgage
Loans shall have a Collateral Value equal to zero;
(c) with respect to each Eligible Mortgage-backed
Security, at the time of any determination, one hundred
percent (100%) of the least of (1) the amount at which an
Investor has committed to purchase such Mortgage-backed
Security pursuant to a Purchase Commitment, (2) the sum of
the principal balance of all Mortgage Loans that support such
Mortgage-backed Security, or (3) the Market Value of such
Mortgage-backed Security;
(d) with respect to Eligible Receivables, an amount
equal to the Receivables Loan Value;
(e) with respect to each Eligible Repurchased
Mortgage Loans, at the time of any determination, an amount
equal to its Repurchased Borrowing Base;
(f) with respect to any Collateral that is not or
ceases to be Eligible Collateral, such Collateral shall have
a Collateral Value equal to zero."
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(f) The definition of "Credit Request" is hereby deleted
therefrom and the following is substituted in lieu thereof for all
purposes:
"'Credit Request' means (a) with respect to a
request for an Advance against an "A" Mortgage Loan or FHA
Title I Mortgage Loan, Exhibit "B-1", (b) with respect to a
request for an Advance against a "B, C, & D" Mortgage Loan,
Exhibit "B-2", (c) with respect to a request for a
Receivables Advance, Exhibit "B-3", and (d) with respect to a
request for a Repurchased Advance, Exhibit "B-4"."
(g) The definition of "Eligible Mortgage Loans" in Section
1.2 of the Credit Agreement is hereby deleted therefrom and the
following is substituted in lieu thereof for all purposes:
"'Eligible Mortgage Loans' means, on any day, all
"A" Mortgage Loans, FHA Title I Mortgage Loans, and "B, C, &
D" Mortgage Loans, (a) for which a Borrower holds Purchase
Commitments or with respect to each "B, C, & D" Mortgage
Loans only, a Purchase Agreement and a related Investor
Confirmation, Preclosing Purchase Approval, or if designated
for bulk sale by a Borrower on the Credit Request that such
"B, C, & D" Mortgage Loan complies at all times with all
applicable underwriting guidelines and other requirements of
an Investor relating to such Investor's purchase of such
"B, C, & D" Mortgage Loan under the Purchase Agreement, as
applicable; (b) that are made payable to the order of a
Borrower or have been endorsed payable to such Borrower and
have been endorsed by such Borrower in blank; (c) in which
Lender has been granted and continues to hold an enforceable
perfected first priority security interest; (d) that are not
in default; (e) that conforms in all respects with all the
requirements of the Purchase Commitments or with respect to
each "B, C, & D" Mortgage Loans only, a Purchase Agreement
and a related Investor Confirmation or Preclosing Purchase
Approval, as applicable, to purchase such Mortgage Loans and
are valid and enforceable in accordance with their respective
terms; (f) otherwise satisfactory to Lender in its sole
discretion and all other respects; and (g) as to which none
of the events or conditions described in Section 2.15 has
occurred."
(h) The definition of "Mortgage Loan" in Section 1.2 of the
Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof for all purposes:
"Mortgage Loan" means any loan evidenced by a
Mortgage Note."
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(i) The definition of "Termination Date" in Section 1.2 of
the Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof:
"`Termination Date' means the earlier to occur of
(i) May 3 1, 1998 or (ii) the date that the Commitment is
canceled or terminated in accordance with this Agreement."
(j) The definition of "Warehouse Line Limit" in Section 1.2
of the Credit Agreement is hereby deleted therefrom and the following
is substituted in lieu thereof:
"`Warehouse Line Limit' means (a) with respect to an
"A" Mortgage Loan or a FHA Title I Mortgage Loan that is an
Eligible Mortgage Loan, an amount equal to 100% of the lesser
of (i) the amount at which an Investor has committed to
purchase such "A" Mortgage Loan or FHA Title I Mortgage Loan
pursuant to a Purchase Commitment or (ii) the principal
balance of such "A" Mortgage Loan or FHA Title I Mortgage
Loan; (b) with respect to a "B, C, & D" Mortgage Loan that is
an Eligible Mortgage Loan and is designated by the Borrower
for a pipeline sale on the Credit Request delivered in
connection with such "B, C, & D" Mortgage Loan, an amount
equal to. 97% of the lesser of (i) the amount at which an
Investor has committed to purchase such "B, C, & D" Mortgage
Loan pursuant to a Purchase Agreement and the related
Investor Confirmation or Preclosing Purchase Approval, as
applicable, or (ii) the principal balance of such "B, C, & D"
Mortgage Loan; (c) with respect to a "B, C, & D" Mortgage
Loan that is an Eligible Mortgage Loan and is designated by
the Borrower for bulk sale on the Credit Request delivered in
connection with such "B, C, & D" Mortgage Loan, an amount
equal to 95% of the lesser of (i) the amount at which an
Investor has committed to purchase such "B, C, & D" Mortgage
Loan pursuant to a Purchase Agreement, or (ii) the principal
balance of such "B, C, & D" Mortgage Loan."
(k) The following definitions are hereby added to Section 1.2
of the Credit Agreement for all purposes:
"Approved Company" means the companies listed on
Exhibit "L" attached hereto for all purposes and any other
Person hereafter approved by Lender in writing at any time
and from time to time; provided that at any time by written
notice to Borrower Lender may disapprove any such company or
Person because it has determined in its sole discretion and
for any reason it is no longer comfortable with such company
or Person, whereupon such company or Person shall no longer
be qualified to be an Approved Company.
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"Borrowing Date" means, for any Advance, the date it
is disbursed.
"Eligible Collateral" means all Eligible Repurchased
Mortgage Loans, Eligible Mortgage Collateral, and Eligible
Receivables.
"Eligible Mortgage-backed Securities" means, on any
day, all Pledged Mortgage-backed Securities for which either
Borrower holds Purchase Commitments and which conform in all
respects with all requirements of such Purchase Commitments
to purchase such Mortgage-backed Securities.
"Eligible Mortgage Collateral" means, on any day,
all Eligible Mortgage Loans and Eligible Mortgage-backed
Securities.
"Eligible Receivables" means, at any time, an amount
equal to the aggregate unpaid amount of Network's accounts
and contract rights for advances made by Network on behalf of
an Approved Company to pay for home purchase closing costs of
an employee of such Approved Company for which invoices have
been issued and payment for which is due within thirty (30)
days; provided, however, there shall be excluded from Eligible
Receivables (a) any amount billed and remaining unpaid more
than 60 days from issuance, (b) any account or contract right
in which Lender does not have a valid and perfected first
priority lien, mortgage or security interest, (c) any account
which is or may be subject to a right of setoff, claim, or
defense, and (d) any account that has aged 25 days or more as
of the Borrowing Date of the Receivables Advance requested in
connection therewith.
"Eligible Repurchased Mortgage Loan" means a
Repurchased Mortgage Loan that, at all times until the full
payment and performance of all Obligations:
(a) is validly pledged to the Lender,
subject to no other Liens; and
(b) has been included in the Collateral no
longer than one (1) year.
"FHA Title I Mortgage Loan" means, on any day, a
Mortgage Loan that is fully insured by FHA under Title I of
the National Housing Act, as amended.
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"Network" means The Mortgage Benefits Network, a
California corporation.
"Receivables" means all accounts and contract rights
now or hereafter owned by Network.
"Receivables Advance" means an Advance by Lender
against Receivables.
"Receivables Loan Value" means at any time the
amount equal to the lesser of (a) $200,000.00 or (b)
eighty-five percent (85%) of the Eligible Receivables of
Network.
"Repurchased Advance" means a disbursement by the
Lender under the Commitment pursuant to this Agreement in
respect of the repurchase of a Repurchased Mortgage Loan.
"Repurchased Borrowing Base" means, with respect to
any Repurchased Advance against an Eligible Repurchased
Mortgage Loan, an amount equal to the lesser of (a) sixty
percent (60%) of the principal balance of such Repurchased
Mortgage Loan, or (b) eighty percent (80%) of the appraised
value of the mortgage property securing such Repurchased
Mortgage Loan.
"Repurchased Mortgage Loan" means a Mortgage Loan
that Company is obligated to repurchase from an Investor
pursuant to the terms and conditions of the Purchase
Commitment covering such Mortgage Loan for any reason
whatsoever other than fraud of the Company or any other
Person in the origination of such Mortgage Loan or the
origination of such Mortgage Loan failed to comply with all
requirements of the Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, the federal Truth-in-Lending
Act or any other applicable laws and regulations, or out of a
Mortgage Pool pursuant to the applicable Servicing Contract.
"Repurchased Payment" means the unreimbursed
purchase price paid by Company to repurchase a Repurchased
Mortgage Loan.
"Repurchased Receivables" means all receivables
arising due to a Repurchased Payment.
"Servicing Contract" means, with respect to any
Person, the arrangement, whether or not in writing, pursuant
to which such Person has the right to service Mortgage Loans.
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(l) Section 2.1. Loan. of the Credit Agreement is hereby
deleted therefrom and the following is substituted in lieu thereof for
all purposes:
"Subject to the terms and conditions and relying on
the representations and warranties contained in this
Agreement, Lender agrees to make Advances to either Borrower
at any time, and from time to time, on any Business Day prior
to the Termination Date in such amounts as such Borrower may
request up to but not exceeding the Commitment Limit and each
Borrower may borrow, repay, and reborrow hereunder so long as
the Aggregate Advances at any one time outstanding shall not
exceed the Commitment Limit. No Advance shall be made against
a Mortgage Loan that is not an Eligible Mortgage Loan. The
amount of any Advance made hereunder against an Eligible
Mortgage Loan shall not exceed such Eligible Mortgage Loan's
Warehouse Line Limit. Lender's Commitment shall terminate on
the Termination Date or such earlier date pursuant to the
terms of this Agreement. All revolving loans made pursuant to
this Section 2.1 and all payments of principal with respect
to all loans under the Commitment shall be evidenced by
notations made by Lender in its business records. The
Aggregate Advances reflected by the notations made in
Lender's business records shall be conclusive evidence of the
principal amount owing and unpaid on the Note. The Aggregate
Advances against "B, C, & D" Mortgage Loans outstanding at
any one time shall not exceed $2,000,000.00. The Aggregate
Advances against FHA Title I Mortgage Loans outstanding at
any one time shall not exceed $1,000,000.00. The aggregate
amount of all Receivables Advances outstanding at any one
time shall not exceed the Receivables Loan Value. The
aggregate amount of all Repurchased Advances outstanding at
any one time shall not exceed $100,000.00. Notwithstanding
anything to the contrary contained in this Agreement or
otherwise, Capital shall not be permitted at any time to
receive any Receivable Advance or Repurchased Advance
hereunder"
(m) Section 2.6 Mandatory Prepayments. of the Credit
Agreement is hereby deleted therefrom and the following is substituted
in lieu thereof for all purposes:
Section 2.6 Mandatory Prepayments.
(a) Collateral Value Deficiency.
(1) If at any time the outstanding
principal balance of the Note exceeds the aggregate
Collateral Value of all Eligible Collateral, Lender
may require, in its sole discretion, Borrowers to
prepay, within
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three (3) Business Days after request of Lender, the
amount of such excess for application towards
reduction of the outstanding principal balance of
the Note.
(2) If at any time the Collateral Value of
any Collateral is zero, Borrowers shall immediately
pay to Lender all Aggregate Advances against such
Collateral.
(b) Repurchased Advances.
(1) Company shall pay to the Lender the
aggregate amount of any Repurchased Advance
immediately upon Company's receipt of payment or
reimbursement from any source or sources of all or
any portion of any Repurchased Payment for which
such Repurchased Advance was made, including,
without limitation, the sale of any Repurchased
Mortgage Loan, or the sale of any mortgaged property
securing such Repurchased Mortgage Loan, or payment
of any Repurchased Receivable.
(2) If at any time any obligor of a
Repurchased Receivable refuses, disputes or fails to
pay such Repurchased Receivable, Company shall
immediately pay to the Lender the aggregate amount
of any Repurchased Advance against such Repurchased
Receivable.
(c) Mortgage Loans. Borrowers shall be obligated to
pay to the Lender, without the necessity of prior demand or
notice from the Lender, and each of the Borrowers authorizes
the Lender to charge the Funding Account or any other
accounts of the Borrowers (excluding any monies held by
Borrowers in trust for third parties) in Lender's possession
for, the amount of all outstanding Aggregate Advances against
a specific Mortgage Loan upon the earliest occurrence of any
of the following events:
(1) The expiration of one hundred twenty
(120) days from the Borrowing Date of any Advance
for any "A" Mortgage Loan or FHA Title I Mortgage
Loan;
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(2) The expiration of sixty (60) days from
the Borrowing Date of any Advance for any "B, C, & D"
Mortgage Loan;
(3) The Mortgage Loan is not or ceases to
be an Eligible Mortgage Loan;
(4) The expiration of thirty (30) days from
the date the Mortgage Loan was delivered to an
Investor for examination and purchase, without the
purchase being made, or upon rejection of the
Mortgage Loan as unsatisfactory by an Investor;
(5) The expiration of forty-five (45) days
from the date the Mortgage Loan is delivered to the
certificating custodian acceptable to the Lender for
the issuance of a Mortgage-backed Security;
(6) The expiration of three (3) Business
Days from the date a Wet Advance was made without
receipt of all Collateral Documents relating to such
Mortgage Loan, or such Collateral Documents, upon
examination by the Lender, are found not to be in
compliance with the requirements of this Agreement
or the related Purchase Commitment;
(7) The expiration of ten (10) calendar
days from the date a Collateral Document in
connection with such Mortgage Loan was delivered to
the Borrower for correction or completion, without
being returned to the Lender, corrected or
completed;
(8) The Mortgage Loan is in default; or
(9) Upon sale of the Mortgage Loan.
Upon receipt of such payment by the Lender, such Mortgage
Loan shall be considered to have been redeemed from pledge,
and the Collateral Documents, relating thereto which have not
been delivered to the Investor or the pool custodian or pool
trustee shall be released by the Lender to the Borrower.
(n) Section 2.20 Non-Usage Fee of the Credit Agreement is
hereby deleted therefrom and the following is substituted in lieu
thereof for all purposes:
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"Section 2.20 Non-Usage Fee. At the end of each month during the term
of this Agreement (i.e., from its effective date through the Termination
Date), the Lender shall determine average usage of the Commitment by
calculating the arithmetic daily average of the outstanding balance of
Advances in that month. The Lender shall then subtract the average usage
(the "Used Portion") from the Commitment (the result being called the
"Unused Portion") and the Company shall pay in arrears (without duplication
of payment), on or before five (5) days after the later of (a) the end of
each month or (b) the Company's receipt of the Lender's bill for such
monthly period, a Non-Usage Fee equal to 0.125% per annum on the total
amount of the Unused Portion of the Commitment, as compensation to the
Lender for its agreement to make the Commitment available to the Company
during that month and not as compensation for the use, forbearance or
detention of money (i.e., as a "true commitment fee" under Texas law);
provided that such fee shall be waived for any month if the Used Portion
for such month is equal to or more than $2,000,000.00. Each calculation by
the Lender of the amount of any Non-Usage Fee shall be conclusive and
binding on the Company, absent manifest error."
(o) Section 2.21 Miscellaneous Charges of the Credit Agreement is hereby
deleted therefrom and the following is substituted in lieu thereof for all
purposes:
"Section 2.21 Miscellaneous Charges. At the end of each month during
the term of this Agreement, the Company shall pay to the Lender in arrears
on or before five (5) days after the later of (a) the end of each calendar
month or (b) the Company's receipt of the Lender's bill for such monthly
period, a transaction fee equal to $25.00 per Pledged Mortgage Loan and
$75.00 per Repurchased Mortgage Loan held by Lender during such month and
for which Lender has not previously received a transaction fee, for the
handling and administration of Advances and Collateral. For the purposes
hereof, each Borrower shall, at its sole cost and expense, pay all
miscellaneous charges and expenses such as charges for security delivery
fees and charges for overnight delivery of Collateral to Investors.
Miscellaneous charges are due when incurred, but shall not be delinquent if
paid within ten (10) days after receipt of an invoice or an account
analysis statement from the Lender."
(p) The following Section 2.22 Conditions Precedent to All Receivables
Advances is hereby added to the Credit Agreement for all purposes:
"Section 2.22 Conditions Precedent to All Receivables Advances. The
obligation of Lender to make each Receivables
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Advance pursuant to this Agreement is subject to the following conditions
precedent:
(a) Prior to 2:00 p.m. (Houston, Texas time) on the day of the
requested funding, Lender shall have received a Credit Request
together with all documents and other items ("Receivables Collateral
Documents") required in connection with such Receivables Advance as
set forth in the Credit Request. All terms, conditions, and procedures
set forth in this Section, Sections 2.3, 2.4, and 2.5 of this
Agreement and Exhibit "D" to the Agreement have been satisfied in the
sole discretion of the Lender.
(b) The amount of the Receivables Advance requested, when added
to all outstanding and unpaid Receivables Advances, does not exceed
the Receivables Loan Value.
(c) The representations and warranties of Borrowers contained in
this Agreement or any Security Instrument (other than those
representations and warranties which are by their terms limited to the
date of the agreement in which they are initially made) shall be true
and correct in all material respects on and as of the date of such
Advance.
(d) No Default or Event of Default shall have occurred and be
continuing as of the date of such Receivables Advance.
(e) Company shall cause the Network to execute and deliver to the
Lender, in form and substance satisfactory to the Lender, a commercial
security agreement together with a financing statement covering all
Receivables of Network.
(f) Jerry Lewis shall execute and deliver to the Lender a
guaranty agreement, in form and substance satisfactory to the Lender,
guaranteeing the repayment of all outstanding and unpaid Receivables
Advances under this Agreement.
(g) Company shall cause Network to deliver a letter, in form and
substance acceptable to the Lender, from each Approved Company
acknowledging it will pay directly to the Lender all amounts owed by
it in connection with its accounts with the Network.
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(h) If requested by Lender, Lender shall receive, in respect of
any Financing Statement filed with any filing officer under the Code
and showing Network as debtor and any Person other than Lender as
secured party and a collateral description which is determined by
Lender to conflict with the description of Receivables to be pledged
in connection with such Receivables Advance, either (a) a termination
thereof executed by such secured party in proper form for filing by
Lender, or (b) an amendment to such Financing Statement, in such form
as Lender may reasonably require, executed by such secured party in
proper form for filing by Lender.
(i) A tax, lien and judgment search of the appropriate public
records for the Network, including a search of Uniform Commercial Code
financing statements, which search shall not have disclosed the
existence of any prior Lien on the Receivables of the Network other
than in favor of the Lender or as permitted hereunder.
(j) Company shall provide to the Lender an agreement between the
Company and Network, in form and substance acceptable to the Lender,
governing the obligations of the Company and Network relating to the
financing of Receivables of Network.
(k) There shall have been, in the sole opinion of Lender, no
Material Adverse Effect since the date of this Agreement.
(l) All legal matters incident to the transactions herein
contemplated shall be satisfactory to legal counsel to Lender.
(m) All other conditions precedent have been satisfied including,
without limitation, the conditions set forth in Section 2.4 hereof.
Each condition precedent in this Agreement is material to the transactions
contemplated in this Agreement and time is of the essence in respect of
each thereof. Lender may make any Receivables Advance without all
conditions being satisfied, but, to the extent permitted by law, the same
shall not be deemed a waiver of the requirement that each such condition
precedent be satisfied as a prerequisite for any subsequent Receivables
Advance."
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(q) The following Section 2.23 Repurchased Advances is hereby
added to the Credit Agreement for all purposes:
"Section 2.23 Repurchased Advances. Company may obtain a
Repurchased Advance hereunder, subject to the satisfaction of the
conditions set forth in Sections 2.3, 2.4 and 2.5 of this
Agreement and the terms, conditions and procedures set forth in
Exhibit "D". A request for a Repurchased Advance shall be
initiated by Company delivering to the Lender a properly
completed and executed Credit Request together with all documents
and other items ("Repurchased Collateral Documents") required in
connection with such Repurchased Advance as set forth in Exhibit
"D" hereto. The Credit Request and the Repurchased Collateral
Documents must be received by the Lender no later than 2:00 p.m.
Houston, Texas time in order for funding to occur the same day.
The amount of any Repurchased Advance shall not exceed the lesser
of (i) sixty percent (60%) of the unpaid principal balance of the
Mortgage Note evidencing the Repurchased Mortgage Loan pledged to
Lender in connection with such Repurchased Advance or (ii) eighty
percent (80%) of the appraised value of the mortgaged property
securing the Mortgage Note evidencing the Repurchased Mortgage
Loan pledged to the Lender in connection with such Repurchased
Advance. Lender may reject, at any time and from time to time,
any Repurchased Mortgage Loan borrowed against hereunder and the
Repurchased Collateral Documents delivered in connection
therewith as unacceptable and ineligible and Company shall pay to
Lender in immediately available funds an amount equal to the
aggregate amount of all Advances made hereunder against such
Repurchased Mortgage Loan designated by Lender as unacceptable
and ineligible. Neither failure to exercise nor delay in
exercising on the part of Lender, of its right to reject or
designate any Repurchased Mortgage Loan or any Repurchased
Collateral Documents as unacceptable and ineligible shall operate
as a waiver of such right or Lender's right to exercise such
right at any time."
(r) Exhibit "B" to the Credit Agreement is hereby deleted therefrom
for all purposes. Exhibits "B-1", "B-2", "B-3", and "B-4" to this
Agreement are hereby added to the Credit Agreement for all purposes.
(s) Exhibit "D" to the Credit Agreement is hereby deleted therefrom
and Exhibit "D" to this Agreement is hereby substituted in lieu thereof for
all purposes.
(t) Exhibit "L" to this Agreement is hereby added to the Credit
Agreement for all purposes.
