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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required)
For the fiscal year ended September 30, 1996.
[_] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from to .
Commission File Number: 0-9774
HOMECAPITAL INVESTMENT CORPORATION
(Name of Small Business Issuer in its charter)
NEVADA 95-3614463
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6836 AUSTIN CENTER BLVD.
SUITE 280
AUSTIN, TEXAS 78731
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (512) 343-8911
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock ($.01 par value)
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
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The issuer's revenues for the fiscal year ended September 30, 1996 were
$8,913,603.
As of December 16, 1996, there were 7,921,858 shares of Common Stock of the
Registrant outstanding. The aggregate market value of the outstanding common
stock of the Registrant held by non-affiliates on December 16, 1996, was
$7,664,363 based upon the average bid and asked price of $7.00 per share on the
OTC Bulletin Board of the National Association of Dealers, Inc. on December 16,
1996.
Transitional Small Business Disclosure Format (check one): Yes____ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
HomeCapital Investment Corporation, a Nevada corporation (the
"Company" or "Registrant"), is a holding company, which conducts its business
entirely through a wholly-owned subsidiary, HomeOwners Mortgage & Equity, Inc.,
a Delaware corporation ("Home"). All references herein to the Company include
Home, unless the context otherwise requires.
Home is a specialized consumer finance company organized in 1993 to
originate, purchase, sell and service home improvement and other second mortgage
loans secured by residential property. Home primarily finances Title I home
improvement loans ("Title I Loans") and conventional consumer and home equity
loans that may fund a variety of borrower needs ("Conventional Loans"). Loans
generated or purchased by Home are financed through bank warehouse credit lines
and then sold to the Federal National Mortgage Association ("Fannie Mae"),
secondary mortgage market investors and other financial institutions.
Home originates its loans primarily through pre-qualified home improvement
contractors ("Dealers") principally in the Southwestern and Western regions of
the United States, and through a national network of mortgage company loan
correspondents ("Correspondents"). The Company has recently initiated special
arrangements for loans to customers of home improvement supply and installation
firms ("Corporate Alliances").
Business Strategy. The Company seeks to become a leading consumer
finance company with particular emphasis on the home remodeling and home equity
financing markets. The Company's primary strategy is to increase loan volume
while maintaining its credit quality. The Company's strategies include: (i)
offering new loan products; (ii) expanding its existing network of
Correspondents, Corporate Alliances and Dealers; (iii) entering new geographic
markets; (iv) realizing operational efficiencies through economies of scale, and
(v) using sales to Fannie Mae and possible securitizations to sell higher
volumes of loans on more favorable terms. During the last quarter of fiscal
1996, the Company initiated the sale of a significant volume of its Title I
Loans to Fannie Mae. Subject to the availability of additional capital
resources, the Company may begin selling Title I Loans through securitization by
means of a Company sponsored Real Estate Mortgage Investment Conduit ("REMIC").
There is no assurance that these objectives will be achieved.
Loan Products. Home originates and purchases Title I and Conventional
Loans which are typically secured by a second mortgage lien on a one-to-four-
family residence. Home occasionally originates and purchases unsecured Title I
Loans for its most creditworthy customers. Loans under Title I of the National
Housing Act of 1934, administered by the U.S. Department of Housing and Urban
Development ("HUD") are eligible to be insured by the Federal Housing
Administration ("FHA") for 90% of the loan principal and certain other costs.
Among other things, Title I provides a credit insurance program enabling
homeowners to borrow 100% of home improvement costs up to $25,000 with a maximum
term of 20 years on a single family unit. The holder of a Title I Loan has the
risk of a potential loss of up to ten percent of the principal balance plus
certain expenses and a portion of the interest on the loan. However, the FHA
insures the remaining 90% of the principal balance of each Title I Loan and
certain other costs, provided that the loan was originated within HUD guidelines
and the holder of the loan has
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maintained a loss reserve account required to be established with HUD. The
borrowers of Title I Loans are typically classified as "A" through "D" credits,
many of which typically have less access to alternative forms of consumer
financing due to unfavorable credit experience, insufficient home equity,
limited credit history or high levels of debt service. Because of the additional
credit risk, Title I Loans originated or purchased by Home bear a higher
interest rate than rates charged by financial institutions to consumers with
better credit ratings, but may have lower monthly payments due to the longer
term.
In addition to Title I Loans, Home originates or purchases a variety
of Conventional Loans for home improvement, residential purchase money, equity
recovery and tax lien refinancing. Conventional Loans are non-insured consumer
loans and therefore generally require borrower equity. The borrower credit
characteristics of Conventional Loans are similar to that of Title I Loans;
however, Conventional Loans may be larger with shorter financing terms and
slightly lower rates than Title I Loans. Generally, Home originates these loans
under a pre-approval agreement and purchase commitment from an investor.
Loan Production. Home originates loans principally through (i) a
network of independent home improvement contractors, (ii) wholesale purchase
transactions with regional correspondent lenders, (iii) direct mail
solicitiation of individual homeowners ("Direct Loans") and (iv) national home
improvement supply and installation companies. Although the Dealer facilitates
the loan by taking the customer application, Home's underwriting department
evaluates and prices the loan and either Home or the Dealer prepares the loan
documentation ("Dealer Loans"). If a Dealer processes the loan, prepares the
documentation and closes the loan, the loan is made directly by the Dealer to
the customer and indirectly by Home ("Indirect Loans"). When Home has verified
that the remodeling project has been completed to the satisfaction of the
borrower, then Home purchases the pre-approved loan from the Dealer at its face
or par value.
During fiscal 1995, Home instituted its "MoneyLink" marketing plan to
solicit Dealers who did not offer financing as a part of their business. Under
the MoneyLink program applications are solicited by the Dealers from their
customers, but the lending relationship is direct from Home to the customer
("Direct Loan"). The Dealer only furnishes the customer an application and
forwards it to Home for processing, thereby acting only as a facilitator and not
processing the loan in the Dealer's name. Home will then underwrite, process,
communicate and close the loan directly with the customer.
Upon closing a Dealer Loan, Home funds the loan proceeds, either
payable directly to the customer or jointly to the customer and the contractor
prior to the initiation of home improvement work. Home receives any negotiated
origination fees and originates the loan at par value.
As of December 16, 1996, Home has established a network of 272 Dealers
in nine (9) states originating Indirect Loans and over 357 approved independent
contractors in approximately 30 states under its MoneyLink program, through
which it originates a significant portion of its Conventional and Title I Loans.
No Dealer accounted for more than five percent of Home's loan production in
fiscal 1996. Home is not required to establish offices and obtain territorial
operating approval from HUD to originate Correspondent Loans, but can originate
all such
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loans from its executive office. In order to originate loans eligible for Title
I insurance, Home is required to establish offices and obtain territorial
operating approval from HUD prior to purchase of Dealer Loans. As of December
16, 1996, Home was approved by HUD to purchase Dealer Loans in nine states.
Home anticipates opening six additional offices and obtaining HUD approval in
approximately 22 states during fiscal 1997. In addition to HUD approval, the
origination or purchase of Dealer Loans and all Direct Loans requires Home to be
approved or exempt from approval by state lending authorities for loan
originations in the respective states. As of December 16, 1996, Home was
approved or exempt in 25 states, had submitted applications for lending
authority in ten states and anticipates applying in fiscal 1997 in an additional
13 states, six of which require the establishment of an office in that state
prior to application.
The Company currently maintains a correspondent relationship with 131
Correspondents operating in 18 states. Loans generated by Correspondents
("Correspondent Loans") are originated, documented and closed by the
Correspondent lenders, usually small mortgage companies, commercial banks or
finance companies, but pre-approved and priced by Home's underwriting staff and
subsequently purchased by Home at a premium ranging from one percent to four
and one-half percent depending on the coupon rate and maturity of the loan.
The Company is seeking to expand and geographically diversify its Correspondent
Loans by development of new Correspondent lender relationships through an on-
going marketing campaign and through the addition of regional marketing managers
in its existing offices and in the new offices proposed for fiscal 1997.
During fiscal 1996, the Company purchased loans from 78
Correspondents. As a percentage of total 1996 Title I Loan production, 32
Correspondents accounted for 73% of the Company's loans. No Correspondent
accounted for more than 10% of production, five Correspondents each accounted
for 5% to 10% and an additional five Correspondents each accounted for 2% to 5%
of Title I Loans.
Home also makes Direct Loans that have, in the past, been typically
originated through direct mail solicitation. Home has originated
three initial "Corporate Alliance" relationships with home improvement supply
and installation companies. Under these relationships the various home
improvement stores and installation franchisees facilitate loan originations by
offering home improvement financing, through MoneyLink, at point-of-sale to
their home improvement customers. Store personnel trained by the Company obtain
loan applications that are processed by Home for Direct Loans to the customers.
This method of origination has particular benefit for "installed sales" by which
a customer makes an overall choice for a particular home improvement (such as a
new kitchen, bathroom, windows or other improvement), and the entire project,
including labor and materials, is installed on a turn-key basis by the Corporate
Alliance company. The Corporate Alliance company may benefit from increased
sales by accessing MoneyLink financing, through Home, for its customers. The
loan applications are underwritten, processed and closed as Direct Loans to the
customers who utilize the loan proceeds in payment of the materials and
services provided by the Corporate Alliance company. Through the end of fiscal
1996, Home had originated Corporate Alliance relationships with one home
improvement supply company with a total of 55 stores located in three states and
with one home improvement service franchisor.
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In November 1996, Home concluded a marketing agreement with Builders
Square, Inc., a subsidiary of Kmart Corporation, under which, on an exclusive
basis, Home will market its MoneyLink loan products through the Builders Square
stores. The agreement calls for an initial test period of six months, after
which, if the program is successful, Home would, on a staged basis, implement
the MoneyLink program to Builders Square customers in its 168 stores in the
United States and Puerto Rico.
The following table sets forth a summary of Title I Loan production
for the fiscal year ended September 30, 1996:
TITLE I Loans Funded
(Dollars in thousands)
<TABLE>
<CAPTION>
Correspondent Dealer Direct Total % of
State of Origination Loans Loans Loans Loans Total Loans
- ---------------------- ------------- -------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Arizona $ 416 $ $ 63 $ 479 *
Arkansas 87 4 91 *
California 62,162 3,157 65,319 67.3%
Colorado 437 437 *
Florida 3,838 77 3,915 4.0%
Georgia 15 15 *
Hawaii 351 351 *
Idaho 65 65 *
Illinois 192 192 *
Louisiana 92 92 *
Minnesota 32 32 *
Nevada 4,151 4,151 4.3%
New Jersey 61 61 *
New Mexico 254 8 32 294 *
New York 2,259 2,259 2.3%
North Carolina 132 132 *
Ohio 415 415 *
Oklahoma 215 358 573 *
Oregon 45 45 *
Texas 458 15,038 1,914 17,410 17.9%
Utah 302 302 *
Washington 436 436 *
--------------- ------------- ------------ --------- ------------
Total Title I Loans $ 76,021 $ 15,440 $ 5,605 $ 97,066 100.00%
=============== ============= ============ ========= ============
</TABLE>
__________________
*Less than one percent.