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Section 3. Representations. Borrowers represent and warrant that all of the
representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof. Any
reference in the other Loan Documents to the "Agreement", the "Line of Credit
Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be deemed to be
references to the Credit Agreement as amended through the date hereof. Any
reference in the Credit Agreement or the other Loan Documents to the "Note"
shall be deemed references to the Credit Note.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Credit Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan Documents
are, respectively, first, prior, valid and subsisting liens, security interests
and assignments against the Collateral and secure all indebtedness and
obligations of Borrowers to Lender under the Credit Note, the Credit Agreement,
all other Loan Documents, as modified herein; (iii) there are no claims or
offsets against, or defenses or counterclaims to, the terms or provisions of the
Loan Documents, and the other obligations created or evidenced by the Loan
Documents; (iv) neither the Borrowers nor the Guarantor have any claims,
offsets, defenses or counterclaims arising from any of the Lender's acts or
omissions with respect to the Loan Documents, or the Lender's performance under
the Loan Documents; (v) the representations and warranties contained in the Loan
Documents are true and correct representations and warranties of Borrowers, as
of the date hereof; (vi) Borrowers promise to pay to the order of Lender the
indebtedness evidenced by the Credit Note according to the terms thereof; and
(vii) Lender is not in default and no event has occurred which, with the passage
of time, giving of notice, or both, would constitute a default by Lender of
Lender's obligations under the terms and provisions of the Loan Documents. IN
CONSIDERATION OF THE MODIFICATION OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS,
ALL AS HEREIN PROVIDED, AND THE OTHER BENEFITS RECEIVED BY BORROWERS AND
GUARANTOR HEREUNDER, BORROWERS AND GUARANTOR HEREBY RELEASE, RELINQUISH AND
FOREVER DISCHARGE LENDER, ITS PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS,
PRINCIPALS, PARENTS, SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF
AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND
EVERY KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH
BORROWERS AND GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST
LENDER RELEASED PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL
TRANSACTIONS RELATING TO THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS
OCCURRING PRIOR TO THE DATE HEREOF, INCLUDING ANY OTHER LOSS,
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<PAGE> 15
EXPENSE AND/OR DETRIMENT, OF ANY KIND OR CHARACTER, GROWING OUT OF OR IN ANY WAY
CONNECTED WITH OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR OMISSIONS OF
THE LENDER RELEASED PARTIES, AND INCLUDING ANY LOSS, COST OR DAMAGE IN
CONNECTION WITH ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR
DEALING, BREACH OF COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE,
DURESS, ECONOMIC COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH,
MALPRACTICE, VIOLATIONS OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS
ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS,
TORTIOUS INTERFERENCE WITH CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS
ADVANTAGE, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT,
DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING
FOR, TAKING, RESERVING, COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE TO THE LOAN DOCUMENTS (I.E., USURY), ANY
VIOLATIONS OF FEDERAL OR STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING
RULES, LAWS OR REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF
REGULATION B, EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF
THE TEXAS FREE ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST
ACTS. GUARANTOR (i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION
AGREEMENT, (ii) RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT
IN ACCORDANCE WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL
OTHER GUARANTY AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE
CREDIT AGREEMENT ARE NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR
COUNTERCLAIMS OF ANY NATURE WHATSOEVER.
Section 6. Severability. In the event any one or more provisions contained
in the Credit Agreement or this Modification Agreement should be held to be
invalid, illegal or unenforceable in any respect, the validity, enforceability
and legality of the remaining provisions contained herein and therein shall not
be affected in any way or impaired thereby and shall be enforceable in
accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify and
confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that the
resolutions and affidavits previously delivered to Lender, in connection with
the execution and delivery of the Credit Agreement, are and remain in full force
and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such
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Default or Event of Default heretofore arising and currently continuing shall
continue after the execution and delivery hereof.
Section 10. Governing Law. This Modification Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and, to the
extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed in
any number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT, THE
CREDIT AGREEMENT, THE CREDIT NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS,
AS MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF
THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
/s/ JIM C. HODGE
-----------------------------------------
JIM C. HODGE
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LENDER:
COASTAL BANC ssb
By: /s/ DON MACH
-------------------------------------
DON MACH, Vice President
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<PAGE> 1
EXHIBIT 10.4.k
MODIFICATION AGREEMENT
This Modification Agreement (herein so called), is entered into
effective as of the 18th day of February, 1997, by and among ALLIED MORTGAGE
CORPORATION, a Texas corporation (the "Company"), ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation ("Capital") (the Company and Capital being
called collectively the "Borrowers" and individually, a "Borrower"), JIM C.
HODGE ("Guarantor"), and COASTAL BANC ssb ("Lender"). Capitalized terms used but
not defined herein have the meanings assigned to them in that certain Loan
Agreement (such agreement as heretofore amended is hereinafter called the
"Credit Agreement") dated effective as of April 30, 1996, by and among the
Borrowers and Lender.
Section 1. Recitals. Borrowers, Guarantor, and Lender desire to amend
certain provisions of the Credit Agreement. Therefore, Borrowers, Guarantor and
Lender hereby agree as follows, intending to be legally bound:
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) The definition of "Basic Rate" in Section 1.2 of the Credit
Agreement is hereby deleted therefrom and the following is substituted
in lieu thereof:
"'Basic Rate' means, for any day, (a) with respect to
Aggregate Advances relating to "A" Mortgage Loans, the LIBOR
Rate for that day plus 2.50%; and (b) with respect to Aggregate
Advances relating to "B, C, & D" Mortgage Loans, the LIBOR Rate
for that day plus 3.00%."
(b) The definition of "Eligible Mortgage Loans" in Section 1.2
of the Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof:
"'Eligible Mortgage Loans' means, on any day, all "A"
Mortgage Loans and "B, C, & D" Mortgage Loans, (a) for which a
Borrower holds Purchase Commitments or with respect to each "B,
C, & D" Mortgage Loans only, a Purchase Agreement and a related
Investor Confirmation, Preclosing Purchase Approval, or if
designated for bulk sale by a Borrower on the Credit Request
that such "B, C, & D" Mortgage Loan complies at all times with
all applicable underwriting guidelines and other requirements of
an Investor relating to such Investor's purchase of such "B, C,
& D" Mortgage Loan under the Purchase Agreement, as applicable;
(b) that are made payable to the order of a Borrower or have
been endorsed payable to such Borrower and have been endorsed by
such Borrower in blank; (c) in which Lender has been granted and
continues to hold an enforceable perfected first priority
security interest; (d) that are not in default; (e) that
conforms in all respects with all the requirements
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<PAGE> 2
of the Purchase Commitments or with respect to each "B, C, & D"
Mortgage Loans only, a Purchase Agreement and a related Investor
Confirmation or Preclosing Purchase Approval, as applicable, to
purchase such Mortgage Loans and are valid and enforceable in
accordance with their respective terms; (f) otherwise
satisfactory to Lender in its sole discretion and all other
respects; and (g) as to which none of the events or conditions
described in Section 2.13 has occurred."
(c) The following definition of ""A" Mortgage Loans" is hereby
added to Section 1.2 of the Credit Agreement for all purposes:
""A' Mortgage Loans' means, on any day, all fully
amortizing Mortgage Loans (a) that have original terms to their
stated maturity of 30 years or less; (b) that are (i) eligible
either for guaranty or insurance by the VA or FHA or for
insurance (as to the portion of the Mortgage Loan which
initially exceeds an 80% loan-to-collateral value ratio) by a
private mortgage insurance by an insurer rated "A" or better by
a nationally recognized rating agency, or (ii) uninsured
conventional mortgage loans conforming to the maximum loan
amounts and loan-to-collateral value ratios standards for
guaranty by FNMA or FHLMC and with both an initial and a current
loan-to-collateral value ratios no greater than 80%; (c) that
are eligible for purchase by FNMA, FHLMC, or GNMA; (d) dated not
more than 60 days before the date on which a Borrower has
requested the Advance in connection with such Mortgage Loan to
be funded; and (e) are, in the judgment of Lender, consistent in
all respects with traditional standards imposed by relevant
rating agencies and pool insurers for classification as "A"
Mortgage Loans."
(d) The definition of "'B, C, & D' Loans" is hereby added to
Section 1.2 of the Credit Agreement for all purposes:
""'B, C, & D" Loans' means all fully amortizing Mortgage
Loans that (a) are, in the judgment of Lender, consistent in all
respects with traditional standards imposed by whole loan
purchasers, relevant rating agencies and pool insurers for
classifications as "B" or "C" or "D" Mortgage Loans; and (b)
dated not more than 25 days before the date on which a Borrower
has requested the Advance in connection with such Mortgage Loan
to be funded."
(e) The definition of "Warehouse Line Limit" in Section 1.2 of
the Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof:
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<PAGE> 3
"'Warehouse Line Limit' means (a) with respect to an "A"
Mortgage Loan that is an Eligible Mortgage Loan, an amount equal
to 100% of the lesser of (i) the amount at which an Investor has
committed to purchase such "A" Mortgage Loan pursuant to a
Purchase Commitment or (ii) the principal balance of such "A"
Mortgage Loan; (b) with respect to a "B, C, & D" Mortgage Loan
that is an Eligible Mortgage Loan and is designated by the
Borrower for a pipeline sale on the Credit Request delivered in
connection with such "B, C, & D" Mortgage Loan, an amount equal
to 97% of the lesser of (i) the amount at which an Investor has
committed to purchase such "B, C, & D" Mortgage Loan pursuant to
a Purchase Agreement and the related Investor Confirmation or
Preclosing Purchase Approval, as applicable, or (ii) the
principal balance of such "B, C, & D" Mortgage Loan; (c) with
respect to a "B, C, & D" Mortgage Loan that is an Eligible
Mortgage Loan and is designated by the Borrower for bulk sale on
the Credit Request delivered in connection with such "B, C, & D"
Mortgage Loan, an amount equal to 95% of the lesser of (i) the
amount at which an Investor has committed to purchase such "B,
C, & D" Mortgage Loan pursuant to a Purchase Agreement, or (ii)
the principal balance of such "B, C, & D" Mortgage Loan."
(f) The definition of "Aged Mortgage Loans" in Section 1.2 of
the Credit Agreement is hereby deleted therefrom and the following is
substituted in lieu thereof for all purposes:
"'Aged Mortgage Loans' means (a) "A" Mortgage Loans that
have been Pledged Mortgaged Loans for more than 90 days; and (b)
"B, C, & D" Mortgage Loans that have been Pledged Mortgage Loans
for more than 60 days."
(g) Exhibit "B" to the Credit Agreement is hereby deleted
therefrom and Exhibits "B-1" and "B-2" to this Agreement are hereby
substituted in lieu thereof for all purposes.
(h) Exhibit "D" to the Credit Agreement is hereby deleted
therefrom and Exhibit "D" to this Agreement is hereby substituted in
lieu thereof for all purposes.
(i) The definition of "Credit Request" is hereby deleted
therefrom and the following is substituted in lieu thereof for all
purposes:
"'Credit Request' means (a) with respect to a request
for an Advance against an "A" Mortgage Loan, Exhibit "B-1"
and (b) with respect to a request for an Advance against a "B,
C, & D" Mortgage Loan, Exhibit "B-2"."
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<PAGE> 4
(j) The definition of "Purchase Agreement" is hereby added to
Section 1.2 of the Credit Agreement for all purposes:
"'Purchase Agreement' means a legal, valid, binding and
enforceable agreement from an Investor in favor of a Borrower to
purchase "B, C, & D" Mortgage Loans upon terms and conditions
and in form and substance acceptable to Lender, in its sole
discretion."
(k) The definition of "Investor Confirmation" is hereby added to
Section 1.2 of the Credit Agreement for all purposes:
"'Investor Confirmation' means written confirmation from
an Investor that has granted to a Borrower delegated
underwriting authority confirming Investor's agreement to
purchase specific "B, C, & D" Mortgage Loans pursuant to a
Purchase Agreement between such Investor and such Borrower, such
delegated underwriting authority and confirmation must be in
form and substance acceptable to the Lender in its sole
discretion."
(1) The following definition of "Preclosing Purchase Approval"
is hereby added to Section 1.2 of the Credit Agreement for all purposes:
"'Preclosing Purchase Approval' means a written approval
from an Investor, in form and substance acceptable to Lender in
its sole discretion, approving the purchase of a "B, C, & D"
Mortgage Loan by such Investor pursuant to a Purchase Agreement,
such approval must be in form and substance acceptable to the
Lender, in its sole discretion.."
(m) Any reference in the Credit Agreement to Purchase Commitment
will continue to have the same force and effect as therein provided,
except with respect to "B, C, & D" Mortgage Loans, Purchase Commitment
shall be deemed to mean a Purchase Agreement and a related Investor
Confirmation or Preclosing Purchase Approval, as applicable.
(n) Section 2.1. Loan. of the Credit Agreement is hereby
amended by adding the following to the end of such section for all
purposes:
"The Aggregate Advances against "B, C, & D" Mortgage
Loans outstanding at any one time shall not exceed
$2,000,000.00."
Section 3. Representations. Borrowers represent and warrant that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents
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<PAGE> 5
executed pursuant thereto or contemplated thereby are true and correct in all
material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended through the date hereof. Any
reference in the other Loan Documents to the "Agreement", the "Line of Credit
Agreement", "Warehouse Agreement", or the "Loan Agreement" shall be deemed to be
references to the Credit Agreement as amended through the date hereof.
Section 5. ADDITIONAL REPRESENTATIONS. Except as otherwise specified
herein, the terms and provisions hereof shall in no manner impair, limit,
restrict or otherwise affect the obligations of Borrowers, Guarantor, or any
third party to Lender, as evidenced by the Loan Documents. Borrowers and
Guarantor hereby acknowledge, agree, and represent that (i) Borrowers are
indebted to Lender pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, first, prior, valid and subsisting liens, security interests and
assignments against the Collateral and secure all indebtedness and obligations
of Borrowers to Lender under the Note, the Credit Agreement, all other Loan
Documents, as modified herein; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Loan Documents, and
the other obligations created or evidenced by the Loan Documents; (iv) neither
the Borrowers nor the Guarantor have any claims, offsets, defenses or
counterclaims arising from any of the Lender's acts or omissions with respect to
the Loan Documents, or the Lender's performance under the Loan Documents; (v)
the representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrowers, as of the date hereof; (vi)
Borrowers promise to pay to the order of Lender the indebtedness evidenced by
the Note according to the terms thereof, as amended hereby; and (vii) Lender is
not in default and no event has occurred which, with the passage of time, giving
of notice, or both, would constitute a default by Lender of Lender's obligations
under the terms and provisions of the Loan Documents. IN CONSIDERATION OF THE
MODIFICATION OF CERTAIN PROVISIONS OF THE LOAN DOCUMENTS, ALL AS HEREIN
PROVIDED, AND THE OTHER BENEFITS RECEIVED BY BORROWERS AND GUARANTOR HEREUNDER,
BORROWERS AND GUARANTOR HEREBY RELEASE, RELINQUISH AND FOREVER DISCHARGE LENDER,
ITS PREDECESSORS, SUCCESSORS, ASSIGNS, SHAREHOLDERS, PRINCIPALS, PARENTS,
SUBSIDIARIES, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
REPRESENTATIVES (COLLECTIVELY, THE "LENDER RELEASED PARTIES"), OF AND FROM ANY
AND ALL CLAIMS, DEMANDS, ACTIONS AND CAUSES OF ACTION OF ANY AND EVERY KIND OR
CHARACTER, WHETHER KNOWN OR UNKNOWN, PRESENT OR FUTURE, WHICH BORROWERS AND
GUARANTOR, OR ANY ONE OR MORE OF THEM, HAVE, OR MAY HAVE AGAINST LENDER RELEASED
PARTIES, ARISING OUT OF OR WITH RESPECT TO ANY AND ALL TRANSACTIONS RELATING TO
THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS OCCURRING PRIOR TO THE DATE
HEREOF, INCLUDING ANY OTHER LOSS, EXPENSE AND/OR DETRIMENT, OF ANY KIND OR
CHARACTER, GROWING OUT OF OR IN ANY WAY CONNECTED WITH OR IN ANY WAY RESULTING
FROM THE ACTS, ACTIONS OR OMISSIONS OF THE LENDER RELEASED PARTIES, AND
INCLUDING ANY LOSS, COST OR DAMAGE IN CONNECTION
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WITH ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF
COMPETENCE, BREACH OF FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC
COERCION, CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS
OF THE RACKETEER INFLUENCE AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR
NEGLIGENT INFLICTION OF EMOTIONAL OR MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH
CORPORATE GOVERNMENTS OR PROSPECTIVE BUSINESS ADVANTAGE, TORTIOUS INTERFERENCE
WITH CONTRACTUAL RELATIONS, BREACH OF CONTRACT, DECEPTIVE TRADE PRACTICES,
LIBEL, SLANDER, CONSPIRACY, THE CHARGING, CONTRACTING FOR, TAKING, RESERVING,
COLLECTING OR RECEIVING OF INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE TO THE LOAN DOCUMENTS (I.E., USURY), ANY VIOLATIONS OF FEDERAL OR
STATE LAW, ANY VIOLATIONS OF FEDERAL OR STATE BANKING RULES, LAWS OR
REGULATIONS, INCLUDING, BUT NOT LIMITED TO, ANY VIOLATIONS OF REGULATION B,
EQUAL CREDIT OPPORTUNITY, BANK TYING ACT CLAIMS, ANY VIOLATION OF THE TEXAS FREE
ENTERPRISE ANTITRUST ACT OR ANY VIOLATION OF FEDERAL ANTITRUST ACTS. GUARANTOR
(i) CONSENTS TO THE TERMS AND PROVISIONS OF THIS MODIFICATION AGREEMENT, (ii)
RATIFIES AND CONFIRMS HIS GUARANTY IS IN FULL FORCE AND EFFECT IN ACCORDANCE
WITH ITS TERMS, AND (iii) ACKNOWLEDGES THAT THE GUARANTY AND ALL OTHER GUARANTY
AGREEMENTS OF THE GUARANTOR EXECUTED IN CONNECTION WITH THE CREDIT AGREEMENT ARE
NOT SUBJECT TO ANY CLAIMS, OFFSETS, DEFENSES, OR COUNTERCLAIMS OF ANY NATURE
WHATSOEVER.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreement or this Modification Agreement should be held
to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.
Section 7. Expenses. Borrowers agree to pay all out-of-pocket costs and
expenses of Lender in connection with the preparation, operation, administration
and enforcement of this Modification Agreement.
Section 8. Acknowledgment. Except as amended hereby, Borrowers ratify
and confirm that the Security Instruments and all other Loan Documents are and
remain in full force and effect in accordance with their respective terms and
that all Collateral is unimpaired by this Modification Agreement and secures the
payment and performance of all indebtedness and obligations of Borrowers under
the Note, the Credit Agreement, and all other Loan Documents, as modified
hereby. Each of the undersigned officers of Borrowers executing this
Modification Agreement represents and warrants that he has full power and
authority to execute and deliver this Modification Agreement on behalf of
Borrowers that such execution and delivery has been duly authorized and that the
resolutions and affidavits previously delivered to Lender, in connection with
the execution and delivery of the Credit Agreement, are and remain in full force
and effect and have not been altered, amended or repealed in anywise.
Section 9. No Waiver. Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Modification
Agreement by Lender, and any such Default or Event of Default heretofore arising
and currently continuing shall continue after the execution and delivery hereof.
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Section 10. Governing Law. This Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and,
to the extent applicable, by federal law.
Section 11. Counterparts. This Modification Agreement may be executed in
any number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN MODIFICATION AGREEMENT, THE
CREDIT AGREEMENT, THE NOTE, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS, AS
MODIFIED HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWERS:
ALLIED MORTGAGE CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, President
ALLIED MORTGAGE CAPITAL CORPORATION,
a Texas corporation
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE, Vice President
GUARANTOR:
By: /s/ JIM C. HODGE
-------------------------------------
JIM C. HODGE
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LENDER:
COASTAL BANC ssb
By: /s/ W.M. TREADWAY
-------------------------------------
W.M. TREADWAY, Senior Vice President
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EXHIBIT 10.5
LENDINGTREE, INC.
INTERNET MARKETING SERVICE AGREEMENT
This INTERNET MARKETING SERVICE AGREEMENT (the "Agreement") is entered into as
of February 17, 1999, between LENDINGTREE, INC., a Delaware corporation with its
principal place of business at 6701 Carmel Road, Suite 205, Charlotte, NC 28226
("LendingTree"), and Allied Mortgage Capital Corporation, a Mortgage Banker
corporation with its principal place of business at 6110 Pinemont Drive, Ste.
215, Houston, Texas 77092 ("Lender").
WITNESSETH:
WHEREAS, LendingTree has developed an Internet website, currently
located at http://www.LendingTree.com, which offers potential consumer borrowers
the ability to complete an online qualification form with lenders who offer
their products through LendingTree (the "Participating Lenders") for various
consumer loan products, including, but not limited to, first mortgage loans,
refinancings, home equity loans, automobile and other personal property-secured
loans, unsecured personal loans and lines, credit cards, and such other products
as the Participating Lenders may offer periodically through LendingTree. In
addition, with the agreement of its Participating Lenders, LendingTree offers
and will offer the same products on corporate Intranet sites, which it will
develop from time to time with the cooperation and agreement of various business
enterprises. LendingTree's website and its corporate Intranet sites are referred
to together in this Agreement as the "Sites;"
WHEREAS, Lender desires to become one of LendingTree's Participating
Lenders, to offer various consumer loan products through the Sites, to allow
potential borrowers to prequalify for its loan products through the Sites, to
provide conditional approvals to qualified customers, and to perform such other
duties as are set forth in this Agreement;
WHEREAS, LendingTree desires to offer such products on behalf of
Lender, to prequalify consumer borrowers using Lender's minimum loan
qualification criteria, and to provide such other goods, services and facilities
as are set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants,
agreements and respective representations and warranties contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I. LENDINGTREE SITE OPERATION
Section 1.1 LendingTree Sites. The Sites will enable potential
borrowers ("customers") with access to the Internet and/or corporate
Intranets to obtain general information relating to the consumer loan
products offered by the Participating Lenders, and, through a simple
question-and-answer format, to prequalify for such products, through a
computerized filter system operated by LendingTree using the minimum
loan qualification criteria (the "Criteria") supplied by Participating
Lenders, for the purpose of facilitating the selection of and
application with Participating Lenders for a particular loan product.
Participating Lenders will have the ability to make conditional
approval offers to customers who have been prequalified by the
LendingTree filter system. The Sites will also offer customers general
research and education regarding such consumer loan products.
Section 1.2 License. LendingTree hereby grants to Lender, on the terms
and conditions set forth in this Agreement, the non-exclusive right and
license to participate in the Sites as a Participating Lender for the
Term, as defined in Article VII of this Agreement.
Section 1.3 Qualification Forms. Certain forms will be generated on the
Sites by a customer as a result of the customer responding to certain
questions, which, when completed by the customer, provide
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sufficient data to determine whether the customer prequalifies for any Lender
Products, as defined below, according to Lender's Criteria (individually, a
"Qualification Form" and collectively, the "Qualification Forms"). LendingTree
reserves the right to combine the information requested by all Participating
Lenders into one Qualification Form, which may be submitted to one or more
Participating Lenders, but not more than four (4) Participating Lenders at one
time, as described in section 1.4 below.
Section 1.4 Computerized Filter Systems. LendingTree will send Qualification
Forms that customers have completed through its computerized filter system.
LendingTree will forward those Qualification Forms that meet Participating
Lenders' Criteria, as determined by the filter system, to those Participating
Lenders offering the type of loan product requested by the customer that are
doing business in the jurisdiction of the customer for further processing;
provided, however, that if a customer's Qualification Form satisfies the
Criteria of more than four (4) Participating Lenders after submission to the
filter system, LendingTree will forward the Qualification Form to only four (4)
Participating Lenders selected at random by computer. Thus, although a
customer's Qualification Form may satisfy Lender's Criteria, the Qualification
Form may not necessarily be forwarded to Lender. If no prequalification
acceptance, prequalification offer, or firm offer of a loan or credit is made by
the initial group of Participating Lenders to whom a Qualification Form is sent,
LendingTree reserves the right to forward the Qualification Form to additional
Participating Lenders whose Criteria are satisfied by the information contained
in the Qualification Form until a positive response is received (including, a
prequalification acceptance, prequalification offer, firm offer or other
conditional approval). LendingTree does not independently prescreen or otherwise
evaluate the customer's credit quality. LendingTree is not responsible for the
accuracy of the Participating Lenders' Criteria in determining whether a
customer qualifies for credit. Other than transmitting responses to
Qualification Forms on behalf of Lender, LendingTree will have no responsibility
regarding handling of the Qualification Form or further processing of any
application after forwarding a Qualification Form to Lender.
Section 1.5 Communications. LendingTree will establish electronic systems on or
through the Sites which will permit customers and Participating Lenders to
communicate with LendingTree staff through private lines of communication. From
time to time LendingTree will submit various standard forms to Lender, including
Qualification Forms and standard correspondence with customers. LendingTree will
submit all such forms to Lender for its review and approval at least ten (10)
business days prior to use or publication of such forms. If Lender does not
respond at least five (5) business days from the date of receipt of such
proposed forms, Lender will be deemed to have approved, and LendingTree may
proceed with such use or publication of such forms in the form submitted to
Lender.
Section 1.6 Site Availability. Using standard industry practices and procedures,
LendingTree will use its best efforts to make the Sites available on a 24-hour
basis. However, LendingTree will not be responsible for inactivity of the Sites
due to reasons beyond LendingTree's control, including connection and server
problems, local, national or international communication connection problems,
natural or man-made disasters affecting communication between the host server
and customers, or other unforeseeable events beyond the control of LendingTree.
Lender shall receive no damages or compensation, including consequential
damages, resulting from inactivity of the Sites.
Section 1.7 Customer Information. LendingTree will transmit to Lender all
information concerning a customer that is collected by LendingTree in the
process of obtaining a completed Qualification Form if and when LendingTree
forwards such Form to Lender as provided in this Agreement. Lender may compile
and use lists of such customers and information for its own marketing purposes.
However, for a period of nine (9) months from the time a Qualification Form is
submitted to Lender through the Sites, Lender agrees that it will not solicit
the customer for same type of loan product as the one requested in the
Qualification Form unless the customer accepted the offer for the loan product
and Lender paid LendingTree the applicable fees described on Exhibit A. For
purposes of this Agreement, solicitation shall not include any direct mail or
national/regional advertising or marketing campaigns, provided they do not
specifically target customers.
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Section 1.8 Trademarks and Intellectual Property of LendingTree. Any use by
Lender of trademarks, trade names, service marks and logos (the "Trademarks") of
LendingTree in any advertisements, promotional materials, and on its website
shall be subject to LendingTree's prior, written approval, except as provided
herein. Lender shall submit all such advertising, marketing and promotional
materials using LendingTree's Trademarks to LendingTree for its approval at
least ten (10) business days prior to publication or distribution of such
materials. If LendingTree does not respond at least five (5) business days from
the date of receipt of such proposed materials, LendingTree will be deemed to
have approved. All logos, forms, or other visual or written materials provided
by LendingTree will remain the sole property of LendingTree and may be used only
in advertising directly related to Lender Products, as defined below, that are
featured on the Sites. After termination of the Agreement, Lender agrees that
such materials will not be used, references to LendingTree will be removed from
all such advertisements, promotional materials and websites, and all tangible
physical evidence of this information will be returned to LendingTree within a
reasonable time after LendingTree's request.
LendingTree is the sole owner of the following, and all related, intellectual
property: the design and content of the Sites (other than materials provided by
Lender), the technical knowledge related to the development of the common links
with Lender (not including security protocols and software provided by Lender),
software and hardware used to implement the system, including the Sites and the
databases, the underlying electronic origination system's design and function,
and all other elements of the Sites which are the work product of LendingTree
employees, or which were created for LendingTree by any outside contractor for
use on the Sites. Lender recognizes the proprietary nature of LendingTree's
intellectual property, including, but not limited to, the items enumerated
above. Lender further recognizes that LendingTree remains sole owner of the
database reflecting all information provided by the customers using the service
and all other aggregate database information, including percentage of loans
closing and volume of LendingTree customers. Lender will maintain security
protocols that are current and reasonable in the industry to safeguard this
information as well as all other confidential information received by Lender and
maintain its confidentiality as provided in the Reciprocal Non-Disclosure
Agreement, dated as of February 17, 1999, which is attached hereto, incorporated
herein by reference and made an integral part of this Agreement (the
"Non-Disclosure Agreement").
ARTICLE II. LENDINGTREE GOODS, SERVICES AND FACILITIES
Section 2.1 Site Services. In offering the Sites, LendingTree will provide to
Lender the following goods, services and facilities, in addition to any other
goods, services and facilities that may be described elsewhere in this
Agreement:
(a) Advertising, Marketing and Promotion. Using Trademarks, information
and other materials supplied by Lender, LendingTree will engage in national
campaigns via the Internet and other media to advertise, market and promote the
Sites and the loan products offered from time to time by Lender through the
Sites (the "Lender Products"). LendingTree will submit all such advertising,
marketing and promotional materials that includes Lender's Trademark or logo, to
Lender for its approval at least ten (10) business days prior to publication or
distribution of such materials. If Lender does not respond at least five (5)
business days from the date of receipt of such proposed materials, Lender will
be deemed to have approved, and LendingTree may proceed with such publication or
distribution of such materials in the form submitted to Lender. Lender shall be
solely responsible for the content of any advertising, marketing and promotional
materials published or distributed as described herein in connection with Lender
Products, and Lender shall defend, indemnify and hold LendingTree harmless for
any liability relating to such advertising, marketing and promotional materials
in accordance with the provisions of Article VI. Nonetheless, the publication
and distribution of such advertising, marketing and promotional materials will
be at LendingTree's sole expense.
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LendingTree shall use reasonable efforts, as it deems appropriate in its
discretion, to attract qualified customers to the Sites. Among other things,
LendingTree will from time to time enter into agreements with other Internet
websites or corporate intranet sites to market or co-brand the LendingTree
program. Such cooperative marketing arrangements shall not be subject to the
prior review or approval of Lender, however, Lender shall be advised of, and
have an opportunity to review, service standards arising out of any cooperative
marketing arrangements that are materially different from LendingTree service
standards, prior to their implementation. In the event Lender objects to these
service standards, Lender shall have an option to de-select receipt of any
Qualification Forms that are related to the cooperative marketing arrangement at
the time the new service standards become effective. LendingTree does not
guarantee receipt or transmission of a minimum number of Qualification Forms.
(b) Transmission of Data. LendingTree will be responsible for (1)
transmitting electronic information to Lender and/or customers, including the
Qualification Forms and Lender responses, (2) updating any pricing, product, and
Lender data (as defined below) the parties may agree to include on the Sites,
(3) developing, maintaining and upgrading LendingTree software and servers, (4)
receiving, processing and implementing Lender transmissions of Criteria
information for the filter system, and (5) providing certain technical support
for Lender and customers.
(c) Computer Loan Origination. LendingTree will perform the following
services on behalf of customers and Lender: (1) taking information from
customers on a Qualification Form, (2) obtaining a credit report, (3) analyzing
the customer's income, debt, credit score and credit history, among other
things, through use of a computerized filter system (based solely on Lender's
Criteria), to pre-qualify customers for consideration by Lender; (4) educating
customers regarding the financing process, advising customers regarding the
various loan products available on the Sites, (5) featuring the Lender Products,
services and Criteria, comparing the Lender to other Participating Lenders, and
providing customers with the tools to determine which Lender Product(s) are the
most appropriate product(s) in light of each customer's unique personal
financial circumstances, (6) providing disclosures required by applicable
federal and state law, (7) providing customers with 24 hour/7 day a week access
via the Internet to the LendingTree loan qualification system, (8) providing
customers the ability to monitor the status of their qualification submission
over the Internet, and (9) providing customer support services via electronic
mail and a toll-free telephone call center.
(d) Other Services. At the request of Lender, LendingTree may agree to
provide, for fees to be negotiated separately, additional services incidental to
the transmission of the Qualification Form and response, such as electronic
transmission of documents and other materials from Lender.
Section 2.2 Regulatory Compliance. LendingTree shall comply, in all material
respects, with all applicable federal and state regulatory requirements with
respect to goods, services and facilities to be provided under this Agreement.
LendingTree shall maintain any and all government approvals, licenses or
authorizations necessary to engage in the activities described in the Agreement.
It is mutually agreed and understood that LendingTree is not a lender or engaged
in any way in lending activities, and is merely providing a service to identify
potentially qualified borrowers for Lender.
ARTICLE III. LENDER'S OBLIGATIONS
Section 3.1 Lender's Products or Services. Lender will provide to LendingTree
from time to time and as soon as possible detailed product information for the
Lender Products, including the form content of descriptions of Lender and Lender
Products which Lender desires to appear on the Sites plus any general corporate
information (including logos or trademarks) (collectively, the "Lender data") to
be published by LendingTree. Lender is responsible for determining which
products to offer through the Sites and for the accuracy and completeness of all
information concerning Lender and Lender
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Products that appears on the Sites to the extent that such data has been
supplied to LendingTree by Lender.
Section 3.2 Qualification Forms. Lender will assist LendingTree from time to
time in devising and upgrading Qualification Forms that will be compatible with
Lender Products and filter Criteria.
Section 3.3 Computerized Filter Systems. Lender will provide to LendingTree its
most current Criteria, updated as soon as reasonably feasible to maintain
accuracy of the LendingTree filter system, in the format(s) specified by
LendingTree from time to time. Lender is solely responsible for the content of
its Criteria. Lender is solely responsible for the determination of
creditworthiness and the verification of the identity and other information
received regarding customers.
Section 3.4 Action on Qualification Forms. Lender shall respond timely to all
Qualification Forms submitted to it, and may transmit the response directly to
the customer or request LendingTree to respond as directed by Lender. In either
event, Lender shall inform LendingTree immediately of its response through the
LendingTree system. Such response shall be transmitted no later than two (2)
business days after Lender receives a Qualification Form from LendingTree. At
the sole discretion of Lender, such response shall be a prequalification
acceptance, rejection, prequalification offer, firm offer of a loan or a
counteroffer.
Section 3.5 Trademarks. All under Trademarks, logos, forms, or other visual or
written materials provided by Lender will remain the sole property of Lender,
and may be used only in the content of the Sites and advertising or other
activities directly related to the Sites and the activities contemplated in this
Agreement. After termination of the Agreement, LendingTree agrees that such
materials will not be used, references to Lender will be removed from the Sites,
and all tangible physical evidence of this information will be returned to
Lender within a reasonable time after Lender's request.
Section 3.6 Other Lender Obligations. As a Participating Lender, Lender shall
provide the following obligations/services in addition to any other services
that may be described elsewhere in this Agreement.
(a) If applicable, facilitate and support the generation of accurate,
real-time rate information, as well as specific information about all costs
(e.g., closing costs, processing fees) that customer may be asked to pay in the
course of obtaining a particular Lender Product.
(b) Support the download of Lender data, product, and customer
information from Lender's systems to the Sites. Lender shall provide all
information to be placed on the Sites in the format(s) specified by LendingTree
from time to time. The Lender data to be provided includes Lender's Trademarks
and a brief description of Lender (one paragraph). LendingTree reserves the
right to expand the information regarding Lender that is included on the Sites,
but only with Lender's consent and content to be provided by Lender.
(c) Cooperate with LendingTree in establishing effective customer
communication transfer procedures and follow-up mechanism among the customer,
the Sites and Lender.
(d) Track all prequalification requests and other customer inquiries
regarding Lender Products made to Lender through the Sites and update Lending-
Tree as frequently as is reasonably feasible regarding the status of such
prequalifications and inquiries. In addition, Lender agrees to use commercially
reasonable efforts to track and report to LendingTree all prequalifications,
inquiries and other customer responses regarding Lender Products which originate
from a Qualification Form on the Sites, but which are transmitted to Lender
directly by the customer either through Lender's branches,
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e-mail, toll-free numbers or other means. Lender agrees to make such reports as
are requested by LendingTree from time to time, including but not limited to,
the reports specified in Exhibit A.
(e) Promptly review for accuracy and completeness all information, Site
screens and processing and analytical mechanisms submitted to it for review by
LendingTree as they relate to Lender Products and services and promptly report
back any necessary corrections and/or modifications to the appropriate party.
(f) Deploy an automated interface to its underwriting, which automated
interface shall be mutually agreed upon by Lender and LendingTree.
(g) Comply with all applicable regulatory requirements with respect to
Lender Products on the Sites and dealings with customers, including, without
limitation, federal laws and regulations, such as the Truth-in-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Housing
Act, and Fair Credit Reporting Act, and all applicable state laws and
regulations. Lender shall maintain at all times any and all government
approvals, licenses and authorizations necessary to offer its Lender Products.
(h) Maintain copies of the documents required by state and federal
regulations and provide LendingTree with copies of such documents upon request
of LendingTree and/or any government agency.
(i) Comply with LendingTree service standards ("LendingTree Service
Standards") as communicated to Lender by LendingTree from time to time. Lending-
Tree shall disclose to Lender, any material changes to LendingTree Service
Standards prior to implementation. In the event Lender objects to any Lending-
Tree Service Standards, Lender may terminate this Agreement upon thirty (30)
days written notice to LendingTree as provided in Article VII.
ARTICLE IV. FEES FOR PARTICIPATION IN SITES
Lender agrees to pay to LendingTree all fees set forth in Exhibit A to this
Agreement as compensation for the license and other goods, services, and
facilities provided by LendingTree under this Agreement. Exhibit A is
incorporated by reference and is an integral part of this Agreement.
ARTICLE V. REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.1 Representations and Warranties of Lender. Lender represents and
warrants as follows:
(a) Authority. Lender is a corporation duly organized and validly
existing under the laws of its jurisdiction of incorporation. Lender has full
corporate power and authority to transact any and all business contemplated by
this Agreement and possesses all requisite authority, power, and material
licenses, permits and franchises to conduct its business wherever conducted and
to execute, deliver and comply with its obligations under the terms of this
Agreement. Lender has taken all necessary action to authorize its execution,
delivery and performance of this Agreement.
(b) Conflict with Existing Laws or Contracts. The execution and
delivery of this Agreement and the performance of its obligations hereunder by
Lender will not (i) conflict with or violate (A) Lender's Certificate of
Incorporation or By-laws, or (B) any provision of any law or regulation or any
decree, demand or order to which Lender is subject, or (ii) conflict with or
result in a breach of or constitute a default (or an event which, with notice or
lapse of time, or both, would
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constitute a default) under any of the terms, conditions or provisions of any
agreement or instrument to which Lender is a party or by which it is bound or
any order or decree applicable to Lender or result in the creation or imposition
of any lien on any of its assets or property.
(c) Licenses and Consents. Lender has obtained all necessary or
required governmental licenses and consents to the transactions contemplated by
this Agreement. No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Lender of or compliance by Lender with this Agreement, or if
required, such approval has been obtained prior to the date of this Agreement.
(d) Legal Action Against Lender. There is no claim, action, suit,
proceeding or investigation pending or, to the best of Lender's knowledge,
threatened against Lender 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 Lender, or in any material impairment of the
right or ability of Lender to carry on its business substantially as now
conducted, or in any material liability on the part of Lender, or which would
draw into question the validity of this Agreement or any of the other
instruments, documents or agreements entered into by Lender in connection with
this Agreement, or of any action taken or to be taken in connection with the
obligations of Lender contemplated therein, or which would be likely to impair
materially the ability of Lender to perform under the terms of this Agreement.
(e) Binding on Lender; Enforceability. This Agreement, assuming due
authorization, execution and delivery hereof by LendingTree, and all the
obligations of Lender hereunder, shall constitute the valid and binding
obligations of Lender, enforceable against Lender in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights in general and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
(f) Compliance With Laws. Lender has complied and will continue to
comply with all applicable federal and state laws and regulations in its
business operations related to its performance under this Agreement. In
particular, Lender represents and warrants that its lending Criteria, as applied
in the LendingTree filter system and in its underwriting processes, comply with
applicable state and federal laws and regulations, including, without
limitation, the Fair Housing Act and Equal Credit Opportunity Act.
Section 5.2 Representations and Warranties of LendingTree. LendingTree
represents and warrants as follows:
(a) Authority. LendingTree is a corporation duly organized and validly
existing under the laws of the State of Delaware. LendingTree has full corporate
power and authority to transact any and all business contemplated by this
Agreement and possesses all requisite authority, power, and material licenses,
permits and franchises to conduct its business wherever conducted and to
execute, deliver and comply with its obligations under the terms of this
Agreement. LendingTree has taken all necessary action to authorize its
execution, delivery and performance of this Agreement.
(b) Conflict with Existing Laws or Contracts. The execution and
delivery of this Agreement and the performance of its obligations hereunder by
LendingTree will not (i) conflict with or violate (A) LendingTree's Certificate
of Incorporation or By-laws, or (B) any provision of any law or regulation or
any decree, demand or order to which LendingTree is subject, or (ii) conflict
with or result in a breach of or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under any of the
terms, conditions or provisions of any agreement or instrument to
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which LendingTree is a party or by which it is bound or any order or decree
applicable to LendingTree or result in the creation or imposition of any lien on
any of its assets or property.
(c) Licenses and Consents. LendingTree in connection with performance
of its duties under this agreement, has obtained or will obtain all necessary or
required governmental licenses and consents requisite for the transactions
contemplated by this Agreement. No consent, approval, authorization or order of
any court or governmental agency or body is required for the execution, delivery
and performance by LendingTree of or compliance by LendingTree with this
Agreement, or if required, such approval has been obtained prior to the date of
this Agreement.
(d) Legal Action Against LendingTree. There is no claim, action, suit,
proceeding or investigation pending or, to the best of LendingTree's knowledge,
threatened against LendingTree 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 LendingTree, or in any
material impairment of the right or ability of LendingTree to carry on its
business substantially as now conducted, or in any material liability on the
part of LendingTree, or which would draw into question the validity of this
Agreement, or any of the other instruments, documents or agreements entered into
by LendingTree in connection with this Agreement, or of any action taken or to
be taken in connection with the obligations of LendingTree contemplated therein,
or which would be likely to impair materially the ability of LendingTree to
perform under the terms of this Agreement.
(e) Binding on LendingTree; Enforceability. This Agreement, assuming
due authorization, execution and delivery hereof by Lender, and all the
obligations of LendingTree hereunder, shall constitute the valid and binding
obligations of LendingTree, enforceable against LendingTree in accordance with
the terms hereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights in general and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
(f) Qualification Form. LendingTree warrants that its Qualification
Form complies with relevant state and federal laws and will provide these forms
for Lender's review and comment at Lender's request. LendingTree does not make
any representations or warranties concerning the identity or creditworthiness of
any customers or the validity or accuracy of information submitted by the
customers.
(g) Random Distribution of Qualification Forms. After Qualification
Forms are passed through the filter system, they are distributed to up to four
(4) Participating Lenders on a random basis. LendingTree warrants that its
system does not give preferential treatment to any Participating Lender.
5.3 Covenants.
(a) Continuing Obligations of Lender. Lender shall cooperate with
LendingTree in the performance of this Agreement until the termination hereof.
Lender shall not take any action or refrain from taking any action which would
jeopardize or compromise the performance of the Sites as contemplated herein or
which would hinder LendingTree in the performance of its services to the
Participating Lenders and to its customers. Lender shall promptly forward to
LendingTree all notices, claims, letters, documents and other information
received by Lender which are relevant to the performance of this Agreement.
Lender shall provide LendingTree with all information and documentation for
Lender Products which are necessary or relevant to the performance of the
transactions contemplated by this Agreement.
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(b) Accounting. LendingTree shall have the right from time to time, on
reasonable advance notice to Lender, during usual business hours, to carry out
an examination of Lender's books and records, including without limitation,
records and reports on prequalifications, applications, sales and/or closings
that are initiated through Sites and any other services provided through
LendingTree (the "Reports"), through its own personnel or through accountants or
other representatives selected by LendingTree for the purpose of verifying the
completeness and accuracy of the Reports. In the event that such examination
shall disclose that the Transmission Fees or CLO Fees payable to LendingTree for
any period were understated on the Reports issued by Lender with respect to such
period, Lender shall immediately pay the deficiency with interest at a rate of
one percent (1%) per month, and if the amount of the understatement exceeds ten
percent (10%) of the fees payable with respect to the period subject to such
examination, Lender shall reimburse LendingTree for its cost in conducting such
examination, including without limitation the fees and expenses of any
accountants retained by LendingTree to conduct such examination.
(c) Further Assurances. At any time, and from time to time after the
execution of this Agreement, upon the reasonable request of a party hereto, and
at the expense of such party, the other party shall do, execute, acknowledge and
deliver, and shall cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably required in order to enable the
parties to perform their respective obligations hereunder and carry out the
terms of this Agreement.
ARTICLE VI. LIMITATION ON LIABILITY; INDEMNIFICATION
Section 6.1. Indemnification for Actions Taken in Good Faith. Neither
LendingTree nor any directors, officers, employees or agents of LendingTree
(collectively, "LendingTree Indemnified Parties") shall be liable to Lender, any
directors, officers, employees or agents of Lender (collectively, "Lender
Indemnified Parties"), or any third party for, and Lender shall defend and
indemnify the LendingTree Indemnified Parties and hold each of them harmless
from and against, any action taken by the LendingTree Indemnified Parties, or
for their refraining from taking any action, in good faith reliance upon
information provided by Lender, pursuant to this Agreement; provided, however,
that this provision shall not protect any LendingTree Indemnified Party against,
and Lender shall not be obligated to indemnify or hold harmless any LendingTree
Indemnified Party from or against, any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence on the part of the
LendingTree Indemnified Parties in the performance of or failure to perform
LendingTree's obligations hereunder.
Section 6.2. General Indemnification by LendingTree. LendingTree shall defend
and indemnify the Lender Indemnified Parties and hold each of them harmless from
and against any and all claims, losses, damage, penalties, fines, forfeitures,
reasonable legal fees and expenses and related costs, expenses of litigation,
judgments, and any other costs, fees and expenses (each, a "Liability") that
were caused by or resulted from a breach of any of LendingTree's
representations, warranties, covenants and agreements contained in this
Agreement, the intellectual property developed and used by LendingTree, or by
LendingTree's negligence in the performance of or failure to perform its duties
as provided in this Agreement.