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In addition to Title I Loan production, total Conventional Loan
production in fiscal 1996 of $3,105,374 was originated as follows: $2,418,631 in
Texas; $575,054 in California; and $111,689 in Florida.
Loan Funding. Home funds its origination and purchase of loans
through a bank credit line, until loans in sufficient aggregate dollar amount
have been accumulated for sale to Fannie Mae or to the secondary market.
Presently, Home funds its borrowings under a Secured Note and Warehouse and
Security Agreement with Guaranty Federal Bank, F.S.B. ("Guaranty Bank") that
allows borrowings of up to a maximum of $15,000,000 secured by loans having a
face amount equal to approximately 98% of the purchase price of each loan, up to
100% of the principal balance of each loan it originates. Up to $2,000,000 of
the Guaranty Bank line may be used for Conventional Loans. Advances under the
loan bear interest at the lesser of Guaranty Bank's prime lending rate plus one
and one-half percent or Federal Funds Rate plus three and one-half percent per
annum, payable monthly. This warehouse credit line expires January 31, 1997.
Home expects, however, that it will be further extended upon substantially the
same terms by Guaranty Bank. In the event that the credit facility is not
extended, and Home is unsuccessful in obtaining a comparable warehouse facility,
the ability of Home to purchase and originate loans would be significantly
impaired.
Home will continue to seek to increase its warehouse credit line or
secure additional warehouse credit lines, so that it will be able to finance
increased loan production. No assurance can be given that the necessary
warehouse lines will be obtained.
Loan Sales. Prior to October 1995, Home sold substantially all of the
loans that it originated and purchased to institutional investors and their
affiliates and other secondary mortgage market investors as whole loan sales.
Most of the loans were subsequently sold into mortgage investment conduits.
These loan sales by Home resulted in a substantial one-time cash premium, but
did not permit the Company to participate in revenues over the life of the loans
or in loan servicing. In October 1995, Home undertook loan servicing activities
and, thereafter, sold its Title I Loans as whole loans with servicing retained.
In June 1996, Home initiated Title I Loan sales to Fannie Mae pursuant to which
Home receives a reduced cash premium at the time of sale but retains up to a
five percent excess servicing spread over the life of the loans above the
interest rate passed through to Fannie Mae.
Loan Servicing. Home initiated Title I Loan servicing in October
1995. In March 1996, Home was approved as a seller/servicer by Fannie Mae and
initiated Title I Loan sales in June 1996, retaining a fee or interest rate
spread for servicing the loans it sells. At September 30, 1996, Home had a total
loan servicing portfolio of $92,743,000 of which $29,550,000 was serviced for
Fannie Mae and $63,193,000 for others. It is the Company's strategy to retain
servicing rights from future loan sales which, accordingly, are expected to
become an increasingly larger component of earnings.
Markets. The principal market for Home is the large and highly
fragmented home remodeling industry. According to the National Association of
Home Builders, the industry is expected to grow from an estimated $121 billion
in 1994 to approximately $181 billion in the year 2000. Total loans financed
under Title I aggregated approximately $1.2 billion during the last HUD fiscal
year and are currently increasing at a significant rate. The home improvement
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market is directly affected by the number of people choosing to purchase
existing rather than new homes. Currently, in excess of 80% of home purchases
nationally are of existing homes. This trend, together with the overall aging of
the national housing stock, among other factors, has contributed to substantial
growth in the home improvement lending market in recent years.
Competition. Home competes with numerous well-known and established
companies in the consumer finance market with vastly greater capital resources,
more established loan production and marketing staffs and better access to
capital markets. However, by focusing primarily on home improvement loans to
individuals who cannot qualify for traditional financing, Home believes that it
will be able to enhance its position in the market place. Competition for
Correspondent Loans is primarily a function of price, available products and
service. The Company believes that it will be able to expand its Correspondent
Loan business by increasing the number of correspondent lenders through
automated loan documentation preparation services and "on-line" access to the
Company's loan approval process. The Company's proprietary automated
administrative services and loan documentation system that facilitate loan
applications should also assist the Company in increasing the number of
independent home improvement contractors in its Dealer network, where loan
production is driven primarily by service, as well as competitive bidding over
interest rates. Home also believes it will be able to more effectively compete
through geographical expansion of its Dealer network, thereby permitting Home to
service regional and national customers throughout these areas of operation.
Regulation. All aspects of the operations of Home are subject to
government regulation, supervision and licensing, including without limitation,
loan origination, credit activity, interest rates and finance charges,
disclosure to customers, the terms of secured transactions and the collection
and handling of defaulted loans. Home holds a contract of insurance for
property improvements and manufactured home loans issued by HUD which qualifies
the Company for the origination and purchase of Title I Loans. In addition,
each of the Correspondents and Dealers established by Home must be sponsored by
Home and approved by HUD in connection with Title I Loans. Home is required to
be qualified and licensed to conduct its loan activities in each state in which
those activities are conducted. Among the laws and regulations to which Home is
subject are the Truth In Lending Act, the Real Estate Settlement Procedures Act,
the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Fair
Credit Reporting Act, and the Federal Fair Debt Collection Act.
All of the laws and regulations applicable to the Company are subject
to frequent amendment and change. There can be no assurance that these laws,
rules and regulations will not be amended or changed, or other laws, rules and
regulations will not be adopted in the future in a form that could make
compliance much more difficult or expensive, restrict Home's ability to
originate, broker, purchase or sell loans, further limit or restrict the amount
of commissions, interest or other charges earned on loans originated, brokered,
purchased or sold by Home or otherwise affect the business or prospects of the
Company. In particular, the ability of Home to participate in Title I Loans is
dependent upon the continuation of the Title I program in substantially its
present form. Should the Title I program be suspended, discontinued or
substantially altered as a result of cost-cutting or other efforts by the
Congress of the United States, the ability of Home to participate in Title I
Loans could be substantially and adversely affected.
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Facilities and Employees. Home operates out of leased facilities in
its six branch offices and its home and executive offices at 6836 Austin Center
Blvd., Suite 280 in Austin, Texas 78731, telephone (512) 343-8911 and telefax
(512) 343-1837, which are shared with the Company. At December 16, 1996, Home
had 59 full-time employees, no part-time employees and three commissioned loan
officers. None of Home's employees is a member of a labor union, and the Company
believes that Home's relationships with its employees are good. The Company has
no full time employees, and the various executive and administrative functions
are performed on a part time basis by its directors and the employees of Home.
History of the Company
- ----------------------
HomeOwners Mortgage & Equity, Inc. ("Home") was organized as a Delaware
corporation in May 1993 to originate, purchase, sell and service home
improvement and other consumer loans secured by liens on improved property. On
August 26, 1994, the founders of Home, which currently conducts all of the
Company's mortgage lending activities, acquired, in a reverse acquisition,
approximately 83% of the outstanding common stock of the Company, a publicly
owned corporate shell then named Andromeda Capital Corporation ("Andromeda") and
organized in Nevada in 1980, in exchange for all of the issued and outstanding
common stock of Home, and changed its name to HomeCapital Investment
Corporation. In connection with such acquisition, all of the former officers
and directors of Andromeda resigned and were replaced by the management of Home.
See Note 1 to Notes to Consolidated Financial Statements.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company maintains its offices jointly with Home in leased space at
6836 Austin Center Blvd., Suite 280, Austin, Texas 78731. Home also leases space
for its six branch offices. The Company believes that its office facilities are
suitable and adequate for its current needs and that additional space is
available for future expansion.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property subject to,
any pending legal proceedings outside the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 1996, the Company filed and
distributed to its stockholders an Information Statement pursuant to Section
14(c) of the Securities Exchange Act of 1934, as amended, reporting that, on
August 16, 1996, management and affiliates, holding the right to vote an
aggregate of 6,055,711 shares of Common Stock and 1,166,667 shares of Series A
Preferred Stock, or approximately 83% of the voting power of the Company,
elected the nominees named in the Information Statement to the Company's Board
of Directors, approved, adopted and ratified the HomeCapital Investment
Corporation 1996 Stock Option Plan and appointed Coopers & Lybrand L.L.P. as
independent public accountants for the Company for fiscal 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information. Prior to December 8, 1994, there was no
------------------
active public trading market in the Company's Common Stock. The Company's Common
Stock was listed and began trading on the NASDAQ Bulletin Board on December 8,
1994 under the symbol ADRM. Effective November 29, 1994, the Company changed its
name to HomeCapital Investment Corporation, and the Company's trading symbol was
changed to HCAP on December 20, 1994.
The following tables set forth the range of high and low bid prices
per share for the Company's Common Stock for the periods indicated as reported
by the National Association of Securities Dealers, Inc. ("NASD"). The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
<TABLE>
<CAPTION>
Year ended September 30, 1995 High Low
---- ---
<S> <C> <C>
First Quarter $5.75 $4.75
Second Quarter 6.00 2.50
Third Quarter 2.50 .25
Fourth Quarter 2.00 .50
Year ended September 30, 1996 High Low
---- ---
First Quarter $1.13 $0.65
Second Quarter 3.69 1.13
Third Quarter 4.38 3.38
Fourth Quarter 5.75 3.63
</TABLE>
On December 16, 1996, the bid price per share for the Company's Common
Stock as reported by the NASD was $7.00.
(b) As of December 16, 1996, the approximate number of holders of
record of the Company's Common Stock was 969.
(c) The Company has never paid a cash dividend on its Common Stock.
It is not anticipated that any cash dividends will be paid in the near future.
Pursuant to the terms of the Company's Series A Preferred Stock, no dividends
may be paid on the Common Stock until all accrued dividends on the Series A
Preferred Stock have been paid or funds set aside therefore. At September 30,
1996, the Company had accrued and unpaid dividends on its Series A Preferred
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Stock of $76,932. Certain covenants contained in the Company's loan agreements
also restrict the payment of dividends on the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements, including the notes
thereto, contained elsewhere herein.
Summary
The Company, through its operating subsidiary, Home, is a specialized
consumer finance company engaged in the business of originating, purchasing,
selling and servicing residential remodeling and other second mortgage loans.
The Company primarily finances Title I home improvement loans and conventional
consumer and home equity loans through a network of home improvement
contractors, principally in the Southwestern and Western regions of the United
States, and through a national network of mortgage company loan correspondents.
Loans generated or purchased by Home are financed through a warehouse line of
credit and then sold to third-party purchasers.
During the fiscal year ended September 30, 1996, the Company generated
in excess of $100,000,000 in loans, resulting in net income of $2,566,223 on
revenues of $8,913,603. The Company experienced negative cash flow from
operations of approximately $3.9 million during fiscal 1996 principally due to
the retainage of servicing rights on the sale of loans. However, the Company
expects to continue funding its increased loan production and operational needs
by obtaining additional financing through placement of subordinated debt and
increased warehouse lines of credit.