Section 6.3. General Indemnification by Lender. Lender shall defend and
indemnify the LendingTree Indemnified Parties and hold each of them harmless
from and against any and all Liabilities that were caused by or resulted from a
breach of any of Lender's representations, warranties, covenants and agreements
contained in this Agreement, the intellectual property developed and used by
Lender, by any of Lender's lending policies, practices, and procedures,
including the Criteria, or by Lender's negligence in the performance of or
failure to perform its duties as provided in this Agreement.
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Section 6.4 Survival of Indemnifications. Lender's and LendingTree's respective
obligations to indemnify any LendingTree Indemnified Party or any Lender
Indemnified Party will survive the expiration or termination of this Agreement
by either party for any reason.
Section 6.5 Notice of Claims. Each party shall promptly notify the other in
writing of any and all litigation and claims known to such party made against it
or the other party in connection with this Agreement. Each party shall cooperate
with the other in the defense or handling of any claim, action or investigation
relating to the subject matter of this Agreement, provided that such cooperation
shall not be deemed an acceptance of responsibility therefor, except as provided
below. Any request for indemnification under this paragraph shall be in writing
and shall state with particularity the specific facts supporting the request for
indemnification and a good faith estimate of the amount of the indemnification
requested. In the event responsibility for a request for indemnification
hereunder is unconditionally accepted in writing, the party accepting such
responsibility may, at its option, elect to take up the defense or handling of
any pending claim, action or investigation and, in such event, the party
requesting indemnification shall promptly relinquish control of such defense to
the accepting party. Unless and until a request for indemnification hereunder is
unconditionally accepted, the requesting party may retain control of the defense
or handling of the claim, action or investigation. The failure of a party to
accept a request for indemnification under this paragraph shall not be binding
upon the requesting party and such party's retention of the control of the
defense or handling of the claim, action or investigation shall not prejudice
its right to seek enforcement of this paragraph in court.
ARTICLE VII. TERM AND TERMINATION
Section 7.1 Initial Term. The initial term of this Agreement (the "Initial
Term") is twelve (12) months from February 17, 1999, which is the date Lending
Tree will begin forwarding Qualification Forms to Lender (the "Commencement
Date").
Section 7.2 Subsequent Terms. Following expiration of the Initial Term, this
Agreement shall continue in effect until either party terminates it as provided
below. The Initial Term and any subsequent terms are referred to herein as the
"Term."
Section 7.3 Termination. After the Initial Term, this Agreement may be
terminated at any time during the Term by either party giving thirty (30) days'
prior written notice to the other party. During the Initial Term, either party
may terminate this Agreement in the event that the other party breaches any
material covenant or representation or warranty of this Agreement, and such
breach continues thirty (30) days after notice of breach is given to such other
party.
Section 7.4 Effect of Termination. Following termination of this Agreement, if
any customer has initiated acquisition of a Lender Product through any Sites
prior to the termination date and Lender did not sell the Lender Product to the
customer, but Lender then sells the same type of product within six (6) months
after the termination date, Lender shall pay LendingTree compensation for such
Lender Product as provided in Exhibit A hereto. In addition to any other remedy
available at law or in equity, upon termination for breach, the non-breaching
party may seek indemnification as provided in this Agreement.
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VIII. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement or any
breach of this Agreement, including any controversy or claim as to its
arbitrability or rescission shall be finally settled by arbitration before two
arbitrators, one chosen by each party, with the commercial arbitration rules of
the American Arbitration Association in force at that time. Arbitration shall be
conducted in Charlotte, North Carolina, unless the parties mutually agree to
another location. Any judgment upon the award rendered by the arbitrators may be
entered in any court of competent jurisdiction in that locale. The arbitrators
shall not, under any circumstances, have any authority to award punitive or
exemplary damages.
IX. CHOICE OF LAW, JURISDICTION, VENUE AND ATTORNEYS' FEES
The parties agree that this Agreement shall be construed and controlled by the
laws of the State of North Carolina and the Rules of the American Arbitration
Association. Should a dispute arise under this contract, and should the
arbitration provisions herein become inapplicable, the parties agree that
jurisdiction over and venue of any suit arising out of related to this Agreement
shall be exclusively in the state and federal courts of Charlotte, North
Carolina.
If either party employs attorneys to enforce any right arising out of or
relating to this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees, in arbitration, litigation, or otherwise.
ARTICLE X. MISCELLANEOUS
Section 10.1 Notices. Any written notice required or permitted to be given to
the parties hereunder shall be addressed to the parties at the addresses first
set forth above. All written notices shall be delivered in person or shall be
sent by registered or certified mail, return receipt requested, and shall be
deemed effective, three (3) days after the same is mailed as provided above with
postage prepaid. Notice sent by any other method shall be effective only upon
actual receipt.
Section 10.2 Assignment. This Agreement shall not be assignable in whole or in
part by LendingTree or Lender without the other party's prior written consent,
and any attempted assignment without such consent shall be void. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns. A
change in control of either party, for example, by merger or sale of stock,
shall not be deemed to be an assignment under this Agreement.
Section 10.3 Waiver. No term or provision hereof will be deemed waived, and no
variation of terms or provisions hereof shall be deemed consented to, unless
such waiver or consent shall be in writing and signed by the party against whom
such waiver or consent is sought to be enforced. Any delay, waiver or omission
by LendingTree or Lender to exercise any right or power arising from any breach
or default of the other party in any of the terms, provisions or covenants of
this Agreement shall not be construed to be a waiver by LendingTree or Lender of
any subsequent breach or default of the same or other terms, provisions or
covenants on the part of either party.
Section 10.4 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto relating to the subject matter hereof, except where
expressly noted herein, and all prior negotiations, agreements and
understandings, whether oral or written, are superseded or canceled hereby.
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Section 10.5 Modification. This Agreement may not be amended or modified except
in a written document signed by both parties.
Section 10.6 Severability. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, this Agreement shall be construed as
if not containing that provision, and the rest of the Agreement shall remain in
full force and effect, and the rights and obligations of the parties hereto
shall be construed and enforced accordingly.
Section 10.7 Independent Contractor. LendingTree, in performance of this
Agreement, is acting as an independent contractor, is not the partner, joint
Venturer or agent of Lender and has no authority to act on behalf of Lender
except as provided in this Agreement. The parties shall each be responsible for
payment of their respective taxes and assessments incurred in connection with
performance of this Agreement.
Section 10.8 Confidentiality. Each party agrees to keep all information related
to the other party confidential, as provided in the Non-Disclosure Agreement.
Furthermore, both parties agree to comply with all state and federal laws
governing the confidentiality of consumer credit information, to maintain
confidentiality of this information, and to disclose such information only for a
permissible purpose related to the extension of credit. The provisions of the
Non-Disclosure Agreement shall survive termination of this Agreement for period
of three (3) years.
Section 10.9 Limitation on Liability of Officers, Directors, Members, Employees
and Agents. Neither party shall make any claim against the officers, directors,
members, employees or agents of the other party but instead shall look solely to
the assets of the other party for satisfaction of any liability of such party
under this Agreement.
Section 10.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed, sealed and delivered by its duly authorized officer as of the date first
written above.
LENDINGTREE, INC.
By /s/ DOUGLAS R. LEBDA (SEAL)
------------------------------
Name Douglas R. Lebda
----------------------------
Title Chief Executive Officer
---------------------------
LENDER:
By /s/ JAMEY HODGE (SEAL)
------------------------------
Name Jamey Hodge
----------------------------
Title President
---------------------------
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LENDINGTREE, INC.
STANDARD FORM OF RECIPROCAL NON-DISCLOSURE AGREEMENT
THIS RECIPROCAL NON-DISCLOSURE AGREEMENT ("the Agreement") is made
between LendingTree, Inc., a Delaware corporation, and Allied Mortgage Capital
Corporation, and entered into as of February 17, 1999.
In consideration of the mutual promises and covenants contained in this
Agreement and the mutual disclosure of confidential information to each other,
the parties hereto agree as follows:
1. CONFIDENTIAL INFORMATION AND CONFIDENTIAL MATERIALS.
"Confidential Information" means nonpublic information that Disclosing
Party designates as being confidential or which, under the
circumstances surrounding disclosure ought to be treated as
confidential. "Confidential Information" includes, without limitation
and without requiring any prior designation as confidential,
information relating to: released, unreleased or planned Disclosing
Party products, product specifications, services, and offerings,
including, but not limited to, the use or development of any software
system or credit scoring model; the plans or activities related to the
marketing or promotion of any Disclosing Party product, service, or
offering; Disclosing Party's business policies, practices, business
strategy and marketing plans; terms of closed loans, discoveries,
ideas, concepts, software in various stages of development, designs,
drawings, specifications, techniques, models, data, source code, object
code, documentation, diagrams, flow charts, research, development,
processes, procedures, "know-how," customer names and other information
related to customers, price lists, pricing policies and financial
information; and information received from others that Disclosing Party
is obligated to treat as confidential. Confidential Information
disclosed to Receiving Party by any Disclosing Party Subsidiary and/or
agents is covered by this Agreement.
Confidential Information shall not include any information that: (i) is
or subsequently becomes publicly available without Receiving Party
breach of any obligation owed Disclosing Party; (ii) became known to
Receiving Party prior to Disclosing Party's disclosure of such
information to Receiving Party; (iii) became known to Receiving Party
from a source other than Disclosing Party other than by the breach of
an obligation of confidentiality owed to Disclosing Party; or (iv) is
independently developed by Receiving Party.
"Confidential Materials" shall mean all tangible materials containing
Confidential Information, including, without limitation, written or
printed documents and computer disks or tapes, whether machine or user
readable.
2. RESTRICTIONS.
Outside the necessary use of this information within the scope of the
activities contemplated in connection with this Agreement and any other
agreement entered into between the parties, which agreement
specifically incorporates this Agreement by reference, Receiving Party
will not disclose, sell, distribute, make public, or otherwise use the
Confidential Information without the express written consent of
Disclosing Party, except that Receiving Party may disclose Confidential
Information to its consultants as provided below. Receiving Party may
also disclose Confidential Information in accordance with judicial or
other government order, provided Receiving Party shall give Disclosing
Party reasonable notice prior to such disclosure and shall comply with
any applicable protective order or equivalent.
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Receiving Party shall take reasonable security precautions (including
maintaining security protocols that are current and reasonable in the
industry to safeguard this information) at least as great as the
precautions it takes to protect its own confidential information, to
maintain the confidentiality of the Confidential Information. Receiving
Party may disclose Confidential Information or Confidential Material
only to Receiving Party's employees or consultants on a need-to-know
basis. Receiving Party will implement appropriate policies, procedures
and written agreements with its employees and consultants sufficient to
enable it to comply with all the provisions of this Agreement.
Confidential Information and Confidential Materials may be disclosed,
reproduced, summarized or distributed only in pursuance of Receiving
Party's business relationship with Disclosing Party, and only as
otherwise provided hereunder. Receiving Party agrees to segregate all
such Confidential Materials from the confidential materials of others
in order to prevent commingling.
Receiving Party may not reverse engineer, decompile or disassemble any
software disclosed to Receiving Party.
3. RIGHTS AND REMEDIES.
Receiving Party shall notify Disclosing Party immediately upon
discovery of any unauthorized disclosure, sale, distribution,
publication or use of Confidential Information and/or Confidential
Materials, or any other breach of this Agreement by Receiving Party,
and will cooperate with Disclosing Party in every reasonable way to
help Disclosing Party regain possession of the Confidential Information
and/or Confidential Materials and prevent its further authorized use.
Receiving Party shall return all originals, copies, reproductions and
summaries of Confidential Information or Confidential Materials within
sixty (60) days after Disclosing Party's request, or, at Disclosing
Party's option, certify destruction of the same.
Receiving Party acknowledges that monetary damages may not be a
sufficient remedy for unauthorized disclosure, sale, distribution,
publication or use of Confidential Information and that Disclosing
Party shall be entitled, without waiving any other rights or remedies,
to such injunctive or equitable relief as may be deemed proper by a
court of competent jurisdiction.
Disclosing Party may visit Receiving Party's premises, with reasonable
prior notice and during normal business hours, to review Receiving
Party's compliance with the terms of this Agreement.
4. MISCELLANEOUS.
All Confidential Information and Confidential Materials are and shall
remain the property of Disclosing Party. By disclosing information to
Receiving Party, Disclosing Party does not grant any express or implied
right to Receiving Party to or under Disclosing Party patents,
copyrights, trademarks, or trade information.
The terms of confidentiality under this Agreement shall not be
construed to limit either party's right to independently develop or
acquire products without the use of the party's Confidential
Information.
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. It shall not be modified
except by a written agreement dated subsequent to the date of the
Agreement and signed by both parties. None of the provisions of this
Agreement shall be deemed to have been waived by any act or
acquiescence on the part of Disclosing Party, its agents, or employees,
but only by an instrument in writing signed by an authorized officer of
the Disclosing Party. No waiver
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of any provision of this Agreement shall constitute a waiver of any
other provision(s) or of the same provision on another occasion.
If either party employs attorneys to enforce any right arising out of
or relating to this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees. This Agreement shall be
construed and controlled by the laws of the State of North Carolina.
Jurisdiction over and venue of any suit arising out of related to this
Agreement shall be exclusively in the state and federal courts of the
State of North Carolina.
Subject to the limitations set forth in this Agreement, this Agreement
will inure to the benefit of and be binding upon the parties, their
successors and assigns.
If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
All obligations created by this Agreement shall survive change or
termination of the parties' business relationship.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
LENDINGTREE, INC. LENDER
/s/ DOUGLAS R. LEBDA /s/ JAMEY HODGE
- ----------------------------------------- ----------------------------------
Douglas R. Lebda, Chief Executive Officer Jamey Hodge, President
February 25, 1999 February 17, 1999
- ----------------------------------------- ----------------------------------
Date Date
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EXHIBIT 10.6
INTUIT MORTGAGE MARKETSPACE AGREEMENT
This MORTGAGE MARKETSPACE AGREEMENT (the "Agreement") is entered into as of
February 13, 1998, (the "Effective Date") by and between INTUIT LENDER SERVICES,
INC., a Delaware corporation with its principal place of business at 2535 Garcia
Avenue, Mountain View, CA 94043 ("Intuit"), and ALLIED MORTGAGE CAPITAL
CORPORATION, a Texas corporation with its principal place of business at 10601
Grant Road, Suite 211, Houston, Texas 77070 ("Lender").
Recitals
A. Intuit is in the business of providing access to certain online
services, particularly in the area of financial services, through
various computer software programs, and is in the process of developing
websites and related software programs designed to assist prospective
borrowers in qualifying and applying for residential mortgage loans
through the website currently referred to as the "Intuit Mortgage
Marketspace" (or "Marketspace"); and
B. Lender is in the business of providing residential mortgage loans and
ancillary products and services to consumers; and
C. Intuit desires to offer to lenders and consumers the Intuit Mortgage
Marketspace online services, through which customers may pre-qualify
and/or apply for residential mortgage loans or other products offered by
Lender, and Lender wishes to make its residential mortgage loan services
and other products available to consumers through the Intuit Mortgage
Marketspace.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. LICENSES
1.1 Marketspace License. Intuit hereby grants to Lender, on the terms and
conditions set forth in this Agreement, the non-exclusive right and
license in the United States to participate in the Intuit Mortgage
Marketspace (the "Marketspace") for the Term, as defined in Section 7 of
this Agreement.
1.2 Trademark License. Each party shall grant the other party a license to
use certain of its Trademarks during the term of this Agreement as set
forth in the Trademark Terms Schedule, which is attached hereto as
Exhibit A and incorporated herein by reference. Lender shall use the
Intuit Marks in accordance with the Trademark Guidelines attached below
with Exhibit A and incorporated herein by reference.
1.3 Website License. In the event that Lender posts content to any of
Intuit's websites, including the Marketspace, Lender agrees to adhere to
the terms of the Website Terms Schedule, which is attached hereto as
Exhibit B and incorporated herein by reference.
2. INTUIT'S OBLIGATIONS
2.1 Creation of Intuit Mortgage Marketspace. The creation of the Marketspace
will enable consumers, including Intuit's customers, Lender's customers
and others with access to a personal computer and the World Wide Web,
through an interactive computerized loan origination system (CLO) and
other means, to gain access to the Intuit-hosted website, which will
contain general information relating to mortgages and mortgage-related
products for purposes of facilitating the consumer's selection of,
pre-qualification and/or application for a particular mortgage loan. The
Marketspace will also offer consumers general research and education
regarding mortgage loans.
2.2 Marketspace Services. In offering the Marketspace, Intuit will provide
the following services, in addition to any other services that may be
described elsewhere in this Agreement:
(a) Marketing Support. Using marketing materials to be created and
supplied by Lender, Intuit shall facilitate the creation of and publish
on the Marketspace up to three (3) marketing web pages advertising
Lender and the Lender Products, as defined in Section 3.3. Intuit will
facilitate the creation of these web pages by providing a template and
referring Lender to a third-party web production agency to actually
produce the
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web pages, at Lender's discretion. Lender shall not be obligated to use
the services of such agency and may choose its own production agency at
its discretion. The creation of such web pages will be at Intuit's
expense, except that if Lender chooses its own web production agency,
such cost will be the sole responsibility of Lender and Intuit will not
be responsible for any such fees. Lender will also have the option to
purchase advertising in selected areas of the Marketspace, at Intuit's
discretion and at prices to be determined by Intuit. Intuit and Lender
will cooperate with each other to develop joint promotions, press
releases, lead generation programs and advertisements, as and when
deemed by the parties to be mutually beneficial. Lender shall be solely
responsible for the content of any advertising published on the
Marketspace and shall indemnify Intuit for any liability relating to
such advertising in accordance with the provisions of the Website Terms
Schedule.
(b) Information Gathering Services. Intuit shall collect information
from its Marketspace customers to facilitate the sale of the Lender
Products, as defined below. In addition, Intuit or Technology Provider
may contract with one or more third party vendors (each, a "Vendor") to
validate certain collected customer data and/or obtain additional
customer data through the use of third party information services (e.g.,
credit reporting, online appraisal, or credit scoring services). The
Vendors will work either independently or in collaboration with Intuit
and may contract with either Intuit and/or Technology Provider. Each
Vendor will be chosen in consultation with Lender. Either Lender,
Intuit, or the consumer will be responsible for such fees associated
with Vendor service, as determined on a case by case basis.
(c) Maintenance, Management and Transfer of Information Through
Clearinghouse Network. Intuit will contract with an affiliated
technology provider ("Technology Provider"), who will collaborate with
Intuit to set up and maintain automated processes to provide mortgage
loan product and pricing information to the Clearinghouse Network, as
defined below. Lender shall be responsible for updating the information
provided to the Clearinghouse Network and the Marketspace, as more fully
described in Section 3.1, to ensure that at all times the Marketspace
has the most up-to-date information available.
(d) Pre-qualification and Application Services. Intuit will pre-qualify
prospective applicants and take applications for mortgage loans online.
Pre-qualifications and applications will be delivered to Lenders in one
of the following three forms: (i) Pre-qualifications; (ii) Initial
Applications; and (iii) Full Applications. (As of the date of this
Agreement, Release 1.0 of the Mortgage Marketspace software permits only
the pre-qualifying of prospective borrowers. It is anticipated that
future releases will include the ability for consumers to make loan
applications.)
(i) A Pre-qualification consists of borrower contact information
and loan selection information supplied to Lender after borrower
has pre-qualified for and selected a mortgage loan on the
Marketspace. Lender will be responsible for following up with
the customer to take additional information required to
constitute a loan application under Lender's usual loan
application guidelines.
(ii) An Initial Application consists of an abbreviated
application for a specific mortgage loan product, after the
borrower has pre-qualified for and selected a mortgage loan
product on the Marketspace, accompanied by payment of an
application, credit report, and/or appraisal fee to Lender, as
specified by Lender. The Initial Application will contain at
least the fields of data requested on the Fannie Mae streamline
loan application (which consists of 30-40 fields) but will
contain less information than a completed FNMA/FHLMC Form 1003
application, and Lender will be solely responsible for
collecting the remaining fields of data to constitute a complete
loan application under Lender's usual loan application
guidelines.
(iii) A Full Application consists of a completed FNMA/FHLMC Form
1003 application for a specific mortgage loan product, after the
customer has pre-qualified for and selected a mortgage loan
product on the Marketspace, accompanied by payment of an
application, credit report, and/or appraisal fee to Lender, as
specified by Lender.
All three services will be initiated on the Marketspace and information
related thereto will be transmitted to Lender through the Clearinghouse
Network.
(e) Transaction Processing Services. Intuit will make available to
Lender transaction processing services for collection of customer credit
card or similar payment information, and the implementation of other
payment procedures, to facilitate the application for and sale of Lender
Products.
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(f) Mortgage Counseling. Intuit will provide mortgage counseling and
information services to prospective borrowers via help screens, payment
calculators, comparative product descriptions, demonstrations of product
costs and similar information. Intuit will establish a customer service
call center for handling inquiries from prospective borrowers about the
home financing process or the products available in the Mortgage
Marketspace.
(g) Operation of Computerized Loan Origination System. Intuit will
establish and display a computerized loan origination (CLO) system
enabling prospective borrowers to learn about a variety of loan products
available from various lenders. The CLO will display, at a minimum, the
loan size, loan-to-value ratio, payment options, APR, and interest rate.
The information displayed in the CLO for Lender's products shall be
updated through the Clearinghouse Network as often as Lender's product
offerings are updated by Lender.
(h) Site Operations. Intuit shall provide site statistics and analysis
to Lender on a monthly basis, or more frequently as technology and time
permit, in the form of Intuit's standard reports. Such reports shall
include, but not be limited to, the total number of customers for Lender
Products in all three categories (Prequalification, Initial Application
and Full Application), and the total number of customers for all lenders
using the Marketspace (in the aggregate) for all categories. It is
Intuit's intent to develop a process for registering loan applicants in
the Clearinghouse Network to prevent multiple applications for the same
loan from any individual.
(i) Customer Service. Intuit shall also establish a telephone number and
e-mail address for the Marketspace to enable Intuit to handle agreed
upon customer service functions. Intuit will support a customer service
center with adequate customer service representatives ("CSR's") to
handle all phone calls and/or emails which are routed to Intuit through
an 800-number, email, or from lenders. Initially this center will be in
Fredericksburg, Virginia and will be open from 9 am - 8 pm ET, Monday -
Friday. Intuit will add more hours as necessitated by the volume of
phone calls and emails. Initially, Intuit will provide the following
services: (i) answer questions regarding the Marketspace common area
content and functionality, including navigation of the transaction
process and referral to Marketspace site information; (ii) provide a
general overview about Lender including restating Lender company
information available on the Marketspace, excluding Lender Products
information; (iii) provide problem resolution with Marketspace common
area content and functionality; (iv) if a prospective borrower requests
loan product advice or recommendations, provide the prospective borrower
with the telephone number of the lender's customer service center, or,
if no specific lender is mentioned, (a) forward the inquiry on a
non-discriminatory, rotational basis to all lenders, or (b) provide a
list of all lenders; (v) collect customer feedback on the Marketspace;
(vi) record customer contact information; and (vii) collect payment
information to facilitate the customer's online mortgage transaction.
Intuit will not answer inquiries regarding mortgage loan closings or
provide mortgage descriptions, explanations, advice, recommendations or
otherwise transact mortgages with customers; callers inquiring about
such matters will be directed to contact lenders' online information or
lenders' customer service centers.
(j) Additional Services. It is anticipated that in future releases of
the Marketspace, if such processes can be automated, Intuit will work
with Technology Provider to add to the Clearinghouse Network the
functionality to order appraisals, verifications of employment and prior
mortgages, order flood certifications, loan documents and other
documentation relevant to the prospective borrower's credit application,
and perform additional loan origination and processing services on
behalf of Lender.
(k) Site Development. Intuit will provide Lender with several
Marketspace site prototypes over the course of the Marketspace release
2.0 development period (the date of this Agreement through the end of
March 1998) to gather feedback and input from Lender on product
improvement. Intuit will continue to provide site prototypes to Lender
for review and feedback for future releases. However, Intuit will have
sole editorial and development control over the Marketspace and future
releases.
(l) Regulatory Compliance. Intuit will comply with all applicable
regulatory requirements of the United States or any state with respect
to its services to be provided under this Agreement. Intuit shall
maintain any and all government approvals, licenses or authorizations
required by the laws of the United States or any state to engage in the
activities described in the Agreement.
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3. LENDER'S OBLIGATIONS
3.1 Marketspace Participation. In tandem with Intuit's development of the
Marketspace, Intuit intends to enter into an agreement with Technology
Provider to make available a clearinghouse network (the "Clearinghouse
Network") which a lender must join in order for Intuit to provide the
Pre-qualifications, Initial Applications and Full Applications
which are initiated on the Marketspace and transmitted to Lender through
the Clearinghouse Network.
3.2 Technology Provider License and Requirements. Intuit intends to contract
with Technology Provider to have Technology Provider license aspects of
the Clearinghouse Network to the lenders in order to provide the
intended functionality of the Marketspace. Under such arrangement, the
lenders participating in Marketspace will be required to connect to the
Clearinghouse Network and execute Technology Provider's standard
clearinghouse license agreement ("License'). The License requires, among
other things, (i) installing the Technology Provider's back-office
software at Lender's facility; (ii) transmitting product and pricing
information to Technology Provider as frequently as necessary in order
to ensure that up-to-date information is posted on the Marketspace at
all times; (iii) providing Technology Provider with a copy of Lender's
product guidelines and closing costs that correspond with the Lender
Products; (iv) upload into the Clearinghouse Network a status report of
all Pre-qualifications and Applications at the end of each business day,
or more frequently, if possible, and such status report shall be the
most detailed status report available through the Technology Provider;
and (v) download all Pre-qualifications and/or Applications from the
Clearinghouse Network as frequently as necessary to promptly respond to
customers, but at a minimum download of every thirty (30) minutes during
Lender's hours of operation.
3.3 Lender's Products or Services. Lender shall provide via the Marketspace
detailed product and pricing information for the mortgage loan products
and services ("Lender Products") listed on Exhibit C to this Agreement.
The mortgage loan products listed on Exhibit C are the minimum number of
loan products required to be offered by Lender on the Marketspace as of
the date the Marketspace is accessible to consumers. The loan products
listed on Exhibit C may be changed or updated by Lender from time to
time through the Clearinghouse Network.
3.4 Other Lender Obligations. As a participant in the Marketspace, Lender
shall provide the following services, in addition to any other services
that may be described elsewhere in this Agreement:
(a) Create and submit up to three (3) web pages to be published
on the Marketspace. Intuit will supply a template for these web
pages, but the content is solely the responsibility of Lender.
(b) Facilitate and support the generation of accurate, real-time
rate information, as well as specific information about all
costs (e.g., closing costs, processing fees) that consumer may
be asked to bear in the course of obtaining a particular Lender
Product.
(c) Support the upload and download of rate, product and pricing
and consumer information to and from the Clearinghouse Network,
as set forth in Section 3.2.
(d) Provide a unique toll-free telephone number and e-mail
address for customer inquiries and equip a reasonable number of
customer service representatives with Internet e-mail access and
access to customer information being transmitted from the
Clearinghouse Network.
(e) Cooperate with Intuit and Technology Provider in
establishing effective customer communication transfer
procedures and follow-up mechanism, as referred to in the
implementation guideline that has been provided to Lender and
may be periodically updated by Intuit and respond to Marketspace
customers within 24 hours if the communication is on a weekday
or on Monday if the communication is on the weekend.
(f) Track all Pre-qualifications and Applications routed to
Lender through Intuit, Technology Provider or Lender's unique
Marketspace toll-free number, e-mail address or any Lender
branches. Lender will report such information to Intuit on a
monthly basis. In addition, Lender agrees to use commercially
reasonable efforts to track and report to Intuit all
Pre-qualifications and Applications which originate on Intuit's
Marketspace but which are transmitted to Lender directly by the
borrower either through Lender's branches, e-mail or toll-free
numbers.
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(g) Promptly review for accuracy and completeness all information, site
screens and processing and analytical mechanisms submitted to it for
review by Intuit, as they relate to Lender Products and services and
promptly report back any necessary corrections and/or modifications to
the appropriate party, according to the review and approval procedures
set forth below in Trademark Terms.
(h) Comply with all applicable regulatory requirements with respect to
Lender Products on the Marketspace, including, without limitation,
federal laws and regulations, such as the Truth-in-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, all
state laws and regulations, and all other required disclosures, notices
and forms. Any disclosures required by law or regulation will be made by
Lender in Lender's regular course of business or through the
Clearinghouse Network. If such disclosures are made through the
Clearinghouse Network in future releases, such disclosures will need to
be uploaded into the Clearinghouse Network before they will be available
to consumers on the Marketspace.
(i) Lender shall maintain at all times any and all necessary government
approvals, licenses and authorizations to offer Lender Products.
(j) Use best efforts to commit that Lender will not undercut pricing
provided to Marketspace customers if the customer has first
Pre-qualified with Lender on the Marketspace and subsequently completes
the mortgage loan application directly with Lender (through Lender's
telemarketing operations, web site, branches or other means).
(k) Provide pricing and services to the Marketspace that are at least as
competitive as the pricing and services provided for Lender Products in
other multi-lender channels or on the Internet, and in any event such
pricing shall not be in excess of the rates published in Lender's rate
sheets.
4. FEES FOR PARTICIPATION IN MARKETSPACE
Federal and State Law. The fee structure set forth in Exhibit D reflects
the intent of the parties but is subject to change, by mutual agreement
of the parties, to comply with applicable United States federal and
state laws and regulations.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 Representations and Warranties of Both Parties. Intuit and Lender each
represents and warrants that: as follows:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation with full
corporate power and authority to transact any and all business
contemplated by this Agreement and possesses all requisite authority,
power, and material licenses, permits and franchises to conduct its
business and to execute, deliver and comply with its obligations under
the terms of this Agreement and it has taken all necessary action to
authorize its execution, delivery and performance of this Agreement;
(b) the execution and delivery of this Agreement and the performance of
its obligations hereunder will not (i) conflict with or violate (A) its
Certificate of Incorporation or By-laws, or (B) any provision of any law
or regulation or any decree, demand or order to which it is subject, or
(ii) conflict with or result in a breach of or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute
a default) under any of the terms, conditions or provisions of any
agreement or instrument to which it is a party or by which it is bound
or any order or decree applicable to it or result in the creation or
imposition of any lien on any of its assets or property;
(c) no consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by it of or compliance by it with this Agreement, or if
required, such approval has been obtained prior to the date of this
Agreement;
(d) there is no claim, action, suit, proceeding or investigation
pending or, to the best of its knowledge, threatened against it 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 it, or in any material impairment of
the right or ability of it to carry on its business substantially as now
conducted, or in any material liability on the part of it, or which
would draw into question the validity of this Agreement or any of the
other instruments, documents or agreements entered into by it in
connection with this Agreement, or of any action
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taken or to be taken in connection with the obligations of it
contemplated therein, or which would be likely to impair materially the
ability of it to perform under the terms of this Agreement;
(e) this Agreement, assuming due authorization, execution and delivery
hereof by the other party, and all the obligations of it hereunder,
constitute the valid and binding obligations of it, enforceable against
it in accordance with the terms hereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights in
general and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law.
5.2 Representations and Warranties of Lender. Lender represents and warrants
as follows:
(a) Compliance With Laws. Lender has complied and will continue to
comply with all applicable federal and state laws and regulations in its
business operations.
(b) Ability to Perform. Lender is solvent and it has the financial
resources necessary to perform its obligations under this Agreement,
including, without limitation, its obligations to pay Intuit's fees in
accordance with this Agreement and to fulfill its indemnification
obligations hereunder.
(c) Licenses and Consents. Lender has obtained all necessary or required
governmental licenses and consents to the transactions contemplated by
this Agreement.
5.3 Representations and Warranties of Intuit. Intuit represents and warrants
as follows:
(a) Licenses and Consents. Intuit, in connection with performance of its
duties under this agreement, has obtained or will obtain all reasonably
necessary or required governmental licenses and consents requisite for
the transactions contemplated by this Agreement prior to offering
pre-qualification loan origination services in a particular state. No
consent, approval, authorization or order of any court or governmental
agency or body is required for the execution, delivery and performance
by Intuit of or compliance by Intuit with this Agreement, or if
required, such approval has been obtained prior to the date of this
Agreement.
(b) Ownership of Marketspace. Intuit is the sole owner or licensee of
all right, title and interest in and to the Intuit Mortgage Marketspace.
5.4 Covenants.
(a) Compliance with Laws. Lender and Intuit covenant to each other that
they will comply with all applicable federal and state laws and
regulations in performing their respective obligations under this
Agreement.
(b) Continuing Obligations of Lender. Lender shall cooperate with Intuit
in the performance of this Agreement until the termination hereof.
Lender shall not take any action or refrain from taking any action which
would jeopardize or compromise the performance of the Marketspace as
contemplated herein or which would hinder Intuit in the performance of
its services to lenders or consumers. Lender shall promptly forward to
Intuit all notices, claims, letters, documents and other information
received by Lender which are relevant to the performance of this
Agreement. Lender shall provide Intuit with all information and
documentation for Lender Products which are necessary or relevant to the
performance of the transactions contemplated by this Agreement and to
the performance of Intuit's obligations under this Agreement.
(c) Lender's Books and Records. Lender shall make and retain all
material books and records pertaining to services received from Intuit,
including without limitation, records and reports on Pre-qualifications,
Initial Applications and Full Applications that are initiated through
the Marketspace and any other services provided by Intuit, available for
inspection at Lender's offices upon five (5) days' prior notice by
Intuit.
(d) Further Assurances. At any time, and from time to time after the
execution of this Agreement, upon the reasonable request of a party
hereto, and at the expense of the requesting party, the other party
shall do, execute, acknowledge and deliver, and shall cause to be done,
executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances
as may be reasonably required in order to enable the parties to perform
their respective obligations hereunder and carry out the terms of this
Agreement.
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6. LIMITATION OF LIABILITY; INDEMNIFICATION; REMEDIES; DAMAGES
6.1 Indemnification for Actions Taken in Good Faith. Neither Intuit nor any
directors, officers, employees or agents of Intuit (collectively,
"Intuit Indemnified Parties") shall be liable to Lender, any directors,
officers, employees or agents of Lender (collectively, "Lender
Indemnified Parties"), or any third party for, and Lender shall
indemnify the Intuit Indemnified Parties and hold each of them harmless
from and against, any action taken by the Intuit Indemnified Parties, or
for their refraining from taking any action, in good faith reliance upon
information provided by Lender to Intuit or to any third party for
delivery to Intuit pursuant to this Agreement; provided, however, that
this provision shall not protect any Intuit Indemnified Party against,
and Lender shall not be obligated to indemnify or hold harmless any
Intuit Indemnified Party from or against, any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of or failure to perform Intuit's
obligations hereunder.
6.2 General Indemnification by Intuit. Intuit shall indemnify the Lender
Indemnified Parties and hold each of them harmless from and against any
and all claims, losses, damage, penalties, fines, forfeitures,
reasonable legal fees and expenses and related costs, expenses of
litigation, judgments, and any other costs, fees and expenses (each, a
"Liability") to the extent that such Liability was caused by or resulted
from an Intuit breach of any of it's representations, warranties,
covenants and agreements contained in this Agreement or by Intuit's
willful misfeasance, bad faith or negligence in the performance of or
failure to perform as provided in this Agreement.
6.3 General Indemnification by Lender. Lender shall indemnify the Intuit
Indemnified Parties and hold each of them harmless from and against any
and all Liabilities that were caused by or resulted from a breach of any
of Lender's representations, warranties, covenants and agreements
contained in this Agreement or by the willful misfeasance, bad faith or
negligence in the performance of or failure to perform as provided in
this Agreement.
6.4 Notice of Claims. Each party shall promptly notify the other in writing
of any and all litigation and claims known to such party made against it
or the other party in connection with this Agreement.
6.5 Trademark Indemnification. All indemnification issues related to
trademark infringement and indemnification therefor are set forth in
Section 7 of the Trademark Terms Schedule attached hereto as Exhibit A.
6.6 Remedies. In the event that either party shall be in default of its
obligations hereunder, the other party may proceed to protect and
enforce its rights by a suit in equity, action at law or other
appropriate proceeding, whether for the specific performance of any
obligation contained herein or for an injunction against the violation
of any of the terms and provisions hereof, or in aid or exercise of any
power granted hereby or by law and such party may exercise any other
right or remedy available to it under applicable law.
6.7 Consequential Damages. Limitation of Liability. NOTWITHSTANDING ANYTHING
TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY SHALL HAVE ANY
LIABILITY TO THE OTHER PARTY FOR ANY LOST PROFITS, LOST SAVINGS, LOSS OF
USE, LOSS OF DATA, OR FOR ANY INDIRECT, SPECIAL, PUNITIVE OR
CONSEQUENTIAL DAMAGES ARISING FROM SUCH PARTY'S PERFORMANCE OR LACK OF
PERFORMANCE HEREUNDER EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. INTUIT'S MAXIMUM AGGREGATE LIABILITY UNDER THIS AGREEMENT,
REGARDLESS OF THE FORM OF ACTION, SHALL BE LIMITED TO THE AGGREGATE
AMOUNT OF MONEY PAID TO INTUIT BY LENDER DURING THE THEN CURRENT TERM.
7. TERM AND TERMINATION
7.1 Initial Term. This Agreement shall remain in effect until the end of two
(2) years from the Effective Date (the "Initial Term").
7.2 Term. Upon expiration of the Initial Term, unless terminated as provided
in Section 7.3, this Agreement shall automatically renew for additional
periods of one (1) year each. The Initial Term, or such renewal periods,
shall be referred to herein as the "Term."
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7.3 Termination at End of Period. This Agreement may be terminated by either
party after the end of the Initial Term by providing written notice of
termination at least ninety (90) days prior to the desired termination
date.
7.4 Termination upon Default. The breach by either party of a material term
or condition of this Agreement shall constitute an event of default
("Event of Default"). If such Event of Default is not cured by the
defaulting party within thirty (30) days after written notification of
the defaulting party describing the Event of Default, then the
non-defaulting party shall be entitled, at its sole election, to
terminate this Agreement.
7.5 Termination by Reason of Bankruptcy. In the event of the occurrence of
any of the following events, this Agreement shall be terminated
immediately:
(a) the commencement of any bankruptcy, insolvency, reorganization,
dissolution, liquidation of debt, receivership or conservatorship
proceeding or other similar proceeding under federal or state
bankruptcy, debtors relief, bank regulatory or other law by or against
either party; or
(b) the appointment of a receiver, conservator, trustee or similar
officer to take charge of, a substantial part of the property of either
party.
7.6 Termination by Intuit. This Agreement may be terminated by Intuit
immediately upon providing notice to Lender if Intuit discovers that
regulatory and/or legal changes prohibit the establishment of the
relationship between Intuit and Lender for operation of the Marketspace
as contemplated in this Agreement.
7.7 Payments. Upon any termination pursuant to this Section 7, the Lender
shall have no right to a refund of any amounts paid to Intuit, except
that if Intuit terminates this Agreement under Section 7.6, Intuit shall
refund any prepaid Participation Fee for the then current term on a
pro-rata basis. Such refund shall be the sole remedy for termination
under Section 7.6.
7.8 Survival of Certain Obligation. Expiration or earlier termination of
this Agreement for any reason shall not terminate the indemnification
obligations described in Section 6 hereof which shall be deemed
continuing obligations of the parties.
7.9 Consequences of Termination. Upon termination of this Agreement for any
reason, each party will promptly return to the other party, and will not
take or use, all items of any nature that belong to the other party and
all records (in any form, format, or medium) containing or relating to
the Confidential Information as defined below, of the other party. All
consequences for termination which relate to trademark usage are set
forth in Section 5 of the Trademark Terms Schedule. Additional
consequences for termination of the Website are set forth in Section 4
of the Website Terms Schedule.
7.10 Survival of Lender's Obligations. Lender's obligation to pay
pre-qualification or loan origination fees to Intuit shall continue
after expiration or earlier termination of this Agreement with respect
to any Pre-qualification, Initial Application or Full Application
transmitted to Lender by Intuit prior to the expiration or termination
date.
8. RECORDS, REPORTS and AUDITS
8.1 Inspection and Audits. Lender shall make and maintain until the
expiration of twenty five (25) months, unless a longer time period is
required by law or regulation, after the last payment under this
Agreement is due, (i) complete books, records and accounts regarding all
Marketspace customers and their Pre-qualification and/or Application for
Lender Products; and (ii) a calculation of the payments due to Intuit
hereunder. Intuit shall have the right to have an independent certified
public accountant of its choice, not more than once each year, examine
such books, records and accounts at a mutually acceptable time, as set
forth in Section 5.4(c) during Lender's normal business hours to verify
the accuracy of all Lender payments made to Intuit under this Agreement.
The right of inspection and audit shall only extend so far as may be
necessary to ensure compliance by Lender with the terms of the
Agreement.
8.2 Examination. If any such examination discloses any shortfall in payment
to Intuit of less than five percent (5%), then such examination and
audit shall be at Intuit's sole expense, but if any such examination
discloses any shortfall in payment to Intuit of five percent (5%) or
more for any quarter, Lender agrees to immediately remit payment to
Intuit for the full amount of any disclosed shortfalls and for all
reasonable expenses for such
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examination as determined in good faith by Intuit provided a statement
for the expenses of the examination is presented to Lender at the
completion of the examination.
8.3 Payments and Reports. Within thirty (30) days of the end of each month
during the Term of this Agreement, Lender shall provide Intuit with a
report, in the form requested by Intuit, specifying at a minimum, the
total number of Pre-Qualifications, Initial Applications, Full
Applications and actual closings of any Marketspace originated loans
during the preceding calendar month. In conjunction with any such
statement, Lender shall remit to Intuit all payments determined to be
due as a result of such reported information.
9. CONFIDENTIALITY
9.1 Confidential Information. "Confidential Information" of each party
refers to: (i) the prototypes, beta versions, advance releases, any
source code, and any related documentation or technical or design
information related to the Marketspace; (ii) the business or technical
information of Intuit or Lender, respectively, including but not limited
to any information relating to product plans, designs, costs, product
prices and names, finances, marketing plans, business opportunities,
personnel, research, development or know-how; (iii) any other
information designated as "confidential" or "proprietary" or which,
under the circumstances taken as a whole, would reasonably be deemed to
be confidential; and (iv) the terms and conditions of this Agreement.
9.2 Exclusions of Confidential Information. "Confidential Information" will
not include information that: (i) is or becomes generally known or
available by publication, commercial use or otherwise through no fault
of the receiving party; (ii) is known to the receiving party at the time
of disclosure without violation of any confidentiality restriction and
without any restriction on the receiving party's further use or
disclosure; or (iii) is documented as having been independently
developed by the receiving party.
9.3 Use and Disclosure Restrictions. Each party will during the term of this
Agreement and for a period of two (2) years after termination or
expiration of this Agreement refrain from using the other party's
Confidential Information except as contemplated herein, and from
disclosing such Confidential Information to any third party except to
employees as is reasonably required in connection with the exercise of
its rights and obligations under this Agreement (and only subject to
binding use and disclosure restrictions at least as protective as those
set forth herein executed in writing by such employees). However, either
party may disclose Confidential Information of the other party: (i)
pursuant to the order or requirement of a court, administrative agency,
or other governmental body, provided that the disclosing party gives
reasonable notice to the other party in time to permit the other party
to contest such order or requirement; and (ii) on a confidential basis
to legal or financial advisors.
10. MISCELLANEOUS
10.1 Notices. Any written notice required or permitted to be given to the
parties hereunder shall be addressed as follows:
If to Intuit: Intuit Lender Services, Inc.
2535 Garcia Ave.
Mountain View, CA 94043
Attn: Mortgage Marketspace Product Manager
with a copy to: Attn: General Counsel
If to Lender: Allied Mortgage Capital Corporation
10601 Grant Road, Suite 211
Houston, Texas 77070
Attn: Legal Department
All written notices shall be delivered in person or shall be sent by
registered or certified mail, return receipt requested, and shall be
deemed effective, three days after the same is mailed as provided above
with postage prepaid. Notice sent by any other method shall be effective
only upon actual receipt.
10.2 Assignment; Contracting. Neither party may assign its rights or
obligations hereunder, by operation of law or otherwise, without the
express written consent of the other, except that (i) either party may
assign any of its
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obligations or rights, in whole or in part, to any parent, affiliate or
subsidiary of such party, and (ii) the acquisition of all or
substantially all of the voting securities of a party by merger or
otherwise, shall not constitute an assignment of its rights or
obligations hereunder. Any attempted assignment in violation of the
foregoing will be void. Subject to the foregoing, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
10.3 Waiver. No term or provision hereof will be deemed waived, and no
variation of terms or provisions hereof shall be deemed consented to,
unless such waiver or consent shall be in writing and signed by the
party against whom such waiver or consent is sought to be enforced. Any
delay, waiver or omission by Intuit or Lender to exercise any right or
power arising from any breach or default of the other party in any of
the terms, provisions or covenants of this Agreement shall not be
construed to be a waiver by Intuit or Lender of any subsequent breach or
default of the same or other terms, provisions or covenants on the part
of either party.
10.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California without respect to its conflicts
of law principles.
10.5 Entire Agreement This Agreement constitutes the entire agreement between
the parties hereto relating to the subject matter hereof, except where
expressly noted herein, and all prior negotiations, agreements and
understandings, whether oral or written, are superseded or canceled
hereby.
10.6 Modification This Agreement may not be amended or modified except in a
written document signed by both parties.