The Company recognizes revenue primarily from the gain on sale of
loans, loan servicing income, and interest income. From inception of its loan
originations in 1993 to October 1995, the Company sold all of its loans through
whole loan sales, servicing released, to third party purchasers. In October
1995, the Company began selling its loans through whole loan sales retaining the
right to service the loans at a net spread of approximately 25 basis points
after subservicing costs. Commencing in June 1996, after the Company became a
qualified Seller/Servicer under the Fannie Mae Title I Loan purchase program,
the Company sold substantially all of its Title I Loans to Fannie Mae on a
servicing retained basis at a gross spread of up to 500 basis points. With the
inception of Fannie Mae loan sales with servicing retained, revenues for the
fourth quarter of fiscal 1996 were $4,990,413 as compared to $1,302,713 for the
fourth quarter of fiscal 1995.
Gain on sale of loans is recognized upon delivery of loans to
investors. Gain on sale of loans is calculated based upon the difference
between the net sales proceeds and the carrying amount of the loans sold,
together with excess servicing receivable determined on the date of sale.
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To determine the fair value of the excess servicing receivable, the
Company computes the present value of the net cash flows expected to be received
over the life of the loans after considering the costs of servicing the loans
and the effects of estimated prepayments and credit losses, net of FHA insurance
recoveries. Such calculations necessarily assume certain servicing costs,
prepayment rates and credit losses. As of September 30, 1996, the excess
servicing receivable totaled $5.1 million.
There can be no assurance that the Company's estimates used to
determine the fair value of excess servicing receivable will remain appropriate
for the life of the loans. If actual loan prepayments or credit losses exceed
the Company's estimates, the carrying value of the Company's excess servicing
receivable may have to be written down through a charge to earnings. The
Company will not write up such assets to reflect slower than expected
prepayments, although slower prepayments may increase future earnings as the
Company will receive cash flows in excess of those anticipated.
The Company discounts net servicing cash flows on its loan sales with
excess servicing at the rate it believes an independent third-party purchaser
would require as a rate of return. The cash flows were discounted to present
value using discount rates which averaged 12.5% for fiscal 1996. The Company
has developed its assumptions based on experience with its loan portfolio,
available market data and ongoing consultation with its financial advisors.
Interest income-loans represents interest received on loans in the
Company's portfolio prior to their sale. Loan servicing income represents
servicing fee income and other ancillary fees received for servicing loans, less
the amortization of the excess servicing receivable. Servicing costs consist of
fees paid to an unaffiliated company to perform the functions of loan servicing.
Total costs and expenses consist primarily of salaries and employee
benefits, servicing costs, loan costs, including provision for credit losses,
general and administrative expenses, occupancy costs and interest.
The Company continues to implement its business growth strategy
through both product line and geographic diversification and expansion of its
Correspondent and Dealer operations, in an effort to increase both loan
origination volume and servicing volume. See Item 1 - "Description of Business -
Business Strategy." Implementation of this strategy has increased the Company's
total assets through growth in the excess servicing receivable and has been
funded primarily through increased borrowings. While this growth has increased
the Company's revenues through increased gain on sale of loans, loan servicing
income and net interest income, it has also increased the general and
administrative expense and provision for credit losses associated with the
growth in loans originated and serviced. Continued increases in the Company's
total assets and increasing earnings can continue only so long as origination
volumes continue to exceed pay downs of loans serviced and previous period
origination volumes. Additionally, the fair value of excess servicing receivable
owned by the Company may be adversely affected by changes in the interest rate
environment, which could affect the prepayment assumptions used to value the
asset, as well as reduce the gains from the sale of those loans which the
Company is committed to purchase or has in inventory. Any such adverse change in
assumptions could have a material adverse effect on the Company's financial
condition and results of operations.
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RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
The Company originated $100.2 million of loans during fiscal 1996
compared to $61.9 million of loans during fiscal 1995, an increase of 62%. The
increase is a result of the overall growth in the Company's business, including
an increase in the number of active Correspondents and Dealers and an increase
in the number of states served. At September 30, 1996, the Company had
approximately 80 active Correspondents and 51 active Dealers, compared to
approximately 55 active Correspondents and 113 active Dealers at September 30,
1995. Of the $100.2 million of loans originated in fiscal 1996, $97.1 million
were Title I Loans and $3.1 were Conventional Loans.
The following table sets forth certain data regarding loans
originated and purchased by the Company during fiscal 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995
------------ --------------
<S> <C> <C> <C> <C>
Principal amount of loans:
Correspondents:
Title I $ 76,020,078 75.9% $ 35,062,570 56.7%
Conventional 3,105,374 3.1% 1,795,325 2.9%
---------------- --------- -------------- ----------
Total Correspondent 79,125,452 79.0% 36,857,895 59.6%
Dealers - Title I 15,440,132 15.4% 19,686,770 31.8%
Direct - Title I 5,606,397 5.6% 5,308,198 8.6%
----------------- ---------- -------------- ----------
Total $100,171,981 100.0% $ 61,852,863 100.0%
================= ========== =============== ==========
Number of loans:
Correspondents:
Title I 3,399 68.2% 1,659 46.8%
Conventional 152 3.0% 79 2.2%
----------------- ----------- ------------- ----------
Total Correspondent 3,551 71.2% 1,738 49.0%
Dealers - Title I 1,124 22.5% 1,534 43.3%
Direct - Title I 312 6.3% 274 7.7%
---------------- ----------- ------------- ----------
Total 4,987 100.0% 3,546 100.0%
================ =========== ============= ==========
</TABLE>
Total revenues increased 141% to $8.9 million for fiscal 1996 from
$3.7 million for fiscal 1995. The increase was primarily the result of the
increased volume of loans originated and the sale of such loans.
13
<PAGE>
The following table sets forth the principal balance of loans sold and
related gain on sale data for fiscal 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended September 30
1996 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Principal amount of loans sold:
Title I $94,442 $61,223
Conventional 3,053 1,795
------- -------
Total $97,495 $63,108
======= =======
Gain on sale of loans $ 7,754 $ 3,201
Gain on sale of loans as a percentage 8.0% 5.0%
of principal balance of loans sold
</TABLE>
Gain on sale of loans, as a percentage of the principal balance of
loans sold, increased in fiscal 1996 over fiscal 1995, primarily due to the
excess servicing component of the gain in fiscal 1996. The increase in gain on
sale of loans increased from $3.2 million in fiscal 1995 to $7.8 million in
fiscal 1996. The excess servicing component of the gain totaled $5.2 million in
fiscal 1996.
Loan servicing income, which commenced in fiscal 1996, totaled
$390,571 for the year. Such income was derived from servicing on $91.0 million
of loans sold with servicing retained during 1996. Loan servicing cost totaled
$265,546 in fiscal 1996.
Interest income on loans held for sale increased 89.8% to $627,365
during fiscal 1996 from $330,564 during fiscal 1995. The increase was primarily
the result of the increase in the average size of the portfolio of loans held
for sale.
The provision for credit losses increased from $50,000 in fiscal 1995
to $220,000 in fiscal 1996. The provision for credit losses is based upon
periodic analysis of the portfolio, economic conditions and trends, historical
credit loss experience, the borrowers' ability to repay, collateral values, and
estimated FHA insurance recoveries on loans originated and sold. The increase in
the provision for credit losses was due primarily to the increase in loan
production in fiscal 1996. Presently, upon sale of loans by Home the purchaser
assumes all credit risk, except for first payment default, fraud and certain
other limited exceptions. If Home changes its loan disposition strategy in ways
that increase its credit risk by securitizing or otherwise holding the loans
longer in portfolio, then the provision for credit losses as a percentage of
loans originated can be expected to increase.
Salaries and employee benefits increased 29% to $2.2 million for
fiscal 1996 from $1.7 million for fiscal 1995, primarily as a result of an
increase in the pay rates of employees and the increase in higher compensated
employees.
14
<PAGE>
Loan costs, consisting primarily of costs for credit reports, flood
reports, title reports, inspection fees, and the provision for credit losses,
increased 45% to $513,404 for fiscal 1996 from $354,655 for fiscal 1995 due
primarily to the increase in loan production of $38.3 million from fiscal 1995
to 1996.
Total general and administrative expenses increased 39% to $1.6
million for fiscal 1996 from $1.2 million for fiscal 1995. The increase was
primarily as a result of increases in postage and courier costs,
telecommunication costs, stationary and office supplies expenses, travel costs,
advertising expenses, and depreciation expense. The increase in these costs was
primarily attributable to the increased volume of loan originations and loans
serviced.
Interest expense increased 46% to $462,064 for fiscal 1996 from
$315,442 for fiscal 1995. The increase was the direct result of increased loan
originations and the corresponding increase in the average outstanding balance
of the warehouse credit line.
Income before income taxes increased to $3.5 million for fiscal 1996
from a loss of $72,045 for fiscal 1995.
The provision for income taxes in fiscal 1996 was $914,041. Prior to
fiscal 1996, the Company recorded no tax provisions due to net operating losses.
For the fiscal year 1996, the Company had income before income taxes of $3.5
million as compared to a loss before income taxes in fiscal 1995 of $72,045. A
valuation allowance of $73,230 on deferred tax assets remains at the end of
fiscal 1996 due to net operating loss carryforwards generated by the Company
which may not be able to utilize such loss carryforwards in future periods. The
Company and Home file separate Federal tax returns.
The effective income tax provision for fiscal 1996 was 26%. This
percentage differs from the federal statutory rate of 34% due primarily to the
effect of state income taxes and the reduction in the valuation allowance due to
the utilization of net operating loss carryforwards in fiscal 1996 by Home.
As a result of the foregoing, net income increased to $2.6 million
($.30 per share) for fiscal 1996 from $(72,045) ($(.01) per share) for fiscal
1995.
FINANCIAL CONDITION
September 30, 1996 Compared to September 30, 1995
Cash increased to $343,484 at September 30, 1996 from $25,716 at
September 30, 1995 primarily as a result of the timing of loan originations,
loan sales, borrowings and proceeds from sale of common and preferred stock.
Restricted cash deposits increased 100% to $705,754 at September 30,
1996 due to the commencement of loan servicing activities during fiscal 1996.
Loans held for sale, net, increased 164% to $4.5 million at September
30, 1996 from $1.7 million at September 30, 1995 primarily as a result of
increased loan originations from $61.9 million for fiscal 1995 to $100.2 million
for fiscal 1996, and the timing of loan sales.
15
<PAGE>
Excess servicing receivable increased 100% to $5.1 million at
September 30, 1996 due to the Company commencing its loan servicing activities
during fiscal 1996. Excess servicing receivable is calculated using prepayment,
default and interest rate discount assumptions on future servicing cash flows
that the Company believes market participants would use for similar
transactions. The Company believes that the excess servicing receivable
recognized at the time of sale does not exceed the amount that would be received
if such rights were sold at fair market value in the marketplace.
Furniture, fixtures and equipment, net, increased 73% to $646,082 at
September 30, 1996 from $373,860 at September 30, 1996 due to increased
purchases of office equipment related to facility expansion, and the expenditure
of $293,395 for the development of the Company's proprietary loan system.
Revolving lines of credit increased 171% to $4.1 million at September
30, 1996 from $1.5 million at September 30, 1995 due to the increase in loans
held for sale at the end of fiscal 1996.