10.7 Severability, If any provision of this Agreement is declared or found to
be illegal, unenforceable or void, this Agreement shall be construed as
if not containing that provision, and the rest of the Agreement shall
remain in full force and effect, and the rights and obligations of the
parties hereto shall be construed and enforced accordingly.
10.8 Technology Provider License. Simultaneously with the execution of this
Agreement, Lender shall execute and deliver to Intuit the Technology
Provider License Agreement.
10.9 Independent Contractor. Intuit, in performance of this Agreement, is
acting as an independent contractor and is not the partner joint
venturer or agent of Lender.
10.10 Headings. The headings appearing at the beginning of the several
sections contained herein have been inserted for identification and
reference purposes and shall not be used to determine the construction
or interpretation of this Agreement.
10.11 Execution in Counterparts. This Agreement maybe executed in counterpart
copies, all of which when taken together shall be deemed to constitute
one and the same original instrument.
10.12 Agreement Nonexclusive. Lender and Intuit each shall have the right to
enter into agreements similar to this Agreement with other lenders or
computer software providers without the consent of the other.
10.13 Force Majeure. Neither party shall be liable for failure to perform any
of its obligations under this Agreement except the obligation to pay
money, during any period in which such performance is delayed by (a)
war, civil commotion and riots, fires, flood, strikes, or work stoppage;
(b) requirements or acts of any governmental authority or agency or
subdivision thereof; or (c) acts of God; provided, however, that the
non-performing party shall notify the other promptly of the delay and
shall use its best efforts to resume performance as soon as reasonably
possible.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed
and delivered by its duly authorized officer.
<TABLE>
<S> <C>
INTUIT LENDER SERVICES, INC. LENDER
By: /s/ CARL REESE By: /s/ JAMEY HODGE
--------------------------------- -------------------------------------
Name: Carl Reese Name: Jamey Hodge
------------------------------- -----------------------------------
Title: President, ILSI Title: President
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LIST OF EXHIBITS
A. Trademark Terms Schedule
B. Website Terms Schedule
C. Lender's List of Mortgage Products
D. Pricing
11
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EXHIBIT 10.7
[TAR LOGO] [REALTOR LOGO]
TEXAS ASSOCIATION OF REALTORS(R)
COMMERCIAL LEASE
This lease agreement is made and entered into by and between Mercantile
Investment Corp. (Landlord) and Allied Mortgage Capital Corporation (Tenant).
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that
certain property with the improvements thereon, containing approximately 10,000
square feet, hereinafter called the "leased premises", known as 6110 Pinemont,
Suite 215, Houston, Texas 77092 (Address), Lot _________, Block _____________,
___________________ Addition, City of Houston, Harris County, Texas; or as more
particularly described below or on attached exhibit:
The primary term of this lease shall be one year commencing on the 1st day
of June, 1999, and ending at 11:59 p.m. on the 31st day of May, 2000, upon the
following terms, conditions, and covenants:
1. TAXES. Each year during the term of this lease, Landlord shall pay real
estate taxes assessed against the leased premises in an amount equal to the
total real estate taxes assessed against the leased premises in the base year.
Each year during the term of this lease, Tenant shall pay as additional rental,
upon receipt of a statement from Landlord together with tax statements or other
verification from the proper taxing authority, his pro rata share of any
increase in real estate taxes over the base year on the property of which the
leased premises is a part. Any increase in real estate taxes for a fractional
year shall be prorated. The based year shall be 10%.
2. UTILITIES. Tenant shall pay all charges for utility services to the leased
premises except for electricity & water which shall be paid by the Landlord.
3. HOLDING OVER. Failure of Tenant to surrender the leased premises at the
expiration of the lease constitutes a holding over which shall be construed as a
tenancy from month to month at a rental of $______________ per month.
4. RENT. Tenant agrees to and shall pay Landlord at 6110 Pinemont, Suite 214,
Harris, County of Houston, Texas, or at such other place Landlord shall
designate from time to time in writing, as rent for the leased premises, the
total sum of $120,000.00, payable without demand in equal monthly payments of
$10,000.00, each in advance on or before the 5th day of each month, commencing
on June 1, 1999, and continuing thereafter until the total sum shall be paid.
Adjustment to the rent, if any, for rent escalators, for percentage of net rent,
or for increases in building operation costs (including but not limited to
insurance, custodial services, maintenance and utilities) shall be as set forth
in an attached addendum. Rent received after the first day of the month shall be
deemed delinquent. If rent is not received by Landlord by the 5th of each month,
Tenant shall pay a late charge of $25.00 plus a penalty of $5.00 per day until
rent is received in full. Tenant shall pay $25.00 for each returned check.
5. USE. Tenant shall use the leased premises for the following purpose and
no other: Office Space
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------.
6. SECURITY DEPOSIT. Tenant shall pay to Landlord a security deposit in the
sum of $10,000.00, payable on or before the commencement of this lease for
Tenant's faithful performance hereunder. Refund thereof shall be made upon
performance of this lease agreement by Tenant, minus any assessments or damages
unless Landlord and Tenant provide otherwise in Special Provisions.
7. INSURANCE. Mercantile Investment Corp. shall pay for fire and extended
coverage insurance on the buildings and other improvements on the leased
premises in an amount not less than $400,000.00, which amount shall be increased
yearly in proportion to the increase in market value of the premises. If
Landlord provides any insurance herein, Tenant shall pay to Landlord, during the
term hereof, the amount of any increase in premiums for the insurance required
over and above such premiums paid during the first year of this Lease. Tenant
shall provided public liability and property damage insurance for its business
operations on the leased premises in the amount of $100,000.00, which policy
shall cover the Landlord as well as the Tenant. Said insurance policies required
to be provided by Tenant herein shall name Landlord as an insured and shall by
an insurance company approved by Landlord. Tenant shall provide Landlord with
certificates of insurance evidencing the coverage required herein. Tenant shall
be solely responsible for fire and casualty insurance on Tenant's property on or
about the leased premises. If Tenant does not maintain such insurance in full
force and effect, Landlord may notify Tenant of such failure and if Tenant does
not deliver to Landlord within 15 days after such notice certification showing
all such insurance to be in full force and effect, Landlord may at his option,
take out the necessary insurance to comply with the provision hereof and pay the
premiums on the items specified in such notice, and Tenant covenants thereupon
on demand to reimburse and pay Landlord any amount so paid or expended in the
payment of the insurance premiums required hereby and specified in the notice,
with interest at the rate of 10% percent per annum from the date of such payment
by Landlord until repaid by Tenant.
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8. CONDITION OF PREMISES. Tenant has examined and accepts the leased premises
in its present condition as suitable for the purposes for which the same are
leased, and does hereby accept the leased premises regardless of reasonable
deterioration between the date of this lease and the date tenant begins
occupying the leased premises, unless Landlord and Tenant agree to repairs or
refurbishment as noted in Special Provisions.
9. MAINTENANCE AND REPAIRS. Landlord shall keep the foundation, the exterior
walls (except glass; windows; doors; door closure devices; window and door
frames, molding, and hardware; and interior painting or other treatment of
exterior walls), and the roof of the leased premises in good repair except that
the Landlord shall not be required to make any repairs occasioned by the act or
negligence of Tenant, its employees, subtenants, licensees, and concessionaires.
Mercantile Investment Corp. is responsible for the maintenance of the common
area and common area equipment. If Landlord is responsible for any such repair
and maintenance, Tenant agrees to give Landlord written notice of needed
repairs. Landlord shall make such repairs within a reasonable time. Tenant shall
notify Landlord immediately of any emergency repairs. Tenant shall keep the
leased premises in good, clean condition and shall at its sole cost and expense,
make all needed repairs and replacements, including replacement of cracked or
broken glass, except for repairs and replacements required to be made by
Landlord under this section. If any repairs required to be made by Tenant
hereunder are not made within ten (10) days after written notice delivered to
Tenant by Landlord, Landlord may at its option make such repairs without
liability to Tenant for any loss or damage which may result by reason of such
repairs, and Tenant shall pay to Landlord upon demand as additional rent
hereunder the cost of such repairs plus interest. At the termination of this
lease, Tenant shall deliver the leased premises in good order and condition,
normal wear and tear excepted. Normal wear and tear means deterioration which
occurs without negligence, carelessness, accident or abuse.
10. ALTERATIONS. All alterations, additions and improvements, except trade
fixtures, installed at expense of Tenant, shall become the property of Landlord
and shall remain upon and be surrendered with the leased premises as a part of
thereof on the termination of this lease. Such alterations, additions, and
improvements may only be made with the prior written consent of Landlord, which
consent shall not be unreasonably withheld. If consent is granted for the making
of improvements or alterations to the leased premises, such improvements and
alterations shall not commence until Tenant has furnished to Landlord a
certificate of insurance showing coverage in an amount satisfactory to Landlord
protecting Landlord from liability for injury to any person and damage to any
personal property, on or off the leased premises, in connection with the making
of such improvements or alterations. No cooling tower, equipment, or structure
of any kind shall be placed on the roof or elsewhere on the leased premises by
Tenant without prior written permission of Landlord. If such permission is
granted, such work or installation shall be done at Tenant's expense and in such
a manner that the roof shall not be damaged thereby. If it becomes necessary to
remove such cooling tower, equipment or structure temporarily, so that repairs
to the roof can be made, Tenant shall promptly remove and reinstall the cooling
tower, equipment or structure at Tenant's expense and repair at Tenant's expense
any damage resulting from such removal or reinstallation. Upon termination of
this lease, Tenant shall remove or cause to be removed from the roof any such
cooling tower, equipment or structure if directed to do so by Landlord. Tenant
shall promptly repair at its expense any damages resulting from such removal. At
the termination of this lease, Tenant shall deliver the leased premises in good
order and condition, natural deterioration only excepted. Any damage caused by
the installation or removal of trade fixtures shall be repaired at Tenant's
expense prior to the expiration of the lease term. All alterations,
improvements, additions, and repairs made by Tenant shall be made in good and
workmanlike manner.
11. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant shall, at its own expense,
comply with all laws, orders, and requirements of all governmental entities with
reference to the use and occupancy of the leased premises. Tenant and Tenant's
agents, employees and invitees shall fully comply with any rules and regulations
governing the use of the building or other improvements to the leased premises
as required by Landlord. Landlord may make reasonable changes in such rules and
regulations from time to time as deemed advisable for the safety, care and
cleanliness of the leased premises, provided same are in writing and are not in
conflict with this lease.
12. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this lease nor sublet
the leased premises or any interest therein without first obtaining the written
consent of Landlord. An assignment or subletting without the written consent of
Landlord shall be void and shall, at the option of Landlord, terminate this
lease.
13. DESTRUCTION. In the event the leased premises is partially damaged or
destroyed or rendered partially unfit for occupancy by fire or other casualty,
Tenant shall give immediate notice to Landlord. Landlord may repair the damage
and restore the leased premises to substantially the same condition as
immediately prior to the occurrence of the casualty. Such repairs shall be made
at Landlord's expense unless due to Tenant's negligence. Landlord shall allow
Tenant a fair reduction of rent during the time the leased premises are
partially unfit for occupancy. If the leased premises are totally destroyed or
deemed by the Landlord to be rendered unfit for occupancy for fire or other
casualty, or if Landlord shall decide not to repair or rebuild, this lease
shall terminate and the rent shall be paid to the time of such casualty.
14. TENANT DEFAULT AND REMOVAL OF ABANDONED PROPERTY. If Tenant abandons the
premises or otherwise defaults in the performance of any obligations or
covenants herein, Landlord may enforce the performance of this lease in any
manner provided by law. This lease may be terminated at Landlord's discretion if
such abandonment or default continues for a period of 10 days after Landlord
notifies Tenant of such abandonment or default and of Landlord's intention to
declare this lease terminated. Such notice shall be sent by Landlord to Tenant
at Tenant's last known address by certified mail. If Tenant has not completely
removed or cured default within the 10-day period, this lease shall terminate.
Thereafter, Landlord or its agents shall have the right, without further notice
or demand, to enter the leased premises and remove all property without being
deemed guilty of trespass and without waiving any other remedies for arrears of
rent or breach of covenant. Upon abandonment or default by the Tenant, the
remaining unpaid portion of the rental from paragraph 4 herein, shall become due
and payable. For purposes of this section, Tenant is presumed to have abandoned
the premises if goods, equipment, or other property, in an amount substantial
enough to indicate a probable
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intent to abandon the premises, is being or has been removed from the premises
and the removal is not within the normal course of Tenant's business. Landlord
shall have the right to store any property of Tenant that remains on premises
that are abandoned; and, in addition to Landlord's other rights, Landlord may
dispose of the stored property if Tenant does not claim the property within 60
days after the date the property is stored, provided Landlord delivers by
certified mail to Tenant at Tenant's last known address a notice stating that
Landlord may dispose of Tenant's property if Tenant does not claim the property
within 60 days after the date the property is stored.
15. INTERRUPTION OF UTILITIES. Landlord or Landlord's agent may not interrupt or
cause the interruption of utility service paid directly to the utility company
by Tenant unless interruption results from bona fide repairs, construction, or
an emergency. If any utility services furnished by Landlord are interrupted and
continue to be interrupted despite the good faith efforts of Landlord to remedy
same, Landlord shall not be liable in any respect for damages to the person or
property of Tenant or Tenant's employees, agents, or guests, and same shall not
be construed as grounds for constructive eviction or abatement of rent. Landlord
shall use reasonable diligence to repair and remedy such interruption promptly.
16. EXCLUSION OF TENANT. Landlord may not intentionally prevent Tenant from
entering the leased premises except by judicial process unless the exclusion
results from: (a) bona fide repairs, construction, or an emergency; (b) removing
the contents of premises abandoned by Tenant; or (c) changing the door locks of
Tenant in the event Tenant is delinquent in paying at least part of the rent. If
Landlord or Landlord's agent changes the door lock of Tenant, in the event
Tenant is delinquent in paying rent, Landlord or Landlord's agent must place a
written notice on Tenant's front door stating the name and address or telephone
number of the individual or company from which the new key may be obtained. The
new key is required to be provided only during Tenant's regular business hours.
17. LIEN. Landlord is granted an express contractual lien, in addition to any
lien provided by Law, and a security interest in all property of Tenant found on
the leased premises to secure the compliance by Tenant with all terms of this
lease.
18. SUBORDINATION. Landlord is hereby irrevocably vested with full power and
authority to subordinate this lease to any mortgage, deed of Trust, or other
lien hereafter placed on the demised premises and Tenant agrees on demand to
execute such further instruments subordinating this lease as Landlord may
request, provided such subordination shall be on the express condition that this
lease shall be recognized by the mortgagee, and the rights of Tenant shall
remain in full force and effect during the term of this lease so long as Tenant
shall continue to perform all of the covenants and conditions of this lease.
19. INDEMNITY. Landlord and its employees and agents shall not be liable to
Tenant or to Tenant's employees, patrons, visitors, invitees, or any other
persons for an injury to any such persons or for damage to personal property
caused by an act, omission, or neglect of Tenant or Tenant's agents or of any
other tenant of the premises of which the leased premises is a part. Tenant
agrees to indemnify and hold Landlord and its employees and agents harmless from
any and all claims for such injury and damages, whether the injury occurs on or
off the leased premises.
20. SIGNS. Tenant shall not post or paint any signs at, on, or about the leased
premises or paint the exterior walls of the building except with the prior
written consent of the Landlord. Landlord shall have the right to remove any
sign or signs in order to maintain the leased premises or to make any repairs or
alterations thereto.
21. TENANT BANKRUPTCY. If Tenant becomes bankrupt or makes voluntary assignment
for the benefit of creditors or if a receiver is appointed for Tenant, Landlord
may terminate this lease by giving five (5) days written notice to Tenant of
Landlord's intention to do so.
22. CONDEMNATION. If the whole or any substantial part of the leased premises is
taken for any public or quasi-public use under any governmental law, ordinance
or regulation or by right or eminent domain or should the leased premises be
sold to a condemning authority under threat of condemnation, this lease shall
terminate and the rent shall be abated during the unexpired portion of the lease
effective from the date of the physical taking of the leased premises.
23. HAZARDOUS MATERIALS. Landlord warrants and represents that the Property does
not contain "Hazardous Materials", as that phrase is defined herein. For
purposes of this provision, the phrase "Hazardous Materials" shall mean and
include any toxic contaminated or other hazardous materials including, without
limitation, asbestos, PCB, transformers, underground storage containers,
materials containing any radioactive substances, petroleum base products,
paints, solvents, lead, cyanide, DDT, acids, pesticides, ammonium compounds, and
any other substance forming a component part of the improvements which has
heretofore or may in the future be determined to contain toxic wastes, hazardous
materials, or undesireable substances injurious to the health of occupants
living or working in or around the subject Property. Landlord acknowledges that
current and future federal, state, and local laws and regulations may require
the clean up of any such Hazardous Materials at the expense of those persons who
in the past, present, or future may have had or continue to have any interest in
the Property including, but not limited to, current, past, and future owners and
users, including tenants, of the Property. The cost and expense of such clean up
may be substantial. Landlord further acknowledges that the real estate Brokers
and their agents involved in the negotiation of this transaction have no
expertise with respect to any such Hazardous Materials. Landlord acknowledges
and agrees that Landlord shall look solely to experts and professionals selected
by Landlord to advise Landlord with respect to the condition of the Property and
shall not hold the real estate Brokers or their agents responsible for any
Hazardous Materials condition or problem relating to the Property. Landlord
hereby agrees to indemnify, defend, and hold the real estate Brokers and their
agents participating in this transaction harmless of and from any and all
liability, claim, debt, damage, cost, or expense, including reasonable
attorneys' fees, related to or arising out of or in any way connected to
Hazardous Materials and/or toxic wastes and/or any other undesirable substances
affecting the Property.
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24. BROKER'S FEE. N/A. Broker and _____________________________ Co-Broker, as
Real Estate Broker (the Broker), has negotiated this lease and Landlord agrees
to pay Broker in N/A County, Texas, upon commencement of this lease, a
negotiated fee of $ N/A or N/A% of the total rental provided for in this lease
to be divided as follows: N/A. In the event this lease is extended, expanded or
renewed, Landlord agrees to pay Broker an additional negotiated fee of $ N/A or
N/A% of the total rental for such extension, expansion or renewal period,
payable at the time of commencement of such extension, expansion or renewal,
said fee to be divided as follows: N/A. Tenant warrants that it has had no
dealings with any real estate broker or agents in connection with the
negotiation of this lease excepting only N/A and it knows of no other real
estate broker or agent who is entitled to a commission in connection with this
Lease. If Tenant during the term of this Lease, or any extension, expansion or
renewal period thereof, or within N/A days of the expiration of this Lease, or
any extension, expansion or renewal period thereof, purchases the property
herein leased. Landlord agrees to pay Broker, N/A in N/A County, Texas, a
negotiated fee of $ N/A or N/A% of the sales price upon closing of the sale of
this property.
25. NOTICES. Notices to Tenant shall be by certified mail or other delivery to
the leased premises or to Tenant's last known address. Notices to Landlord shall
be by certified mail to the place where rent is payable.
26. DEFAULT BY LANDLORD. In the event of breach by Landlord of any covenant,
warranty, term or obligation of this lease, then Landlord's failure to cure same
or commence a good faith effort to cure same within 10 days after written notice
thereof by Tenant shall be considered a default and shall entitle Tenant either
to terminate this lease or cure the default and make the necessary repairs and
any expense incurred by Tenant shall be reimbursed by the Landlord after
reasonable notice of the repairs and expenses incurred.
27. SIGNS. During the last 30 days of this lease, a "For Sale" sign and/or a
"For Lease" sign may be displayed on the leased premises and the leased premises
may be shown at reasonable times to prospective purchasers or tenants.
28. RIGHT OF ENTRY. Landlord shall have the right during normal business hours
to enter the demised premises: a) to inspect the general condition and state of
repair thereof, b) to make repairs required or permitted under this lease, or c)
for any other reasonable purpose.
29. WAIVER OF BREACH. The waiver by landlord of any breach of any provision of
this lease shall not constitute a continuing waiver or a waiver of any
subsequent breach of the same or a different provision of this lease.
30. TIME OF ESSENCE. Time is expressly declared to be of the essence in this
lease.
31. BINDING OF HEIRS AND ASSIGNS. Subject to the provisions of this lease
pertaining to assignment of the Tenant's interest, all provisions of this lease
shall extend to and bind, or inure to the benefit not only of the parties to
this lease but to each and every one of the heirs, executors, representatives,
successors, and assigns of Landlord of Tenant.
32. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies by this lease
agreement are cumulative and the use of any one right or remedy by either
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance, or otherwise.
33. TEXAS LAW TO APPLY. This agreement shall be construed under and in
accordance with the laws of the State of Texas.
34. LEGAL CONSTRUCTION. In case any one or more of the provisions contained in
this agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof and this agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never
been contained herein.
35. PRIOR AGREEMENTS SUPERSEDED. This agreement constitutes the sole and only
agreement of the parties to this lease and supersedes any prior understandings
or written or oral agreements between the parties respecting the subject matter
of this lease.
36. AMENDMENT. No amendment, modification, or alteration of the terms hereof
shall be binding unless it is in writing, dated subsequent to the date hereof,
and duly executed by the parties.
37. ATTORNEY'S FEES. Any signatory to this lease agreement who is the prevailing
party in any legal proceeding against any other signatory brought under or with
relation to this lease agreement or this transaction shall be additionally
entitled to recover court costs, reasonable attorney fees, and all other
out-of-pocket costs of litigation, including deposition, travel and witness
costs, from the nonprevailing party.
38. SPECIAL PROVISIONS. (This section to include additional factual data not
included above.)
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THE TEXAS ASSOCIATION OF REALTORS AND THE ________________________________
DO NOT FIX, CONTROL, RECOMMEND, SUGGEST OR MAINTAIN COMMISSION RATES OR FEES
FOR SERVICES TO BE RENDERED BY THEIR MEMBERS OR THE DIVISION OF COMMISSIONS OR
FEES BETWEEN COOPERATING PARTICIPANTS OR BETWEEN PARTICIPANTS AND
NON-PARTICIPANTS. THE AMOUNT OF COMPENSATION AND THE CONTRACT TERMS HEREIN ARE
NOT PRESCRIBED BY LAW AND ARE SUBJECT TO NEGOTIATION BETWEEN BROKER AND
SUBLESSOR.
THIS IS A LEGAL DOCUMENT, READ IT CAREFULLY. IF YOU DO NOT UNDERSTAND THE
EFFECT OF ANY PART OF THIS AGREEMENT, SEEK COMPETENT LEGAL ADVICE.
EXECUTED this 1st day of June, 1999
/s/ JIM C. HODGE /s/ KATHY S. HODGE, SR.
- ----------------------------------------- -----------------------------------
TENANT OR TENANTS SIGNATURE(S) LANDLORD SIGNATURE
ALLIED MORTGAGE CAPITAL CORPORATION MERCANTILE INVESTMENT CORPORATION
6110 Pinemont, Suite 215 6110 Pinemont, Suite 214
- ----------------------------------------- -----------------------------------
Houston, TX 77092 Houston, TX 77092
- ----------------------------------------- -----------------------------------
713-353-0400 281-376-7705
- ----------------------------------------- -----------------------------------
TELEPHONE TELEPHONE
N/A
- -----------------------------------------
BROKER SIGNATURE
[Note: This form is furnished by the Texas Association of REALTORS(R) for the
convenience of its members.]
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EXHIBIT 10.8
SUBSCRIPTION ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of the _____the day of
August, 1999 by and among Allquest.com Corporation, a Delaware corporation (the
"Corporation"); __________ , an __________ corporation (the "Marketing Agent");
and ___________ a national banking association (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Corporation is conducting a public offering for sale to
investors on a best efforts basis up to __________ shares of its Common Stock
(the "Common Stock") and under which the Corporation and the Marketing Agent
will be soliciting subscription funds in the form of cash, check, authorized
withdrawals from _____________________ or other immediately available funds
(the "Subscription Funds") from subscribers at a price of $10.00 per share (the
"Offering") in the offering (the "Subscribers");
WHEREAS, on August _____, 1999, the Securities and Exchange Commission
declared effective the Company's Registration Statement on Form SB-2 for the
purpose of registering for sale under the Securities Act of 1933, as amended,
500,000 shares (the "Minimum Shares") to 700,000 shares the ("Maximum Shares")
of its Common Stock in the Offering;
WHEREAS, the subscription period for the Offering will expire at 4:00
p.m., C.S.T. on __________, 1999, subject to the Corporation's right to extend
the subscription period without notice until __________, 1999, or terminate the
Offering at any time (the "Expiration Date") and subject further to the right
of the Marketing Agent, in its sole discretion, to permit investors to submit
irrevocable orders together with legally binding commitments for payment for
shares of Common Stock for which they subscribe at any time prior to the
Expiration Date with payment to be received at any time prior to 24 hours
before completion of the Offering (the "Closing"); and
WHEREAS, the Corporation and the Marketing Agent desire to establish
an escrow account with the Escrow Agent for the purpose of holding the
subscription funds received during the course of the offering (the "Escrow
Funds");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements, representations, warranties and dependent promises set
forth herein, the parties agree as follows:
1. Appointment of Escrow Agent. The Corporation and the Marketing
Agent appoint the Escrow Agent to hold the Subscription Funds, and the Escrow
Agent accepts the appointment, all in accordance with the terms and subject to
the conditions of this Escrow Agreement.
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(a) Establishment of Escrow Account. On or prior to the date
of commencement of the Offering, the parties shall establish an
interest-bearing escrow account which shall be entitled "Allquest.com
Corporation Escrow Account" (the "Escrow Account"). The Marketing Agent will
instruct Subscribers to make checks for subscriptions payable to the order of
or wire transfer funds directly to the Marketing Agent which shall promptly
transmit such funds to the Escrow Agent for deposit into the Escrow Account in
accordance with the provisions of Rule 15c2-4 of the Securities Exchange Act of
1934, as amended.
(b) The Escrow Period. The Escrow Period shall begin with the
commencement of the Offering and shall terminate upon the earlier to occur of
the following dates:
(i) The date upon which the Escrow Agent confirms
that it has received in the Escrow Account subscriptions for the Maximum Shares
and subscriptions therefor have been accepted by the Corporation;
(ii) The Expiration Date (unless extended as
permitted in the Prospectus); or
(iii) The date upon which a determination is made by
the Corporation and the Marketing Agent to terminate the Offering prior to the
sale of the Minimum Shares.
During the Escrow Period, the Corporation is aware and understands that it is
not entitled to any of the Escrow Funds and no amounts deposited in the Escrow
Account shall become the property of the Corporation or any other entity, or be
subject to the debts of the Corporation or any other entity, until such Escrow
Funds are disbursed in accordance with Section 3 below.
2. Deposit of Funds.
(a) The Escrow Agent is hereby authorized to forward each
check for collection, and upon collection of the proceeds of each check,
deposit the collected proceeds in the Escrow Account. As an alternative, the
Escrow Agent may telephone the bank on which the check is drawn to confirm that
the check has been paid.
Any check returned unpaid to the Escrow Agent shall be returned to the
Marketing Agent. In such cases, the Escrow Agent will promptly notify the
Corporation of such return.
If the Corporation rejects any subscriptions for which the Escrow
Agent has already collected funds, the Escrow Agent shall promptly issue a
refund check to the rejected Subscriber. If the Corporation rejects any
subscription for which the Escrow Agent has not yet collected funds but has
submitted the Subscriber's check for collection, the Escrow Agent shall
promptly issue a check in the amount of the Subscriber's check to the rejected
Subscriber after the Escrow Agent has cleared such funds. If the Escrow Agent
has not yet submitted a rejected Subscriber's
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check for collection, the Escrow Agent shall promptly remit the Subscriber's
check directly to the Subscriber.
(b) The Corporation will deposit or cause to be deposited
with the Escrow Agent all proceeds from the sale of the Common Stock received
from Subscribers, accompanied by executed Order Forms and Certifications in the
form attached hereto as Exhibit "A" and "B." The Escrow Agent shall (i) make
copies of all subscription checks, Order Forms and Certificates received by it,
(ii) promptly deposit such checks for collection in the Escrow Account to be
maintained hereunder, (iii) retain a copy of each Order Form and Certificate
for its records and (iv) promptly forward to the Corporation a copy of each
such check and the executed original of each such Order Form and Certificate if
received. The Escrow Agent shall have no responsibility for proceeds from the
sale of the Common Stock not received and collected by it.
The Escrow Agent shall promptly notify the Corporation of any
subscription received without accompanying subscription documents or where the
subscription does not exactly match the subscription document ("Unidentified
Subscriptions"). Any Unidentified Subscriptions and accompanying documents not
identified in writing by the Corporation within three (3) business days of such
notification shall be returned by the Escrow Agent to the Subscriber. All
Unidentified Contributions that are subsequently identified shall be
immediately deposited into escrow.
(c) Based upon information set forth in the Order Forms
delivered hereunder, the Escrow Agent shall maintain a written record of names
and addresses of the Subscribers, the amount of the Common Stock subscribed for
by each Subscriber and the amounts received from each Subscriber.
(d) All Escrow Funds deposited shall be invested in money
market funds investing solely in United States government and agency securities
(e.g., TCB Federal Money Market Fund), unless other written direction is given
by the Corporation or the Marketing Agent.
3. Disbursement.
(a) The Escrow Agent shall notify the Corporation at such
time as it has received, in payment for the Common Stock, cash and
subscriptions aggregating $5,000,000 (the "Target Amount").
(b) At such time as the Escrow Agent has received in cash and
subscriptions the Target Amount, the Escrow Agent shall disburse said amount to
the Corporation upon written disbursement instructions outlined in 3(d) below
from the Corporation and the Marketing Agent. After the Target Amount of
cleared funds has been received, the Escrow Agent shall continue collecting
Subscriber's funds, pursuant to the procedure set forth above, until notified
by the Corporation to either disburse such funds to the Corporation or return
the Subscribers' amounts exceeding the Target Amount to such Subscribers
presenting funds over the Target Amount, with interest accrued thereon. The
Escrow Agent shall immediately disburse such
3
<PAGE> 4
funds to the Corporation from time to time upon written notification from the
Corporation that such subscriptions have been accepted by the Corporation.
(c) In the event the Minimum Amount has not been subscribed
for by __________, 1999, or the extended date provided to the Escrow Agent by
the Corporation or the Marketing Agent, the Corporation and the Marketing Agent
shall confirm such fact in writing, whereupon the Escrow Agent shall return the
full amount of each Subscriber's deposit with interest accrued thereon to each
Subscriber.
(d) Each Disbursement Instruction shall be signed by two
officers of the Corporation and the Marketing Agent and shall contain the
following information: (i) a reference to this Agreement, (ii) the identity of
the person to whom a disbursement of Escrow Funds is to be made, (iii) the
amount of Escrow Funds to be disbursed (including the interest thereon), (iv)
instructions as to the form or method and destination of the disbursement
(e.g., cashier's, wire transfer instructions) and (v) a summary statement of
the event or condition which has occasioned the delivery of the Disbursement
Instruction. Escrow Agent shall not be responsible for evaluating the truth or
sufficiency of the summary statement or Disbursement Instruction.
4. Confirmation/Discrepancies. The Escrow Agent shall confirm receipt
or investment of Escrow Funds by its monthly account statement delivered to the
Corporation unless otherwise indicated.
5. Taxpayer Information. Prior to any investment of Escrow Funds, the
Corporation shall provide the Escrow Agent with written certification of its
taxpayer identification number, and in any event, with appropriate W-8 or W-9
forms within 30 days from the date hereof. Failure to provide such information
and forms may result in a penalty and require the Escrow Agent to withhold tax
on any interest payable hereunder.
6. Reliance. The Escrow Agent shall be protected in acting in good
faith upon any written notice, request, waiver, consent, certificate, receipt,
authorization or other paper or document which the Escrow Agent believes to be
genuine and what it purports to be.
7. Escrow Agent Liability. The Escrow Agent shall not be liable for
anything which it may do or refrain from doing in good faith in connection with
this Escrow Agreement, except its own gross negligence or willful misconduct.
8. Legal Representation. The Escrow Agent may confer with legal
counsel in the event of any dispute or question as to the construction of any
of the provisions hereof, or its duties hereunder, and it shall incur no
liability and it shall be fully protected in acting in accordance with the
opinions of such counsel.
9. Disputes. In the event of any genuine disagreement resulting in
adverse claims or demands being made in connection with the subject matter of
this Escrow Agreement, or in the event that the Escrow Agent in good faith is
in doubt as to what action it should take
4
<PAGE> 5
hereunder, the Escrow Agent may, at its option, refuse to comply with any
claims or demands on it, or refuse to take any other action hereunder so long
as such disagreement continues or such debt exists, and in such event, the
Escrow Agent shall not be or become liable in any way or to any person for its
failure or refusal to act, and the Escrow Agent shall be entitled to continue
to refrain from acting until (i) the rights of all parties have been fully and
finally adjudicated by a court of competent jurisdiction or (ii) all
differences shall have been adjudged and all doubt resolved by agreement among
all of the interested persons, and the Escrow Agent shall have been notified
thereof in writing signed by all such persons. In addition to the foregoing
remedies, the Escrow Agent is hereby authorized in the event of any doubt as to
the course of action it should take under this Escrow Agreement, to petition
the District Court of Travis County, Texas, or the United States Federal
District of the Western District of Texas, for instructions or to interplead
the funds or asset so held into such court. The parties agree to the
jurisdiction of either of said courts over their persons as well as the
Property, waive personal service of process and agree that service of process
by certified or registered mail, return receipt requested, to the address set
forth below each party's signature to this Escrow Agreement shall constitute
adequate service.
10. Indemnity. The Escrow Agent shall not be liable for anything which
it may do or refrain from doing in connection with this Escrow Agreement,
provided it acts in good faith, including its own negligence, except for its
own gross negligence or willful misconduct. The parties hereto agree to
indemnify the Escrow Agent for, and to hold it harmless against, any loss,
liability or expense (including, without limitation, reasonable attorneys'
fees) incurred by it without gross negligence or willful misconduct on its part
arising out of or in connection with its entering into this Escrow Agreement
and the carrying out of its duties hereunder, including the costs and expenses
of defending itself against any claim of liability in the premises.
11. Resignation of Escrow Agent. The Escrow Agent may resign for any
reason, upon 30 days written notice to the parties to the Escrow Agreement.
Upon expiration of such 30-day notice period, the Escrow Agent may deliver all
cash or property in its possession under this Escrow Agreement to any successor
Escrow Agent appointed by the Corporation, or if no successor Escrow Agent has
been appointed, to any court of competent jurisdiction in Travis County, Texas.
Upon either such delivery, the Escrow Agent shall be released from any and all
liability under this Escrow Agreement. A termination under this paragraph shall
in no way change the terms of paragraphs 9, 10 and 12 affecting reimbursement
of expenses, indemnity and fees. The Escrow Agent shall have the right to
deduct from Escrow Funds transferred to any successor Escrow Agent any
outstanding and unpaid expenses or fees.
12. Escrow Agent Fee. Simultaneous with the execution of this
Agreement, the Corporation has paid the Escrow Agent a fee of $______________.
13. Notices. All notices and communications hereunder shall be in
writing, and shall be deemed to be duly given if sent registered or certified
mail, return receipt requested, to the prospective address set forth below. The
Escrow Agent shall not be charged with knowledge of any fact, including but not
limited to performance or non-performance of any condition, unless it has
actually received written notice thereof from all of the parties hereto of
their authorized representative clearly referring to this Escrow Agreement.
5
<PAGE> 6
If to the Corporation: Allquest.com Corporation
6110 Pinemont
Houston, Texas
Attn: Jim C. Hodge
With a copy to: Selman & Munson, P.C.
111 Congress Ave.
Suite 1000
Austin, TX 78701
Attn: Jack A. Selman
If to the Escrow Agent:
Attn:
If to the Marketing Agent:
Attn:
With a copy to:
Attn:
14. Successors. The rights created by this Escrow Agreement shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successor and assigns of the Escrow Agent and the parties hereto.
15. Choice of Law. This Escrow Agreement shall be construed and
enforced according to the laws of the State of Texas.
16. No Interest Created in Fund. The Escrow Agent shall not issue any
certificate of deposit, stock certificates or any other instrument or document
representing any interest in the Escrow Account.
17. Termination. This Escrow Agreement shall terminate and the Escrow
Agent shall be discharged of all responsibility hereunder at such time as the
Escrow Agent shall have completed its duties hereunder.
18. Counterparts. This Escrow Agreement may be executed in several
counterparts, or by separate instruments, and all such counterparts and
instruments shall constitute one agreement, binding on all of the parties
hereto.
19. Entire Agreement. This Escrow Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and transactions described herein and supersedes all prior
agreements of understandings, written or oral, between the parties with respect
thereto.
6
<PAGE> 7
20. Severability. If any provision of this Escrow Agreement is
declared by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect without being impaired or invalidated in any way.
21. Collection of Funds. It is strictly understood that the Escrow
Agent has no duty to disburse any funds, to any party, until such funds have
been collected by the Escrow Agent, and those funds are available. It is hereby
acknowledged by the parties that funds deposited with the Escrow Agent in the
form of a cashier's check shall be deemed to be immediately available funds for
the purpose of disbursements.
22. Agents. The following persons are authorized to direct the Escrow
Agent regarding any transactions to this Escrow including, but not limited to,
disbursements and investments:
Jim C. Hodge
Terry G. Hartnett
IN WITNESS WHEREOF, the Escrow Agent and the Corporation have executed
this Escrow Agreement on the day and year first written above.
ESCROW AGENT:
By:
-----------------------------------
-----------------------------------
Its:
----------------------------------
CORPORATION:
ALLQUEST.COM CORPORATION
By:
-----------------------------------
-----------------------------------
Its:
----------------------------------
MARKETING AGENT:
CHOICE INVESTMENTS, INC.
By:
-----------------------------------
-----------------------------------
Its:
----------------------------------
7
<PAGE> 1
EXHIBIT 10.9
GENERAL WARRANTY DEED
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS )
THAT, ALLIED MORTGAGE CORPORATION, a Texas corporation (hereinafter
referred to as "Grantor", whether one or more), for the sum of TEN AND NO/100
DOLLARS ($10.00) and valuable consideration to the Grantor in hand paid by
ALLIED MORTGAGE CAPITAL CORPORATION, a Texas corporation whose address is P.O.
Box 691488, Houston, Texas 77269-1488 (hereinafter referred to as "Grantee",
whether one or more) the receipt of which is hereby acknowledged and confessed,
has GRANTED, BARGAINED, SOLD AND CONVEYED, and by these presents does GRANT,
SELL, and CONVEY, subject to all the matters set forth hereunder, unto the said
Grantee all that certain real property in Harris County, Texas as follows:
BEING 1.7221 ACRE TRACT OUT OF UNRESTRICTED RESERVE "G" OF
FOREST WEST, SECTION TWO (2), AN ADDITION IN HARRIS COUNTY,
TEXAS, ACCORDING TO THE PLAT RECORDED IN VOLUME 130, PAGE 11
OF THE MAP RECORDS OF HARRIS COUNTY, TEXAS AND BEING MORE
PARTICULARLY DESCRIBED BY METES AND BOUNDS ATTACHED AS EXHIBIT
"A" HERETO AND MADE A PART HEREOF.
This conveyance is made and accepted subject to: Volume 130, Page 11 of
the Map Records of Harris County, Texas, recorded under Clerk's File Number(s)
C180858 in the Official Records of Harris County, Texas; Easements and building
set back lines as shown on the recorded Plat; Mineral interest reserved in
instrument recorded in Volume 1843, Page 114 of the Deed Records of Harris
County, Texas, Annual Maintenance Charge and Special Assessments as set forth in
instrument recorded under Clerk's File Number C180858; Terms, conditions and
provisions of Ordinance 85-1878, certified copy of which is filed for record
under Harris County Clerk's File Number M337573; Standby fees, taxes and
assessments by any taxing authority for the year 1999 and subsequent years.
TO HAVE AND TO HOLD the above described property and premises together
with, all and singular, the right and appurtenances thereto in anywise belonging
unto the said Grantee, Grantee's heirs, executors, administrators, successors
and assigns forever, and Grantor does hereby bind Grantor, and Grantor's heirs,
executors, administrator, successors and assigns, to WARRANT AND FOREVER
DEFEND, all and singular, the said property and premises unto the said Grantee,
Grantee's successors and assigns, against every person whomsoever lawfully
claiming or to claim the same or any part thereof.
<PAGE> 2
Grantor has paid all taxes for prior years and ad valorem taxes for the
current year have been prorated and the same have been assumed by Grantee.
EXECUTED on this 25th day of August, 1999, effective for all purposes as
of June 30, 1999.
ALLIED MORTGAGE CORPORATION
By: /s/ JIM C. HODGE
--------------------------------
Name: Jim C. Hodge
Title: President
THE STATE OF TEXAS )
COUNTY OF HARRIS )
This instrument was acknowledged before me on this 25th day of August, 1999, by
Jim C. Hodge, as President of Allied Mortgage Corporation, a Texas corporation,
on behalf of said corporation, and for the purposes and consideration therein
expressed.
[STAMP] /s/ MARIA V. GUERRA
-------------------------------------------
Notary Public in and for the State of Texas
My Commission expires: 12-22-2001
AFTER RECORDING PLEASE RETURN TO:
Paul Stanford
c/o Allied Mortgage Capital Corporation
P.O. Box 691488
Houston, Texas 77269-1488
2
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage of Incorporation or
Parent Subsidiary Ownership Organization
------ ---------- --------- ------------
<S> <C> <C> <C>
AllQuest.com Corporation Allied Mortgage Capital Corporation 100% Texas
AllQuest.com Corporation AllQuest Mortgage Corporation 100% Delaware
AllQuest.com Corporation AllQuest Real Estate Corporation 100% Delaware
Allied Mortgage Capital Corporation Lawyers Mortgage Holdings, LLC 51% Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
AllQuest.com Corporation
We consent to the use of our report included herein on the financial statements
of Allied Mortgage Capital Corporation and to the reference to our firm under
the heading "Experts" in the prospectus.
KPMG LLP
Houston, Texas
September 28, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF COUNSEL
We consent to the use of our opinion, to the incorporation by
reference of such opinion as an exhibit to the Form SB-2 and to the reference
to our firm under the heading "Legal Matters" in the Prospectus and included in
this Form SB-2. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
SELMAN & MUNSON, P.C.
Austin, Texas By: /s/ JACK A. SELMAN
------------------------------------
Jack A. Selman, President
September 28, 1999
<PAGE> 1
EXHIBIT 99.1
(Employee Letter - AllQuest.com Corporation Letterhead)
, 1999
---------------
Dear Employee:
Allied Mortgage Capital Corporation ("Allied") has established a holding
company named AllQuest.com Corporation (the "Company") which is conducting a
public offering of its common stock. The Company is pleased to enclose a copy
of offering materials, including the prospectus, for our offering of common
stock ("Offering"). We are offering up to 700,000 shares of our common stock at
a price of $10 per share. The Company is making this Offering first to the
employees of Allied until October ___, 1999 and then to the general public. Net
offering proceeds will increase the capital of Allied Mortgage Capital
Corporation and the Company and, consistent with regulatory restrictions, will
support the expansion of the Company's retail loan and wholesale loan
origination.
As you know, prior to this Offering there has not been a public market for the
common stock. The Company has applied to have the common stock listed among the
"National Market" of the NASDAQ Stock Market system under the symbol "LOAN."
Although there can be no assurance the Company will satisfy the criteria for
listing, the Company expects to meet these criteria upon successful completion
of this Offering.
The enclosed prospectus provides detailed information regarding the Offering. I
urge you to read it carefully. Your investment decision should be based on the
information contained in the prospectus.
All employees of Allied Mortgage Capital Corporation will have priority to
purchase an unlimited amount of stock in the Offering until October ____, 1999.
Should you decide to take advantage of this opportunity to purchase the shares
of the Company's common stock, you must submit your Stock Order Form and
payment prior to 4:00 p.m., Central Time, on the Employee Priority Purchase
Date. After the Employee Priority Purchase Date, the unsold stock in the
Offering will be offered to the general public. If you fail to purchase the
stock in the Offering prior to the Employee Priority Purchase Date, you may
still purchase some of the unsold stock in the Offering by submitting your
Stock Order Form and payment prior to 4:00 p.m., Central Time, on November
______, 1999. If you have additional questions regarding the stock Offering,
please call us at (512) 302-6060, Monday through Friday from 9:00 a.m. to 6:00
p.m. or stop by the Stock Sales Center located at 5900 Balcones Drive, in
Austin, Texas.
We are pleased to offer you this opportunity to invest in the Company, and we
encourage you to give serious consideration to the investment opportunity
described in the enclosed prospectus.
Sincerely,
Jim C. Hodge
President and Chief Executive Officer
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer is made only by the Prospectus.
<PAGE> 2
(Prospective Investor Letter - AllQuest.com Corporation Letterhead)
, 1999
---------------
Dear Prospective Investor:
We are pleased to announce that AllQuest.com Corporation (the "Company"), a
Texas corporation and parent of Allied Mortgage Capital Corporation, is
offering up to 700,000 shares of Common Stock in a Public Offering
("Offering"). The Company is offering the shares of Common Stock at a price of
$10 per share to the general public (subject to the prior rights to purchase of
the employees of Allied Mortgage Capital Corporation as described in the
Prospectus). Net offering proceeds will increase the capital of Allied Mortgage
Capital Corporation and the Company and, consistent with regulatory
restrictions, will support the expansion of the Company's retail loan and
wholesale loan origination.