Accrued expenses and other liabilities increased to $1.3 million at
September 30, 1996 from $122,113 at September 30, 1995, primarily as a result of
increases in accrued payroll, interest and other unpaid operating costs, and the
increase in the liability for unremitted funds relating to restricted cash
deposits.
Income tax liability increased 100% to $1,104,543 at September 30,
1996 as a result of significant earnings during fiscal 1996 as compared to
losses in prior years.
Stockholders' equity increased to $4.9 million at September 30, 1996
from $28,259 at September 30, 1995 primarily as a result of net income of $2.6
million during fiscal 1996 and, $2.1 million in proceeds from the issuance of
1.5 million shares of Series A Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise from loan originations and
payments of operating expenses, interest and income taxes. Loan originations are
initially funded principally through the Company's warehouse line of credit
pending the sale of loans in the secondary market. Substantially all of the
loans originated by the Company are sold. Net cash provided by (used in) the
Company's operating activities for the years ended September 30, 1996 and 1995
was approximately $(3.9) million and $81,726, respectively. The net cash
provided by (used in) the Company's operating activities was funded primarily
from the reinvestment of proceeds from the sale of loans totaling $99.9 million
and $64.3 million for the years ended September 30, 1996 and 1995, respectively.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans in the secondary market, are essential for
the continuation of the Company's loan origination operations. At September 30,
1996, the Company had a $10 million warehouse line of credit (the "Warehouse
Line"), which was increased to $15 million on October 15, 1996. The Warehouse
line expires January 31, 1997. At September 30, 1996, $3.9 million
16
<PAGE>
was outstanding under the Warehouse Line and $6.1 million was available. The
Warehouse Line, as amended, bears interest at the lower of prime plus 1.5% per
year or the Federal funds rate plus 3.5% per year and is secured by loans prior
to sale. The agreement with the lender requires the Company to maintain a
minimum adjusted tangible net worth of $3.4 million. In addition, the Company
secured a $3.0 million working capital line of credit (the "Working Capital
Line") on November 8, 1996 from the same lender, which is collateralized by a
pledge of the Company's excess servicing receivable. The Working Capital Line
has a 12-month revolving credit period, bears interest, payable monthly, at
prime plus 2.25% per year, and requires the Company to maintain a minimum
adjusted tangible net worth of $3.4 million. Borrowings under the Working
capital line cannot exceed the lesser of (i) the book value of the excess
servicing receivable or, (ii) 50% of the appraised value of the excess servicing
receivable as determined by the lender. While the Company believes that it will
be able to maintain its existing credit facilities and obtain replacement
financing as its credit arrangements mature and obtain additional financing, if
necessary, there can be no assurance that such financing will be available on
favorable terms, or at all.
Until October 1995, the Company's principal source of liquidity was
the sale of whole loans, service released. While this enabled the Company to
meet its operating cash requirements, it limited the Company's growth potential
and return on its loan originations. To remedy this situation, the Company
embarked on a strategy in fiscal 1995 that would enable the Company to position
itself to retain the servicing rights associated with its loan originations and
look to various other sources to securitize its loan production, such as sales
to Fannie Mae under the Title I Loan program and the securitized sale of loan
pools in the secondary market. The Company was approved as a Seller/Servicer
under the Fannie Mae Title I Loan purchase program in March 1996 and required to
obtain expanded warehouse financing and additional capital to support loan sales
to Fannie Mae. The Company issued 1.5 million shares of Series A Preferred
Stock in June, 1996 for cash of $1.9 million and conversion of $250,000
principal amount of outstanding debt. (See Note 10 to the Consolidated Financial
Statements). During fiscal 1996 the Company has sold $29.7 million in loans to
Fannie Mae, retaining all servicing rights. The Company intends to continue
selling substantially all of its qualified Title I Loans to Fannie Mae until it
is able to privately assemble and securitize such loans in the secondary market
on a cost effective basis. Any such securitization program would necessarily
entail its own liquidity demands, including without limitation, funding of
reserves and other credit enhancements, income taxes and significant issuance
costs, and require larger warehouse lines of credit and additional capital to
meet rating agency requirements and the increased liquidity demands.
While the increase in its warehouse line and additional capital have
enabled the Company to significantly increase its loan originations and sales to
Fannie Mae, such sales, with servicing retained, create additional short-term
cash requirements. Sales to Fannie Mae are generally made at a lower premium,
and include the retention for the life of the loan of up to 500 basis points of
the spread between the coupon rate of the loans and the pass-through rate to
Fannie Mae, and must be accounted for on a basis, as described above, that
generates a much larger gain on sale for tax purposes. This gain is subject to
federal and state income tax currently payable, even though the cash from the
related loan sales will be received over the life of the loans. Accordingly, in
order for the Company to continue to grow its loan originations and servicing
portfolio, it must constantly raise additional capital through the sale of debt
and/or equity securities until the earnings from its servicing portfolio are
adequate to support such growth.
17
<PAGE>
During fiscal 1996, the Company used $3.9 million of cash in operating
activities, and used $387,408 in investing activities, primarily for furniture,
fixtures and equipment, including $293,395 for the further development of the
Lot$Pro computer system, and provided $4.6 million in financing activities
through increasing usage of its revolving line of credit and the issuance of
Series A Preferred Stock.
The Company expects to spend approximately $500,000 for additional
furniture, fixtures and equipment in fiscal 1997 for the expansion of its
lending network, and approximately $150,000 for additional upgrades and
enhancements to its computer system.
The Company believes that it will need to raise approximately $20
million in debt and/or equity funds to support its anticipated growth in fiscal
1997. There can be no assurance that the Company will be able to raise such
funds. The failure to raise such funds may impair the Company's ability to
implement its business strategy and grow its business, and may have a material
adverse effect on the financial condition, results of operations and liquidity
of the Company.
EFFECTS OF CHANGING PRICES AND INFLATION
The Company's operations are sensitive to increases in interest rates
and to inflation. Increased borrowing costs resulting from increases in
interest rates may not be immediately recoverable from prospective purchasers.
The Company's loans held for sale consist primarily of fixed-rate long term
loans that do not increase or decrease as a result of changes in interest rates
charged to the Company. In addition, delinquency and loss exposure may be
affected by changes in various regional economies, such as California and Texas,
where the Company has significant loan concentrations, or in the national
economy.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. In the event that facts and
circumstances indicate that the cost of long-lived assets other than financial
instruments and deferred tax assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation of impairment is required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required. The Company believes SFAS No.
121 will have no material impact on the Company's results of operations or
financial condition as a result of implementing the pronouncement during fiscal
1997.
In May 1995, the FASB issued SFAS No. 122 which requires that upon
sale or securitization of servicing-retained finance contracts, the Company
capitalize the cost associated with the right to service the finance contracts
based on their relative fair values. Fair value is determined by the Company
based on the present value of estimated net future cash flows related
18
<PAGE>
to servicing income. The cost allocated to the servicing right is amortized in
proportion to and over the period of estimated net future servicing fee income.
The Company has not determined the effect on its operating results or financial
condition when it adopts SFAS No. 122, which is required in fiscal 1997.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes
fair value-based financial accounting and reporting standards for all
transactions in which a company acquires goods or services by issuing its equity
instruments or by incurring a liability to suppliers in amounts based on the
price of its common stock or other equity instruments. The Company will
continue to account for stock-based compensation as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
will make the required disclosures in its 1997 fiscal year financial statements.
The FASB has issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides new accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
statement also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings and
requires that liabilities and derivatives incurred or obtained by transferors as
part of a transfer of financial assets be initially measured at fair value. It
also requires that servicing assets be measured by allocating the carrying
amount between the assets sold and retained interests based on their relative
fair values at the date of transfer. Additionally, this statement requires that
the servicing assets and liabilities be subsequently measured by (a)
amortization in proportion to and over the period of estimated net servicing
income and (b) assessment of impairment or increased obligation based on their
fair values. The Company has not adopted the new standard for the current
period, but must adopt the new requirements effective January 1, 1997. The
Company has not determined the effect on results of operations or financial
condition in the period of adoption.
SEASONALITY
Home improvement loan volume tracks the seasonality of home
improvement contract work. Volume tends to build during the spring and early
summer months, particularly with regard to pool installations. A decline is
typically experienced in late summer and early fall until temperatures begin to
drop. This change in seasons precipitates the need for new siding, window and
insulation contracts. Peak volume is experienced in November and early December
and declines dramatically from the holiday season through the winter months.
Debt consolidation and home equity loan volume are not impacted by seasonal
climate changes and, with the exclusion of the holiday season, tend to be stable
throughout the year.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and exhibits are listed at Item 13 "Exhibits
and Reports on Form 8-K."
19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
- --------------------------------
The following table sets forth the names and ages of all Directors and
executive officers of the Company and their positions with the Company. Stephen
Pyhrr and Peter Pyhrr are brothers. It is expected that directors and officers
serving as of December 16, 1996, will hold office until the next annual meeting
of stockholders and until their successors have been elected and qualified.
<TABLE>
<CAPTION>
Name Age Position and/or Director of
the Company Since
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
John W. Ballard 59 Chairman, Board of August 26, 1994/(1)/
Directors; President;
Chief Executive Officer
E. Jeff Bomer 60 Director and Secretary August 26, 1994
Gary J. Davis 43 Vice Chairman, Board August 26, 1994
of Directors
J. Rolfe Johnson 57 Director December 10, 1996
Charles R. Leone, III 37 Director June 18, 1996
Robert R. Neyland 43 Director June 18, 1996
Tommy M. Parker 47 Treasurer June 27, 1996
Peter A. Pyhrr 54 Director August 26, 1994
Stephen A. Pyhrr 52 Director August 26, 1994
Walter W. Stoeppelwerth 63 Director June 27, 1996
Helen T. Watkins 43 Director August 16, 1996/(2)/
</TABLE>
_________________
/(1)/ Mr. Ballard was appointed as Chairman of the Company's Board of Directors
on November 3, 1994.
/(2)/ Ms. Watkins resigned from the Company's Board of Directors on December 10,
1996.
20
<PAGE>
Mr. Ballard has been President and Chief Executive Officer of Home
since June 1993. From April 1989 through May 1993, Mr. Ballard was President and
Chief Executive Officer of American Savings Mortgage Company (a second lien
mortgage company).
Mr. Bomer has been Chairman of the Board of Directors of Home since
July 1993. Mr. Bomer was the President and Chief Executive Officer of Austin
Real Estate Services, Inc. dba Davis & Associates (a real estate services
company) from September 1985 until its merger in July 1995 into SynerMark
Holdings, L.P. Currently, Mr. Bomer is President of SynerMark Realty Services,
Inc., a subsidiary of Syner Mark Holdings, L.P.
Mr. Davis was a consultant to Home from November 1993 through March
31, 1996. Since March 1974, Mr. Davis has been a partner with Curtis Davis
Realtors (a real estate firm). Since September 1991, Mr. Davis has been
President of Investment Property Advisors, Inc. (a real estate investment and
management company). From September 1990 to September 1991, Mr. Davis was a
consultant to Culpepper Properties (a real estate investment and development
company).
Mr. Johnson is an attorney in Houston, Texas, who specializes in
corporate and securities law practice. Since January 1991, Mr. Johnson has been
sole sharholder of J. Rolfe Johnson, P. C., which has provided legal services to
the Company since November, 1995.
Mr. Leone III has been the President of Penntex Investments, Inc.,
general partner of HCI Equity Partners, L. P. ("HCI") since January 1992, and
has been President of Federal Services Corporation (a loan servicing and venture
capital firm) since October 1990.
Mr. Neyland has been the sole manager of HCIE, L.L.C., a general
partner of HCI since May 1996, and a partner of Living Suites (a real estate
management firm) from September 1990 to June 1996. Mr. Neyland is also a
Director of Capital Communities Corporation.
Mr. Parker has been Executive Vice President, Chief Financial Officer
and Chief Operating Officer of Home since June 1996. Mr. Parker served as Vice
President of Finance and Chief Financial Officer of Whataco, Inc. (a fast food
franchisee) from September 1991 to June 1996, prior to which he was an
independent consultant to the financial services industry from May 1990.
Mr. Peter Pyhrr has been the President of Hospital Forms & Systems
Corp. since October 1979, the President of Magnetic Ticker & Label Corp. from
July 1982 and President of HFS Corp. (a business forms company) from July 1982.
Mr. Stephen Pyhrr was a partner with Austin Real Estate Services dba
Davis & Associates, (a real estate services company) from June 1974 until its
merger in July, 1995 into SynerMark Holdings, L.P. Presently Mr. Pyhrr is
President of SynerMark Investments, Inc. (a real estate investment company), a
subsidiary of SynerMark Holdings, L.P.
21
<PAGE>
Mr. Stoeppelwerth has been a co-founder of HomeTech Information
Systems, Inc. (a construction industry publisher) since 1965, a nationally
recognized remodeling industry spokesman and educator, and a noted columnist and
author of publications on home remodeling and renovations.
Ms. Watkins was employed in professional securities trading and
portfolio management activities by Paragon Associates (Dallas - 1985-1988),
Republic National Bank (Dallas - 1980-1985) and Texas Commerce Bank (Houston -
1974-1980). Ms. Watkins has been engaged as a homemaker and leader in community
parent and charitable organizations since March 1988.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers and directors, and persons who beneficially own 10% of a
registered class of the Company's securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
on a review of the copies of such forms furnished to the Company, the Company
believes that all persons subject to the reporting requirements have filed the
required reports pursuant to Section 16(a) on a timely basis with the SEC,
except as follows:
Each of John W. Ballard, JDB, SDP and PAP filed a report in October
1995 (for the month of September 1995) reporting the purchase of 48,241 shares
of common stock of the Company; whereas, in fact, each should have reported only
the right to acquire such shares. Pursuant to such rights, each such person
acquired an aggregate of only 15,091 shares over the next three months, and the
rights to acquire the remaining shares were terminated without being exercised.
As a result, each of such persons failed to file three monthly reports to
reflect the purchase transactions.
Certain Legal Proceedings
- -------------------------
Tommy M. Parker, who recently joined the Company as Executive Vice
President, was an officer, director and shareholder of Mississippi Savings Bank
of Batesville, Mississippi, at the time that it failed and was placed in
receivership by the Resolution Trust Corporation ("RTC") in 1990. The RTC and
the Office of Thrift Supervision ("OTS") alleged that Mr. Parker and other
principals of the bank received excessive compensation, improper shareholder
distributions and engaged in imprudent lending and management practices in light
of the financial condition of the bank. Subsequent administrative and judicial
proceedings, to the extent that they involved Mr. Parker, were resolved in
October 1992 pursuant to a Compromise Settlement Agreement and Release with the
RTC and a Stipulation and Consent with the OTS. Mr. Parker entered into the
settlement and consent to avoid the time and expense of enforcement proceedings
and litigation and neither admitted nor denied the allegations of the RTC and
the OTS. Among other things, the joint settlement provided that, in
consideration of discharge of certain obligations of Mr. Parker to the bank, Mr.
Parker was required to make a monetary payment to the RTC and convey to the RTC
or its nominees an undivided interest in certain non-cash or "in-kind" dividends
received by Mr. Parker as a shareholder of the bank. In addition, Mr.
22
<PAGE>
Parker agreed that he would not, without regulatory consent, participate in the
conduct of the affairs or distribution of securities of a federally insured
depository institution.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the compensation
paid (or earned by the named individuals) by the Company and Home for the fiscal
years ended September 30, 1996, 1995 and 1994 to the chief executive officer. No
other executive officers were paid compensation in excess of $100,000 during any
year of the covered period.
<TABLE>
<CAPTION>
Name and Principal Year Salary($) Bonus($) Other Annual Stock
Position Compensation Options
/(2)/ ($) (# of
Shares)
<S> <C> <C> <C> <C> <C>
JOHN BALLARD/(1)/ 1996 150,000 -- 12,028
Chairman of the Board; 1995 150,000 -- 14,384
President; 1994 150,000 -- 18,655 409,668/(3)/
Chief Executive Officer
</TABLE>
______________
/(1)/Salaries and other compensation to Mr. Ballard were paid by Home as
compensation for his services as President and Chief Executive Officer of
Home. See "Executive Contracts" below. Additionally, Home provides and
maintains an automobile and mobile telephone, and provides health and group
life insurance and reimbursement of business-related expenses to Mr.
Ballard. Mr. Ballard received no additional compensation for serving as
Chairman of the Board and President of the Company.
/(2)/Includes $3,213, $4,984 and $6,700 for fiscal years 1996, 1995 and 1994,
respectively, representing the value of insurance premiums paid by Home for
Mr. Ballard; $7,942, $8,789 and $11,845 for fiscal years 1996, 1995 and
1994, respectively, representing the cost to Home of providing and
maintaining an automobile and mobile phone for Mr. Ballard; and $873, $611
and $110 for fiscal years 1996, 1995 and 1994, respectively, for country
club membership fees paid by Home for Mr. Ballard.
/(3)/In June, 1993, Mr. Ballard was granted a restricted stock option to
purchase 555 shares of Home common stock in connection with his employment
agreement ("Ballard Home Option"). In August, 1995, in connection with the
reverse acquisition of the Company's predecessor by former stockholders of
Home (the "Home Transaction"), the Ballard Home Option was canceled, and
Mr. Ballard was granted a fully-vested, seven-year option to acquire
409,668 shares of Company Common Stock at an exercise price of $.1626 per
share. Mr. Ballard was not granted nor did he exercise any options during
the 1996 fiscal year, and at September 30, 1996, the unexercised options
held by Mr. Ballard had a determined value of approximately $2,084,145
based upon the closing bid price of $5.25 per share of Common Stock on the
OTC Bulletin Board of the National Association of Securities Dealers, Inc.
at such date.
23
<PAGE>
Executive Contracts
- -------------------
Effective June 21, 1993, Home entered into a five year employment
agreement with John W. Ballard as President and Chief Executive Officer of Home
("Ballard Employment Agreement") providing for (i) an annual base salary of
$150,000 and (ii) an annual incentive bonus equal to 25% of his base salary if
the operating results of Home exceed certain earnings projections. If earned the
incentive bonus is payable in common stock or cash at the election of the
employee. Mr. Ballard was granted a restricted stock option for the purchase of
555 shares of Home common stock vesting over the term of the Ballard Employment
Agreement ("Ballard Home Option"). The Ballard Home Option was canceled and
converted into a fully-vested option to purchase 409,668 shares of the Company
Common Stock at $.1626 per share on August 26, 1994 in connection with the Home
Transaction. Pursuant to the Ballard Employment Agreement, Mr. Ballard also
purchased 555 shares of Home common stock, which were subsequently converted to
409,671 shares of the Company's Common Stock in connection with the Home
Transaction, in consideration for the $55,500 five year promissory note of Mr.
Ballard, bearing interest at six percent per annum and payable interest only
until maturity. In the event Mr. Ballard is terminated for "cause" (as defined
in the Ballard Employment Agreement) he is not entitled to receive any further
compensation other than that which is earned prior to the termination date. In
the event Mr. Ballard is terminated by Home other than for "cause," or in the
event that Mr. Ballard terminates the Ballard Employment for "good reason" (as
defined in the Ballard Employment Agreement), then he is entitled to receive all
compensation to which he would be entitled during the remaining term of the
Ballard Employment Agreement, including his base salary of $150,000. Mr. Ballard
also serves as Chairman of the Board, President and Chief Executive Officer of
the Company for no additional compensation.
Home has entered into an employment agreement with Tommy M. Parker,
who serves as an Executive Vice President of Home with the functions of Chief
Operating Officer and Chief Financial Officer of Home for a term of three years
commencing June 1, 1996, that is automatically renewable from year to year
unless terminated on 90-days notice ("Parker Employment Agreement"). Mr. Parker
is entitled to (i) a base salary of $125,000 for the first year increasing by
$25,000 each year for the next two years and thereafter during any renewal term
at the discretion of the Board of Directors, but not less than the base salary
of the previous year; (ii) an annual incentive bonus equal to 25% of the
aggregate bonus pool under an incentive bonus plan to be established by the
Board of Directors of Home based upon the consolidated net income of the
Company; (iii) performance bonuses equal to one-half percent of the net proceeds
to the Company from its next public offering of securities for cash, and two
percent of net savings to the Company each year of income taxes resulting from
tax planning strategies introduced by Mr. Parker; and (iv) a one-time grant of
options to purchase 150,000 shares of Common Stock under the Company's 1996
Stock Option Plan. Mr. Parker is entitled to participate in group health, life
insurance and other employee benefit plans, reimbursement of business-related
expenses, an automobile allowance of $500 per month and mobile telephone,
reimbursement for expenses of maintaining his certificate and license with the
Texas State Board of Public Accountancy, and a signing or relocation bonus of
$5,000 plus moving expenses ( and an amount equal to federal income taxes
payable on such payments) and closing costs of the purchase of a residence in
Austin, Texas. Mr. Parker also serves as Executive Vice President and Treasurer
of the Company for no additional compensation.
24
<PAGE>
Compensation to Directors
- -------------------------
During the fiscal years ended September 30, 1995 and 1996, Directors
of the Company did not receive any compensation for their services as Directors.
Directors are reimbursed for travel expenses incurred in attending meetings.
Messrs. Charles R. Leone, III and Robert R. Neyland, Directors of the
Company, have been engaged as financial and business development consultants to
the Company for a one-year period for annual fees of $20,000 each pursuant to an
agreement effective April 12, 1996. Messrs. Leone and Neyland were nominated as
the nominees of HCI to the Board of Directors of the Company pursuant to the HCI
Agreement more fully described under "Management Relationships and Transactions"
below. During fiscal 1996 each of Messrs. Leone and Neyland received the $20,000
due from the Company under terms of their consulting agreements.