We have enclosed the following materials which will help you learn more about
the merits of the Company's Common Stock as an investment. Please read and
review the materials carefully.
PROSPECTUS: This document provides detailed information about the
Company's operations and the proposed stock Offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about
the stock Offering are found in this pamphlet.
STOCK ORDER FORM: This form is used to purchase stock by returning it
with your payment in the enclosed business reply envelope. The
deadline for ordering stock is 4:00 p.m. Central Time, November
_______, 1999.
We invite our customers, local community members and the general public to
purchase the Company's common stock in the Offering. Through this Offering you
have the opportunity to buy stock directly from the Company without commission
or fee. The board of directors and senior management of the Company fully
support this stock Offering.
If you have additional questions regarding the stock Offering, please call us
at (512) 302-6060, Monday through Friday from 9:00 a.m. to 6:00 p.m. or stop by
the Stock Sales Center located at 5900 Balcones Drive, in Austin, Texas.
Sincerely,
Jim C. Hodge
President and Chief Executive Officer
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer is made only by the Prospectus.
<PAGE> 3
(Prospective Investor Letter/Request Card - AllQuest.com Corporation Letterhead)
, 1999
---------------
Dear Prospective Investor:
We are pleased to announce that AllQuest.com Corporation (the "Company"), a
Texas corporation and parent of Allied Mortgage Capital Corporation, is
offering up to 700,000 shares of Common Stock in a Public Offering
("Offering"). The Company is offering the shares of Common Stock at a price of
$10 per share to the general public (subject to the prior rights to purchase of
the employees of Allied Mortgage Capital Corporation as described in the
Prospectus). Net offering proceeds will increase the capital of Allied Mortgage
Capital Corporation and the Company and, consistent with regulatory
restrictions, will support the expansion of the Company's retail loan and
wholesale loan origination.
We have available the following materials which will help you learn more about
the merits of the Company's Common Stock as an investment.
PROSPECTUS: This document provides detailed information about the
Company's operations and the proposed stock Offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about
the stock Offering are found in this pamphlet.
STOCK ORDER FORM: This form is used to purchase stock by returning it
with your payment in the business reply envelope enclosed with the
Stock Order Form. The deadline for ordering stock is 4:00 p.m. Central
Time, November _______, 1999.
We invite our employees, customers, local community members and the general
public to purchase the Company's common stock in the Offering. Through this
Offering you have the opportunity to buy stock directly from the Company
without commission or fee. The board of directors and senior management of the
Company fully support this stock Offering.
If you have additional questions regarding the stock Offering, please call us
at (512) 302-6060, Monday through Friday from 9:00 a.m. to 6:00 p.m. or stop by
the Stock Sales Center located at 5900 Balcones Drive, in Austin, Texas.
Sincerely,
Jim C. Hodge
President and Chief Executive Officer
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer is made only by the Prospectus.
<PAGE> 4
ALLQUEST.COM CORPORATION REQUEST CARD
If you wish to receive the Prospectus and (where permitted by the laws of your
state) a Stock Order Form, please complete, sign and return this Request Card
to AllQuest.com Corporation. Receipt of such material does not obligate you to
purchase any shares of Common Stock.
TO ENSURE THAT YOU RECEIVE THE REQUESTED MATERIAL ON A TIMELY BASIS, THIS
FORM MUST BE RECEIVED BY ALLQUEST.COM CORPORATION ON OR BEFORE 4:00 P.M.,
CENTRAL TIME, ON ___________________, 1999.
Signature:
------------------------------------------------------------
Name:
------------------------------------------------------------
(Please print)
Address:
------------------------------------------------------------
------------------------------------------------------------
Business Phone:
------------------------------------------------------------
Home Phone:
------------------------------------------------------------
<PAGE> 5
YOU ARE CORDIALLY INVITED
to a Community Investor Meeting to learn about ALLQUEST.COM CORPORATION and the
related offering of additional Common Stock.
Senior Executives and Directors of AllQuest.com and representatives of Choice
Investments, Inc. will present information and answer your questions about
AllQuest.com Corporation's Stock Offering as well as its business focus and
operating results.
------------------------------------------
Community Meetings
0:00 P.M.
September ___, 1999 [Location]
0:00 P.M.
September ___, 1999 [Location]
------------------------------------------
Please call the
AllQuest.com Corporation
Stock Sales Center
(512) 302-6060
<PAGE> 6
STOCK ORDER FORM ALLQUEST.COM CORPORATION
Note: Please read the Stock Order Form Guide and Instructions attached to this
form before completion.
- --------------------------------------------------------------------------------
DEADLINE
- --------------------------------------------------------------------------------
The Offering ends at 4:00 p.m., Austin, Texas time, on November _____, 1999.
Your Stock Order Form, properly executed and with the correct payment, must be
received at the address on the bottom of this form by this deadline or it may
be considered void.
- --------------------------------------------------------------------------------
NUMBER OF SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) Number of Shares Price Per Share (2) Total Amount Due
<S> <C> <C> <C> <C>
X $10 = $
-------------------- --------------------
(minimum 100)
</TABLE>
The minimum number of shares that may be subscribed for is 100 and the maximum
individual purchase in 50,000 shares in the Offering. The number of shares to
be offered is based on a valuation that is subject to review prior to
fulfilling any stock orders.
- --------------------------------------------------------------------------------
Method of Payment Purchaser Information
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(3) ___ Enclosed is a check, bank draft or (4) ___ Check here if you are a director, officer or employee of Allied
order payable to Choice Investments, Inc. Mortgage Capital Corporation or a member of such person's immediate
for $_______________ (or cash if family.
presented in person)
</TABLE>
Payments will be deposited in an Escrow Account with Compass Bank, N.A.,
Austin, Texas. Payment by check, cash, money order or withdrawals from
non-certificate accounts will earn interest in the Escrow Account until the
stock offering closes.
- --------------------------------------------------------------------------------
STOCK REGISTRATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(5) Form of stock ownership
Individual Uniform Transfer to Minors Partnership
---- ---- ----
Joint Tenants (WROS) Uniform Gift to Minors Individual Retirement Account
---- ---- ----
Tenants in Common Corporation Fiduciary/Trust (Under Agreement Dated
---- ---- ---- )
--------------
</TABLE>
<TABLE>
<S> <C>
(6) Name (Please Print Clearly) Social Security or Tax. I.D.
----------------------------- --------------------------
Name Daytime Telephone
--------------------------------------------------- -------------------------------------
Street Address Evening Telephone
----------------------------------------- -------------------------------------
City State Zip Code County of Residence
----------------- -------- --------- -----------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NASD AFFILIATION (This section only applies to those individuals who meet the
delineated criteria.)
- --------------------------------------------------------------------------------
_____ check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of
the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which an
NASD member or person associated with an NASD member has a beneficial interest.
To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD affiliation box: (i) not to sell, transfer
or hypothecate the stock for a period of 150 days following the issuance, and
(ii) to report this subscription in writing to the applicable NASD member
within one day of the payment therefor.
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT
- --------------------------------------------------------------------------------
By signing below, I acknowledge receipt of the Prospectus dated
__________________, 1999 and that I have reviewed the provisions therein and
understand that I may not change or revoke my order once it is received by
Choice Investments, Inc. I certify that this stock order is for my account only
and there is no agreement or understanding regarding any further sale or
transfer of these shares.
Under penalties of perjury, I further certify that: (1) the social security
number or taxpayer identification number given above is correct; and (2) I am
not subject to backup withholding. You must cross out this item, (2) above, if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding because of underreporting interest or dividends on your tax
return.
- --------------------------------------------------------------------------------
SIGNATURE
- --------------------------------------------------------------------------------
Sign and date the form. When purchasing as a custodian, include your full
title. An additional signature is required only when payment is by withdrawal
from an account that requires more than one signature to withdraw funds.
YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE PROVISIONS OF THE PROSPECTUS.
THIS ORDER IS NOT VALID IF NOT SIGNED.
If you need help completing this Form, you may call the Stock Sales Center at
(512)302-6060.
- --------------------------------------------------------------------------------
Signature Title (if applicable) Date
- --------------------------------------------------------------------------------
Signature Title (if applicable) Date
Broker Assisted Orders-Refer to Prospectus.
- --------------------------------------------------------------------------------
A.E. Name R. R. Number B/D Name
- --------------------------------------------------------------------------------
B/D Mailing Address/City/State/Zip Code Telephone Number
FOR OFFICE USE ONLY
<TABLE>
<CAPTION>
STOCK SALES CENTER
<S> <C> <C>
Date Rec'd / / Order # Batch # 5900 Balcones Drive
---- --- --- --------- -----
/Check # Category Austin, Texas 78731
------------- -------------------
Amount $ Initials (512)302-6060
-------------- --------------------
</TABLE>
<PAGE> 7
ALLQUEST.COM CORPORATION
STOCK ORDER FORM
GUIDE AND INSTRUCTIONS
- --------------------------------------------------------------------------------
STOCK OWNERSHIP GUIDE
- --------------------------------------------------------------------------------
INDIVIDUAL
The stock is to be registered in an individual's name only. You may not list
beneficiaries for this ownership.
JOINT TENANTS
Joint Tenancy with Right of Survivorship identifies two or more persons as
owners of the stock. Upon the death of one of the owners, ownership
automatically passes to the surviving tenant(s). You may not list beneficiaries
for this ownership.
TENANTS IN COMMON
Tenants in Common identifies two or more persons as owners of the stock. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common. You may not list beneficiaries for this ownership.
INDIVIDUAL RETIREMENT ACCOUNT
Individual Retirement Account ("IRA") holders may make stock purchases from
their IRA through a prearranged "trustee-to-trustee" transfer. Stock may only
be held in a self-directed IRA. Please contact the Stock Sales Center if you
have any questions about your IRA account or to obtain a list of local brokers
who will open a self-directed IRA, or check with your broker.
UNIFORM GIFT TO MINORS/UNIFORM
TRANSFERS TO MINORS
For Texas residents and residents of many states, stock may be held in the name
of a custodian for the benefit of a minor under the Uniform Transfers to Minors
Act. For residents of most other states, stock may be held in a similar type of
ownership under the Uniform Gift to Minors Act of the individual states. For
either ownership, the minor is the actual owner of the stock with the adult
custodian being responsible for the investment until the minor reaches legal
age.
Instructions: If you are a Texas resident and wish to register stock in this
ownership, check "Uniform Transfers to Minors." For other states, see your
legal advisor if you are unsure about the correct registration of your stock.
On the first "NAME" line, print the first name, middle initial and last name of
the custodian, with the abbreviation "CUST" after the name. Print the first
name, middle initial and last name of the minor on the second "NAME line. Only
one custodian and one minor may be designated.
CORPORATION/PARTNERSHIPS
Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and
Tax I.D. number.
FIDUCIARIES:
Generally, fiduciary relationships (such as Conservatorship, Legal Trust,
Guardianship, etc.) are established under a form of a trust agreement or are
pursuant to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the first name, middle initial
and last name of the fiduciary if the fiduciary is an individual. If the
fiduciary is a corporation, list the corporate title on the first "NAME" line.
Following the name, print the fiduciary "title" such as trustee, executor,
personal representative, etc.
<PAGE> 8
On the second "NAME" line, print either the name of the maker, donor or
testator OR the name of the beneficiary. Following the name, indicate the type
of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated," fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
- --------------------------------------------------------------------------------
ITEM INSTRUCTION
- --------------------------------------------------------------------------------
ITEMS 1 AND 2
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares by the
subscription price of $10.00 per share. The minimum purchase is 100 shares. The
maximum purchase amount in the Offering by any person is $500,000 of the common
stock in the Offering.
ITEM 3
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft or money order made payable to Choice Investments, Inc. DO
NOT MAIL CASH. If you choose to make a cash payment, take your Stock Order Form
and payment in person to the Stock Sales Office listed at the bottom of the
Stock Order Form. Your funds will earn interest as provided in the Prospectus.
ITEM 6
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of AllQuest.com Corporation
common stock. Print the name(s) in which you want the stock registered and the
mailing address of the registration. Include the first name, middle initial and
last name of the shareholder. Avoid the use of two initial. Please omit words
that do not affect ownership rights, such as "Mrs.," "Mr.," "Dr.," "special
account," etc.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "NAME" line. Be sure to include
your telephone number because we will need to contact you if we cannot execute
your order as given. Review the Stock Ownership Guide on this page and refer to
the instructions for Uniform Gift to Minors/Uniform Transfer to Minors and
Fiduciaries.
<PAGE> 9
STOCK OFFERING
QUESTIONS & ANSWERS
FACTS ABOUT THE OFFERING
ALLQUEST.COM CORPORATION (THE "COMPANY"), A DELAWARE CORPORATION IS OFFERING UP
TO 700,000 SHARES OF COMMON STOCK IN A PUBLIC OFFERING ("OFFERING").
THIS BROCHURE ANSWERS SOME OF THE MOST FREQUENTLY ASKED QUESTIONS ABOUT THE
OFFERING AND ABOUT YOUR OPPORTUNITY TO INVEST IN THE COMPANY.
INVESTMENT IN THE STOCK INVOLVES CERTAIN RISKS. FOR A DISCUSSION OF THESE RISKS
AND OTHER FACTORS, INVESTORS ARE URGED TO READ THE ACCOMPANYING PROSPECTUS.
WHY IS THE COMPANY OFFERING COMMON STOCK?
The net offering proceeds will be used by the Company for general working
capital purposes, including capital to support expansion of the Company's
retail loan and wholesale loan origination and servicing activities.
WHO IS ELIGIBLE TO PURCHASE THE STOCK IN THE OFFERING?
Any member of the general public, including existing employees of Allied
Mortgage Capital Corporation ("Allied"), a subsidiary of the Company.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
The Company is offering up to 700,000 shares of Common Stock at a price of
$10.00 per share through the Prospectus. Prior to the Offering, there were
2,000,000 shares of Common Stock outstanding.
HOW MUCH STOCK MAY I BUY?
The minimum order is 100 shares. The maximum order is $500,000 or 50,000
shares.
HOW DO I ORDER STOCK?
You must complete the enclosed Stock Order Form. Instructions for completing
your Stock Order Form are contained in this packet. Your order must be received
by the Company by 4:00 p.m., Austin, Texas time, on November 12, 1999.
HOW MAY I PAY FOR MY SHARES OF STOCK?
You may pay for stock by check, cash or money order. Funds will be placed in an
escrow account with Compass Bank, N.A. ("Bank") and will earn interest from the
day funds are received until the completion or termination of the Offering. You
will not have access to these funds from the day we receive your order until
the completion or termination of the Offering.
MUST I PAY A COMMISSION?
No. You will not be charged a commission or fee on the purchase of shares in
the Offering. However, the Company will pay a 6% commission to the underwriter,
Choice Investments, Inc., in connection with the Offering.
WILL DIVIDENDS BE PAID ON THE STOCK?
The Company has never declared a dividend on its Common Stock and management
expects that the substantial portion of the Company's future earnings will be
retained for expansion or development of Company's business. The decision to
pay dividends, if any, in the future is within the discretion of the Board of
Directors of the Company and will depend upon the Company's earnings, its
capital requirements, financial condition, and other relevant factors.
1
<PAGE> 10
HOW WILL THE STOCK BE TRADED?
Prior to the Offering, there has been no public market for the Company's Common
Stock. The Company has applied to have the Common Stock quoted on the NASDAQ
National Market under the symbol "LOAN". However, there can be no assurances
that the Company will satisfy the criteria for listing on NASDAQ. The Company
expects to meet these criteria.
ARE EXISTING SHARES ELIGIBLE FOR FUTURE SALE?
All of the shares of the Company's Common Stock outstanding prior to this
Offering are "restricted securities" and may be sold only if registered or
exempt. Sales of substantial amounts of Common Stock by existing shareholders,
or even the potential of such sales, may have a depressive effect on the market
price of the Company's Common Stock.
ARE OFFICERS AND DIRECTORS MAKING ADDITIONAL PURCHASES IN THE OFFERING?
The Directors and Executive Officers of the Company have indicated they will
purchase approximately 10,000 additional shares in the Offering; however, they
reserve the right, at their option, to purchase such additional shares to
permit a closing at the minimum Offering to occur. Directors and Officers
(individually or through their families) currently have beneficial ownership of
2,000,000 shares or 100% of the current shares outstanding.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER AT (512)
302-6060, Monday through Friday from 9:00 a.m. to 6:00 p.m. Central Time.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
2
<PAGE> 11
PRO FORMA DATA *
At or for the Year Ended June 30, 1999
<TABLE>
<CAPTION>
MINIMUM OF RANGE MAXIMUM OF RANGE
---------------- ----------------
<S> <C> <C>
Shares Outstanding
Sale Price Per Share
Shareholders' Equity
Shareholders' Equity Per Share
Price/Book Ratio (a)
Earnings Per Share
Price/Earnings Ratio (annualized)
</TABLE>
- -------------
* Information based upon assumptions in the Prospectus under "Pro Forma
(a) Data." This is not intended to represent potential price appreciation.
There are no assurances that the price will be at or above the
offering price once the shares are issued.
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
Year Ended June 30
------------------
1999 1998
---- ----
<S> <C> <C>
Return on Average Equity
Return on Average Assets
Net Interest Margin
Stockholder's Equity to Total Assets
Net Charge-Offs to Average Loans
Non-Performing Assets to Total Assets
</TABLE>
The shares of common stock offered in the Conversion are not savings accounts
or deposits and are not insured by the Federal Deposit Insurance Corporation,
the Bank Insurance Fund, the Savings Association Insurance Fund or any other
government agency. This is not an offer to sell or a solicitation of an offer
to buy stock. The offer is made by the Prospectus.
<PAGE> 1
EXHIBIT 99.2
o Allied Mortgage
Capital Corporation
The Net Branch Advantage
<PAGE> 2
WHO
Allied Mortgage Capital Corporation (AMCC) is the largest affiliated
branch operation in the United States. With over 500 branches in 49
states including Guam and the Virgin Islands, we have the ability to
offer a networking environment unparalleled by any other Branch
operation in the world.
<PAGE> 3
[MAP CHART]
Allied Mortgage Capital Locations
[MAP CHART]
----------------------------------
BRANCH OFFICES
(PLUS U.S. VIRGIN ISLANDS & GUAM)
# 16 or More
# 8 - 15
# 1 - 7
----------------------------------
<PAGE> 4
Net Branch Benefits
o Processing. The excellent processing department at AMCC can do all,
or part, of your loan processing.
o Underwriting. They work for you and your branch comes first.
o Closing. We fund our loans quickly, with closing documents direct
to your office within three hours.
<PAGE> 5
Net Branch Benefits
o Accounting. Our capable accounting department will handle all your
bills, payroll, and third party accounts. You have twenty-four hour
access to your account information.
o Networking. We take only the best and train our branches to use the
resources available to them to maximize their income potential.
<PAGE> 6
Internet Solutions
o Internet. Through our site on the World Wide Web,
www.alliedmortgagecorp.com, each branch has it's own home page and
it's own separate e-mail address.
o Intranet. All corporate communications is handled through the
company Intranet network. Announcements, Lender Rate Sheets and
Branch to Branch communications are posted daily.
<PAGE> 7
[Quicken Mortgage.com LOGO]
o Quicken Mortgage allows a borrower to get rates, get pre-approved,
pre-qualify, or apply online for a mortgage. Allied is listed as
number one on Quicken Mortgage.com
<PAGE> 8
Allied Credit Union
o Established in June of 1999.
o Serves the current and future employees of Allied and their
Immediate Families Nationwide
o Offers services of saving and checking accounts, Loans of all
types, including auto loans, credit cards, debit cards and much more
which means a full service facility
o Benefits to come - Home banking capability on Allied Intranet Web
Site
<PAGE> 9
Allied Partners
It doesn't matter how big your
home building company is, you can
have your own mortgage company
too. With AMCC's Partners program,
your company can team up to for a
joint venture. AMCC acts as
managing general partner, handling
all negotiations and closings,
confirming pre-qualifications and
[ALLIED rate locks, and providing custom
PARTNERS pricing and flexible loan programs
LOGO] for buyers with excellent to less
than perfect credit.
<PAGE> 10
Allied Partners
o You get an exceptional tool to add new clients, and you earn
outgoing income with only a little more effort on your part.
o Substantially increase your bottom line without increasing
personnel and related overhead by having a large equity position in
the newly created builder mortgage company.
o Receive 50% of the distributed net earnings less the per loan due
fee due AMCC.
<PAGE> 11
Allied Lenders
<TABLE>
<S> <C> <C>
[BANK ONE LOGO] [CITIBANK LOGO] [LASALLE LOGO]
[CENDANT MORTGAGE LOGO] [FIRST UNION LOGO] [PRINCIPAL RESIDENCE MORTGAGE LOGO]
[CHASE LOGO] [FLEET LOGO] [PRISM LOGO]
[DIME MORTGAGE LOGO] [GMAC MORTGAGE LOGO] [GE CAPITAL MORTGAGE SERVICES, INC. LOGO]
[FIRST MORTGAGE NETWORK LOGO] [HOMESIDE LOGO] [COUNTRYWIDE LOGO]
</TABLE>
<PAGE> 12
WHY
Why would you want to sign up with Allied?
o There are many reasons to become a branch with Allied Mortgage
Capital Corporation (Allied).
o The best reason is because it works. We call it the Allied
Advantage. It means instant recognition with investors, clients and
customers.
o It means being your own CEO and closing in your own name. It means
the bulk selling of B and D loans and that you are both bankers and
broker.
<PAGE> 13
WHY (con't)
o ALLIED has a fully staffed processing department at your disposal.
o ALLIED has a full-time underwriters no matter who does your
processing.
o ALLIED has a closing department ready to schedule closings, even
for brokered loans.
o ALLIED has the Partners Program, a joint venture with Builders and
Realtors.
<PAGE> 14
WHY (con't)
o ALLIED's health, life and disability insurance is offered through
payroll deduction.
o ALLIED offers a 401K plan.
o No other company can offer that, you are both banker and broker.
o No other company can offer that, but that's not the only advantage.
o Our job is only to select the best applicants, and to train branch
managers to use all the available resources to maximize income
potential.
<PAGE> 15
WHY (con't)
o ALLIED lets the branch managers make the decisions. Branch managers
choose investors, they choose the prices. ALLIED just makes the
choices easier.
o Choose whether or not to use one of the hundreds of investors with
which ALLIED is approved, only if it makes sense. We will do as much
or as little as you require in processing and closing loans.
<PAGE> 16
WHY (con't)
o ALLIED is there to make every branch's job easier. That's why you
choose us
<PAGE> 17
LOAN OFFICER CHART
o SERIES 1
[CHART]
<TABLE>
<CAPTION>
-------------- --------------
1 2
-------------- --------------
<S> <C> <C>
o SERIES 1 541 724
- -------------- ------------- --------------
</TABLE>