The Board of Directors of the Company approved a three year incentive
plan to encourage and compensate Directors of the Company or Home for developing
customer relationships on behalf of Home with home improvement contractors,
suppliers, distributors and home improvement retailers that result in new
sources of loan production for Home. A Director will be entitled to be
compensated in the amount of one percent for the first two years and one-half
percent for the third year of loans funded by Home during each year from sources
initiated by the Director. In order to be eligible for incentive compensation
with respect to loans generated through suppliers and distributors of goods and
services to the home remodeling industry, such lumber yards and home improvement
product chain stores, a Director must have participated with Home in producing
training seminars and workshops for employees of the customer.
Prior to his becoming a Director, the Company had agreed to compensate
Walter W. Stoeppelwerth for featuring or promoting home improvement loan
products of Home at seminars and workshops for home improvement contractors and
industry suppliers of goods and services. Mr. Stoeppelwerth receives $2,000 plus
expenses for each event. Total payments to Mr. Stoeppelwerth under this
arrangement in fiscal 1996 were $20,725. Under terms of an agreement with Gary
J. Davis, another Director of the Company, Mr. Stoeppelwerth has agreed to
allocate one-half or $1,000 out of his $2,000 event fee to Mr. Davis as
compensation for those events in which Mr. Davis participates. Under terms of
the Directors Compensation Plan described above, Mr. Stoeppelwerth qualified for
incentive compensation related to the addition of one national home improvement
services franchisor as a potential loan source and the execution of a loan
marketing agreement with Builders Square effective November 27, 1996.
Accordingly, Mr. Stoeppelwerth will be entitled in the subsequent three years to
compensation under the Directors Compensation Plan to the following fees for all
loans originated by Home: (i) by or through the home improvement franchisor,
one-half of one percent in years one and two and one-quarter of one percent in
year three of all loans funded; and (ii) through Builders Square, one percent in
years one and two and one-half percent in year three of all loans funded. Mr.
Stoepplewerth has agreed to allocate to Mr. Davis, for his efforts in obtaining
and maintaining the relationship, fifty percent (50%) of all fees payable under
the Directors Compensation Plan from Home by virtue of the Builders Square
relationship.
25
<PAGE>
Mr. Gary J. Davis, a Director of the Company, served as a full-time
consultant to Home on marketing and new business development from November, 1993
through March 31, 1996 at a monthly consulting fee of $6,000, of which $78,000
was received during the 1995 fiscal year and $42,125 was received during the
1996 fiscal year. While serving as consultant, Mr. Davis was provided health
insurance and reimbursement of business-related expenses. Effective November,
1996 the Company again retained Mr. Davis for up to one year as a consultant to
Home's loan marketing program with Builders Square. Mr. Davis' consulting
agreement calls for: (i) a monthly consulting fee of $10,000; (ii) reimbursement
of business-related expenses; (iii) payment of family health coverage in an
amount not to exceed $450 per month; (iv) provision of an executive office and
assistant; and (v) a cancellation provision at the option of Home after the
initial six months of the agreement. Also, included in the consulting agreement
is a provision allowing Home to offset any amounts paid under the consulting
agreement against amounts otherwise payable to Mr. Davis through his fifty
percent participation with Mr. Stoeppelwerth under the Directors Compensation
Plan relative to the Builders Square relationship. Under the Directors
Compensation Plan Mr. Davis qualified for compensation related to Home's
addition of the national home improvement franchisor earlier noted. Accordingly,
in addition to the $1,000 for participation in each training event, Mr. Davis
will be entitled in the subsequent three years for all loans originated by Home
by or through the national home improvement franchisor to one-half percent
(1/2%) in years one and two and one-quarter percent (1/4%) in year three of all
loans funded.
First Advisors, Inc. ("First Advisors"), an affiliate in which Mr.
Davis is the sole shareholder, a director and president, has entered into a
Marketing Agreement with a national company that develops and markets Automated
Loan Machines ("ALMs"), an electronic technology that enables financial
institutions to automate the processing and consummation of consumer loans and
other financial services at the point of sale ("Marketing Agreement"). Under the
Marketing Agreement First Advisors may market ALMs to financial institutions,
such as Home, to develop and implement a stratgy for the deployment of ALMs at
home improvement retail locations such as Builders Square. In the event that
ALMs are successfully deployed First Advisors is entitled under the Marketing
Agreement to certain fees and other compensation. However, during the period
that Mr. Davis is employed by the Company or Home or while he serves as an
officer or director or is otherwise an affiliate of the Company or Home, Mr.
Davis and First Advisors have assigned to Home any compensation to which Mr.
Davis or First Advisors may be entitled under the Marketing Agreement.
1996 Stock Option Plan
- ----------------------
The HomeCapital Investment Corporation 1996 Stock Option Plan ("Stock
Option Plan") was approved, effective as of March 21, 1996, by shareholder
action without a meeting on August 16, 1996, to provide options to purchase
shares of Common Stock as financial incentives to directors, executive officers
and other key employees of the Company and Home. The Stock Option Plan provides
that up to 500,000 shares of Common Stock may be issued upon exercise of options
granted under the Stock Option Plan, subject to adjustment to reflect stock
splits, stock dividends and similar capital stock transactions.
26
<PAGE>
The Stock Option Plan will be administered by a committee of non-
employee directors of the Company appointed by the Company's Board (the "Stock
Option Committee"), each of whom is required to be a "non-employee director"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. The Stock Option Committee has the authority to interpret the Stock
Option Plan; to determine the terms and conditions of options to be granted
under the Stock Option Plan ("Options"); to prescribe, amend and rescind the
rules and regulations of the Stock Option Plan; and to make all other
determinations necessary or advisable for the administration of the Stock Option
Plan. Options may be granted under the Stock Option Plan until March 21, 2006.
Options granted under the Stock Option Plan may be incentive stock
options ("Incentive Options"), which are intended to qualify under the
provisions of Section 442 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options ("Non-qualified Options"), which do not
so qualify. The Stock Option Committee selects the eligible persons to whom
Options will be granted and determines the dates, amounts, exercise prices,
vesting periods and other relevant terms of the Options, provided that the
exercise price for each Option that is to be an Incentive Option is determined
by the Committee at a price per share not less than the fair market value of
Common Stock on the date of the grant. Options granted under the Stock Option
Plan are generally not transferable during the life of the optionee.
Options granted under the Stock Option Plan vest and become
exercisable as determined by the Stock Option Committee in its discretion.
Options granted under the Stock Option Plan may be exercised at any time after
they vest and before the expiration date determined by the Stock Option
Committee, provided that no Option may be exercised more than ten years after
its grant (five years after grant in the case of Options granted to persons
owning beneficially ten percent or more of the capital stock of the Company).
Furthermore, in the absence of a specific agreement to the contrary, Options
will generally terminate immediately upon termination of the recipient's
employment with the Company for just cause, or twelve months after death or
permanent disability, or three months after termination of employment for any
other reasons. The aggregate fair market value (determined at the time of the
grant) of the stock underlying Incentive Options that become exercisable in any
calendar year may not exceed $100,000; Options in excess of this limit are
treated as Non-qualified Options.
If the Company consummates any reorganization or consolidation, each
outstanding Option will, upon exercise, entitle the optionee to receive the same
consideration received by holders of Common Stock in such reorganization or
merger or consolidation, with appropriate price adjustments. In case of certain
changes in control of the Company, any Options specified at any time by the
Stock Option Committee or the Board in its discretion shall vest and become
exercisable. In addition, in case of certain changes in control involving the
liquidation of the Company, the disposition of substantially all of the
Company's assets, or certain reorganizations or mergers, if and to the extent
that such Options are not, in connection with the change in control, to be
cashed-out at full value, continued by the Company as the surviving corporation,
assumed by the successor corporation or parent thereof, or replaced with
comparable options or other compensation programs. The Board of Directors has
not yet selected and identified a Stock Option Committee. In the meanwhile,
options may be granted under the Stock Options Plan by the Board of Directors.
27
<PAGE>
Shares of Common Stock purchased upon the exercise of Options under
the Stock Option Plan generally may not be sold until a date that is two years
from the date the Option was granted or one year from the date the shares were
purchased, whichever is later. Moreover, the shares of Common Stock subject to
Options under the Stock Option Plan have not been registered under applicable
federal and state securities laws, and the Company is under no obligation to do
so. Accordingly, in the absence of such registration or qualification, such
shares of Common Stock may only be sold or transferred in accordance with
exemptions from registration under applicable securities laws.
The Board of Directors of the Company may amend, modify or terminate
the Stock Option Plan at any time without adversely affecting any Option granted
under the Stock Option Plan and provided that, without approval of
stockholders of the Company, no action of the Board of Directors shall increase
the total number of shares eligible to be issued under the Stock Option Plan,
change the class of individuals eligible to receive Options, change the
provisions regarding determination of the exercise price, extend the period
during which Options may be granted or the maximum period after the date of
grant of Options during which Options may be exercised, or otherwise materially
increase the cost of the Stock Option Plan or materially increase the benefits
of the participants under the Stock Option Plan.
During fiscal 1996, the Board of Directors of the Company granted
Options to two employees of Home for a total of 200,000 shares of Common Stock,
all of which Options were outstanding on December 16, 1996.
Provisions Upon Termination of Employment
- -----------------------------------------
A copy of Mr. Ballard's Employment Agreement with Home is included as
Exhibit 10.13 to the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1994. This Agreement is for a term of five years expiring June,
1998. Its terms include an annual base salary of $150,000 per annum. In the
event that Mr. Ballard is terminated for "cause" (as defined in the Agreement)
he is not entitled to receive any further compensation other than that which was
earned up to the termination date. In the event that Mr. Ballard is terminated
by Home other than for "cause," he is entitled to receive all compensation to
which he would be entitled during the remaining term of the Agreement, including
his annual base salary of $150,000 per annum.
401(K) Profit Sharing Plan
- --------------------------
Home sponsors a 401(k) plan, a savings and investment plan intended to
be qualified under Section 401 of the Code. All employees of Home (including
officers and directors who are employees) who are at least 20 1/2 years of age
may participate in the plan. Participating employees may make pre-tax
contributions, subject to limitations under the Code, of a percentage (not to
exceed 18%) of their total compensation and such amounts (and the investment
earnings thereon) will be fully vested at all times. The Company, in its sole
discretion, may make matching contributions (the amount, if any, to be
determined by the Board of Directors with respect to each year) for the benefit
of all participants who make pre-tax contributions, as well as discretionary
contributions (in such amounts, if any, as may be determined by the Board of
Directors) for the benefit of all participants regardless of whether
28
<PAGE>
they elect to make pre-tax contributions to the 401(k) plan. Any such matching
or discretionary contributions (and the investment earnings thereon) will vest
20% after two years of service and an additional 20% per year of service
thereafter until fully vested after six years of service, provided that such
contributions become 100% vested upon the employee's death, disability or
retirement. The plan was inaugurated January 1, 1995, and Home has not
authorized or made any contributions to the plan through December 16, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
On December 16, 1996, the Company had 7,921,858 shares of common stock
outstanding. The following table sets forth certain information as of December
16, 1996, of the shares of the Company's Common Stock beneficially owned by (i)
each person who, as of December 16, 1996, was known by the Company to own
beneficially more than five percent of any class of its capital stock, (ii) the
individual Directors of the Company, and (iii) the officers and Directors of the
Company as a group.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Title of Class Number of Shares Percent of Class/ (1)/
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John W. Ballard Common 909,368/(2)/ 10.92%
John W. & Jeannie G. Ballard Common 498,700 6.30%
Family Partnership
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
E. Jeff Bomer Common 1,074,039/(3)/ 13.56%
JDB Investments, Ltd. Common 924,757 11.67%
("JDB")
5929 Balcones Drive
Austin, Texas 78731
Gary J. Davis Common 746,700 9.43%
713 Main
P.O. Box 738
Gatesville, Texas 76528
J. Rolfe Johnson Common -- --%
1900 West Loop South
Suite 1175
Houston, Texas 77027
Charles R. Leone, III Common 1,000,000/(4)/ 11.21%
Preferred 1,000,000/(5)/ 66.67%
Penntex Services, Inc. Common 1,000,000/(4)/ 11.21%
("Penntex") Preferred 1,000,000/(5)/ 66.67%
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Title of Class Number of Shares Percent of Class/ (1)/
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HCI Equity Partners, L.P. Common 1,000,000/(4)/ 11.21%
("HCI") Preferred 1,000,000/(5)/ 66.67%
3330 Oakwell Court
Suite 100
San Antonio, Texas 78218
Robert R. Neyland Common 1,000,000/(4)/ 11.21%
Preferred 1,000,000/(7)/ 66.67%
HCIE, L.L.C. ("HCIE") Common 1,000,000/(4)/ 11.21%
12222 Merit Drive, Suite 1750 Preferred 1,000,000/(7)/ 66.67%
Dallas, Texas 75251
Stephen A. Pyhrr Common 1,261,672/(8)/ 15.84%
Preferred 43,335/(9)/ 2.89%
Daphne Pyhrr Common 1,259,837/(10)/ 15.82%
Preferred 41,500/(11)/ 2.77%
SDP Investments, Ltd. Common 1,235,004/(12)/ 15.56%
("SDP") Preferred 16,667 1.11%
6850 Austin Center Blvd.
Suite 220
Austin, Texas 78731
Peter A. Pyhrr Common 1,593,220/(13)/ 20.11%
PAP Investments, Ltd Common 1,593,220 20.11%
("PAP")
8719 Diplomacy Row
Dallas, Texas 75247
Walter W. Stoeppelwerth Common -- --%
5161 River Road
Bethesda, Maryland 30816
Charles R. Sutherland Common 679,067/(14)/ 8.57%
3650 Habersham Road #102
Atlanta, Georgia 30805
Directors and Executive Officers Common 6,625,664/(15)/ 70.37%
as a Group (14 persons) Preferred 1,084,000 72.27%
</TABLE>
__________________
/(1)/ Based upon 7,921,858 shares of Common Stock outstanding on December 16,
1996, adjusted to include the number of authorized but unissued shares
that each beneficial holder has the right to acquire within 60 days
pursuant to the exercise of options or warrants or conversion of
Preferred Stock. Unless expressly stated, no shares of Preferred Stock
are held of record or beneficially by the persons named.
30
<PAGE>
/(2)/ Includes 1,000 shares held of record; 498,700 shares held by the Ballard
Family Partnership of which John Ballard is general partner; and 409,668
shares issuable upon exercise of fully-vested Company options granted
upon cancellation of the Ballard HOME option granted pursuant to the
Ballard Employment Agreement.
/(3)/ Includes 924,757 shares beneficially owned by JDB and 149,282 shares
held as community property by E. Jeff Bomer, who is the general partner
of JDB.
/(4)/ Includes 1,000,000 shares of Common Stock issuable upon conversion of
1,000,000 shares of Preferred Stock held by HCI.
/(5)/ Includes 1,000,000 shares of Preferred Stock held by HCI, of which
Penntex is a general partner and of which Mr. Leone is a Director and
President.
/(6)/ Shares held by HCI may be deemed to be held by its general and limited
partners as a group.
/(7)/ Includes 1,000,000 shares of Preferred Stock of HCI, of which HCIE is a
general partner and of which Mr. Neyland is a managing member.
/(8)/ Includes 1,235,004 shares held of record or beneficially by SDP, of
which 16,667 shares are issuable upon conversion of Preferred Stock held
by SDP, of which Stephen Pyhrr is a general partner, and 26,668 shares
issuable upon conversion of 13,334 shares of Preferred Stock held by
each of the Heather D. La Rue Irrevocable Trust and The Steven D. La Rue
Irrevocable Trust (collectively, the "La Rue Trusts"), of which Stephen
Pyhrr is trustee.
/(9)/ Includes 16,667 shares of Preferred Stock held by SDP and an aggregate
of 26,668 shares of Preferred Stock held by the La Rue Trusts.
/(10)/ Includes 24,833 share issuable upon conversion of Preferred Stock held
as separate property and 1,235,004 shares held of record or beneficially
by SDP, including 16,667 shares issuable upon conversion of shares of
Preferred Stock held by SDP, of which Daphne Pyhrr is a general partner.
/(11)/ Includes 16,667 shares of Preferred Stock held by SDP.
/(12)/ Includes 16,667 shares issuable upon conversion of 16,667 shares of
Preferred Stock held by SDP.
/(13)/ Includes 1,593,220 shares beneficially owned by PAP, of which Peter
Pyhrr is the sole general partner.
/(14)/ Includes 380,271 shares held of record by Eaglewood Properties I, Ltd.
of which Mr. Sutherland is an officer and Director of the general
partner; and 298,796 shares beneficially owned by Plaza Realty One
Limited Partnership, of which Mr. Sutherland is an officer and the sole
Director of the general partner.
31
<PAGE>
/(15)/ Includes 1,084,000 shares issuable upon conversion of Preferred Stock
held by such persons. Shares beneficially owned by two or more persons
have been attributed to only one of such persons.
Under the regulations of the Securities and Exchange Commission,
shares are deemed to be "beneficially owned" by a person if such person,
directly or indirectly, has or shares the power to vote or dispose of the
shares, whether or not such person has any pecuniary interest in such shares, or
if such person has the right to acquire the power to vote or dispose of such
shares within 60 days, including any right to acquire such power through the
exercise of any option warrant or right. Each of the persons named above
disclaims that such person is the beneficial owner of any shares not held of
record by such person or in which such person has no pecuniary interest and
which have been attributed to such person indirectly or by virtue of any right
to acquire such shares or any rights with respect thereto.
The Company is unaware of any arrangements the operation of which may
at a subsequent date result in the change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The table below denotes the affiliation of entities and individuals
described in the transactions discussed in this section.
INDIVIDUAL OFFICERS, DIRECTORS & AFFILIATES OF THE COMPANY
<TABLE>
<CAPTION>
E. Jeff Charles R. Robert R. Peter A. Stephen A. Charles
Affiliated Entities Bomer Leone, III Neyland Pyhrr Pyhrr Sutherland
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eaglewood Prop. I, Ltd. Officer;
("Eaglewood") Dir. of
General
Partner
HCI Equity Partners L.P. Officer; Sole Mgr.
("HCI") Dir. of of
General General
Partner Partner
HCIE, L.L.C. /(1)/ Sole Mgr.
JDB Investments, Ltd. General &
Limited
Partner
PAP Investments, Ltd. General &
Limited
Partner
Penntex Services, Inc./(1)/ Dir.;
President
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
E. Jeff Charles R. Robert R. Peter A. Stephen A. Charles
Affiliated Entities Bomer Leone, III Neyland Pyhrr Pyhrr Sutherland
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Plaza Realty One Limited Officer;
Partnership ("PRO") Dir. of
General
Partner
SDP Investments, Ltd. General &
Limited Partner
</TABLE>
__________________
/(1)/ A general partner of HCI Equity Partners, L.P.
$125,000 Loan by Peter A. Pyhrr and Conversion to Series A Preferred Stock
- --------------------------------------------------------------------------
On January 27, 1995, Peter A. Pyhrr, a Director of the Company, made a
$125,000 unsecured demand loan to the Company to enhance its liquidity for
operations, bearing interest at prime rate plus one and one-half percent per
annum. Pursuant to a letter agreement, dated January 27, 1995, among Messrs.
John W. Ballard, Gary J. Davis, E. Jeff Bomer in behalf of JDB, Stephen A. Pyhrr
in behalf of SDP, Peter A. Pyhrr in behalf of PAP, EWMW Limited Partnership and
PRO (herein collectively, "loan guarantors"), the Company and Mr. Peter A.
Pyhrr, the loan guarantors agreed to underwrite repayment of the loan by
advancing funds to the Company in amounts set forth in accordance with the
letter agreement in the event that the loan was not repaid by the Company upon
demand. The loan was given priority of payment over the loan obligations of the
Company to Horizon Bank and proceeds from exercise of outstanding Company
warrants were to be applied first in payment of the loan. Messrs. Ballard,
Bomer, Davis, Peter Pyhrr and Stephen Pyhrr are Directors of the Company, and
PRO is an affiliate of Charles Sutherland, an affiliate of the Company. None of
the loan guarantors nor their affiliates received any special consideration for
extending the guaranty, and Mr. Peter Pyhrr did not receive any compensation
other than the stated interest as consideration for the loan.
On June 18, 1996, in connection with the Series A Preferred Stock
Placement (as hereinafter defined), Mr. Peter Pyhrr tendered the $125,000
principal of the loan and was issued 83,333 shares of Series A Preferred Stock
of the Company therefor at $1.50 per share.
Issuance and Conversion of 2,000 Shares of Company Preferred Stock
- ------------------------------------------------------------------
On September 28, 1995, the Company issued 2,000 shares of $.01 par
value, non-voting Preferred Stock, bearing a dividend rate of 10% per annum, at
a purchase price of $100 per share, of which 500 shares were sold to each of
PAP, SDP, JDB and Eaglewood. The Preferred Stock was redeemable by the Company
at par prior to January 16, 1996, and thereafter each share was convertible into
160 shares of Company Common Stock. The $200,000 proceeds from the sale of the
Preferred Stock were utilized by the Company to repay Home for monies previously
advanced by Home to the Company to pay expenses of the Home Transaction and debt
service on the Horizon Bank loan to the Company. In meeting the net worth test
in accordance with HUD regulations applicable to Home, intercompany advances
such as those from Home to the Company are not qualified assets. The effect of
the sale of the Preferred Stock
33
<PAGE>
and use of the proceeds to repay the Home advances was a $200,000 increase in
Home's net worth for HUD qualification purposes. Effective April 19, 1996, the
holders of all 2,000 outstanding shares of non-voting Preferred Stock converted
the Preferred Stock and accrued and unpaid dividends thereon into an aggregate
of 337,708 shares of Company Common Stock, with each of PAP, SDP, JDB and
Eaglewood receiving 84,427 shares of Company Common Stock.
$200,000 Loan by Stockholders
- -----------------------------
On January 29, 1996, certain stockholders who are Directors, officers
or affiliates of the Company made unsecured, non-interest bearing advances to
the Company in the aggregate principal amount of $200,000 which were due to be
repaid upon demand, including advances in the amount of $100,000 from Peter A.
Pyhrr, a Director of the Company, and $25,000 each from E. Jeff Bomer, a
Director of the Company, SDP, an affiliate of Stephen A. Pyhrr, a Director of
the Company, and $50,000 from Eaglewood, an affiliate of an affiliate of the
Company. These advances were utilized by the Company to increase the equity
capitalization of Home, so that Home could achieve the level of capitalization
required by FHA to allow Home to approve new Correspondents and dealers, without
prior submission to FHA. As a result of the Series A Preferred Stock Placement,
the advances of Peter Pyhrr and SDP in the principal amount of $100,000 and
$25,000, respectively, were tendered in payment for the issuance of 66,667
shares and 16,667 shares, respectively, of Company Series A Preferred Stock; and
the remaining $75,000 principal amount of advances by Mr. Bomer and by Eaglewood
were repaid out of the proceeds from sale of shares of Series A Preferred Stock
in connection with the Series A Preferred Stock Placement.
1,500,000 Share Series A Preferred Stock Placement
- --------------------------------------------------
As of June 18, 1996, the Company issued and sold an aggregate of
1,500,000 shares of Series A Preferred Stock for the purchase price of $1.50 per
shares or an aggregate gross consideration of $2,250,000, most of which was
purchased by certain Directors and officers of the Company and Home, and
affiliates of such persons ("Series A Preferred Stock Placement"). An aggregate
of 1,000,000 shares of the Series A Preferred Stock was purchased by HCI
pursuant to the Preferred Stock Purchase Agreement, dated May 3, 1996, as
amended ("HCI Agreement"). Messrs. Charles R. Leone, III and Robert R. Neyland,
who are affiliates of the general partners of HCI, have been elected to the
Board of Directors of the Company pursuant to director-election provisions of
the HCI Agreement. The HCI Agreement provides that the Board of Directors of the
Company will not exceed nine members and that holders of the majority of the
shares of Series A Preferred Stock purchased by HCI shall be entitled to
designate two nominees to the Company's Board of Directors, as a separate class,
as long as at least 50% of the shares of Series A Preferred Stock purchased by
HCI remain outstanding. In addition, the HCI Agreement imposes certain covenants
upon the Company, including maintenance of the Company's eligibility under the
Fannie Mae seller/servicer loan purchase program, maintenance of the Company's
FHA Insurance for Title I Loans (with certain exceptions), compliance with other
material contracts and loans, and delivery of annual and periodic reports to
holders of the shares of Series A Preferred Stock purchased by HCI, among other
things. A total of 150,000 shares of Series A Preferred Stock was issued to
Peter A. Pyhrr in payment of the discharge of an aggregate of $225,000 principal
amount of loans by Mr. Pyhrr to the Company and an additional 35,495 shares of
the Series A Preferred Stock were purchased for the benefit of members of Mr.
34
<PAGE>
Pyhrr's family. An aggregate of 16,667 shares of Series A Preferred Stock were
issued to SDP, an affiliate of Stephen A. Pyhrr, in payment and discharge of
$25,000 principal amount of a loan by SDP to the Company, and an additional
24,833 shares of the Series A Preferred Stock were purchased by members of Mr.
Stephen Pyhrr's family. An aggregate of 90,333 share of the Series A Preferred
Stock were purchased by or in behalf of officers and employees of the Company
and Home and members of their families.
The Series A Preferred Stock has a cumulative annual dividend of $.18
per share, payable quarterly before any distribution to holders of Common Stock,
with mandatory payment of dividends required for the first four full quarterly
periods after issue. Shares of Series A Preferred Stock are convertible at any
time into one share of Common Stock for each share of Series A Preferred Stock.
The Series A Preferred Stock is redeemable at par plus accrued, unpaid
dividends, at the option of the Company, at any time after May 31, 1998. Each
share of Series A Preferred Stock is entitled to one vote with respect to all
matters submitted to a vote of the stockholders of the Company, and holders of
series A Preferred Stock are entitled to vote as a class as provided by law in
connection with any amendment to the Articles of Incorporation or Bylaws of the
Company, or any other corporate action that would adversely affect the holders
of Series A Preferred Stock. Shares of Series A Preferred Stock are entitled to
a liquidation preference of $1.50 per share, plus any accrued, unpaid dividends,
before any distribution to holders of Common Stock upon dissolution of the
Company.
Holders of all shares of Series A Preferred Stock purchased in the
Series A Preferred Stock Placement were granted "piggyback" registration rights
covering the shares of Common Stock into which the Series A Preferred Stock is
convertible after nine months from the date of issuance of the Series A
Preferred Stock which rights terminate after three years from the date of
issuance of the Series A Preferred Stock. No fees, commissions or other special
compensation was paid for placement of the shares in connection with the Series
A Preferred Stock Placement. The Company has entered into a consulting agreement
with representatives of HCI providing for fees aggregating $60,000 over a one
year period, including $20,000 to each of Messrs. Leone and Neyland, Directors
of the Company.
Inspection Services Arrangement
- -------------------------------
Since April 1994, Home has engaged HomeSpec of Texas ("HomeSpec"), a
proprietorship of David W. Ballard, son of John W. Ballard, Chairman of the
Board and President of the Company and Director and President of Home, to
provide or arrange for inspections of home improvement contract work financed by
loans funded by Home. All Title I Loans in excess of $7,500 are required by
applicable regulations to have a physical inspection of the improvements
financed, and Home currently collects an inspection fee of $75 with respect to
each loan funded by Home. Home has made arrangements with HomeSpec to provide
the necessary inspection services, directly or through a network of appraisers
or realtors in other locations, for fees that do not exceed $75 for each
inspection. In fact, inspection fees by HomeSpec have generally ranged from $35
to $55 per loan depending upon the location, although it may be expected that in
connection with direct loans where Home advances funds prior to commencement of
construction, the inspection may require more effort and approach or be equal to
the $75 fee collected by Home. During the fiscal years ended September 30, 1996
and 1995, Home paid HomeSpec an aggregate of $69,715 and $55,675, respectively,
for
35
<PAGE>
inspection services. David W. Ballard is a licensed appraiser regularly engaged
in making residential appraisals for the City of Austin and Travis County,
Texas.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following financial statements and exhibits are filed with
and as a part of this Annual Report:
(1) Financial Statements
--------------------
Page No.
--------
Index to Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as F-3
of September 30, 1996 and September 30, 1995
Consolidated Statements of Operations F-4
For the Years Ended September 30, 1996 and 1995
Consolidated Statements of Changes in Stockholders' F-5
Equity For the Years Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows F-6
For the Years Ended September 30, 1996 and 1995
Notes to Financial Statements F-7
(2) Exhibits
--------
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
2 Stock Exchange Agreement, dated as of
June 1, 1994, among the Home Parties, (1)
the Company and the Company's stockholder.
3(i).1 Articles of Incorporation of Lezak Energy
Group, Inc., filed with the State of Nevada (2)
on October 8, 1980.
3(i).2 Certificate of Amendment of Articles of
Incorporation of Lezak Energy Group, Inc., (2)
filed with the State of Nevada on
October 26, 1982.
36
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
3(i).3 Certificate of Amendment of Articles of
Incorporation of Enterprise Oil and Gas Corp., (2)
filed with the State of Nevada on
October 29, 1982.
3(i).4 Certificate of Amendment of Articles of
Incorporation of Enterprise Oil and Gas Corp., (2)
filed with the State of Nevada on July 27, 1983.
3(i).5 Certificate of Amendment of Articles of
Incorporation of Enterprise Technologies, Inc., (2)
filed with the State of Nevada on September 12, 1983.
3(i).6 Certificate of Amendment of Articles of
Incorporation of Enterprise Technologies, Inc., (2)
filed with the State of Nevada on January 12, 1990.
3(i).7 Certificate of Amendment of Articles of
Incorporation of Enterprise Entertainment Group, (2)
Inc., filed with the State of Nevada on
April 5, 1993.
3(i).8 Certificate of Amendment of Articles of
Incorporation of the Company, filed with the (3)
State of Nevada on November 29, 1994, changing
the name of the Company to HomeCapital
Investment Corporation and authorizing Preferred Stock.
3(ii).1 Bylaws of the Company (2)
3(ii).2 Amendment to the Bylaws of the Company
to Waive Nevada Control Shares (3)
Acquisition Act relative to the Home Transaction.
3(ii).3 Written Consent of the Sole Director of the Company,
dated as of July 27, 1994, among other things (2)
approving amendments to the Bylaws.
4.1 Form of Series A Warrant. (2)
4.2 Form of Series B Warrant. (2)
4.3 Warrants, dated August 26, 1994, held by Plaza
Realty One Limited Partnership. (3)
37
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
4.4 Warrants, dated August 26, 1994, held by PAP
Investments, Ltd. (3)
4.5 Certificate of Designations, Preferences and Rights
of Preferred Stock, Series A of the Company filed (6)
with the State of Nevada on June 14, 1996.
4.6 Amendments to Certificate of Designation of Preferred
Stock, Series A of the Company, filed with the State of *
Nevada on December 19, 1996.
10.1 Warrant Exchange Agreement, dated
August 26, 1994, between the Company and (3)
Plaza Realty One Limited Partnership and
PAP Investments, Ltd.
10.2 Option Agreement, dated August 26, 1994,
between the Company and John W. Ballard. (3)
10.3 Conversion Rights Exchange Agreement, dated
August 26, 1994, among the Company, Home, (3)
Plaza Realty One Limited Partnership and
PAP Investments, Ltd.
10.4 Employment Agreement, dated June 21, 1993,
between John W. Ballard and Home. (3)
10.5 Loan Agreement, dated October 5, 1994,
between the Company and Horizon Bank (3)
and Trust, SSB.
10.6 Warehouse and Security Agreement,
dated December 1, 1994, between Home and (4)
First National Bank of Keystone, N.A..
10.7 Letter, dated December 19, 1995, of Keystone
Bank, renewing and extending the Warehouse (4)
and Security Agreement between Home and
Keystone Bank.
10.8 Letter Agreement, dated January 27, 1995, among
the Company, Gary J. Davis, EWMW Ltd. Partnership, (4)
Plaza Realty One Limited Partnership, JDB Investments,
Ltd., SDP Investments, Ltd., PAP Investments, Ltd.
and John W. Ballard.
38
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
10.9 Form of Subscription Agreement, dated
September 29, 1995, for shares of preferred (4)
stock of the Company and Schedule of Signatories.
10.10 Form of Subscription Agreement, dated
September 29, 1995, for shares of common (4)
stock of the Company and Schedule of Signatories.
10.11 Adoption Agreement, effective January 1, 1995,
as amended, between Home and the trustees, (4)
John W. Ballard and Anna Walker, of the 401(k)
Profit Sharing Plan of Home.
10.12 Mortgage Selling and Servicing Contract, dated
March 1, 1996, between Home and the Federal (5)
National Mortgage Association.
10.13 Master Agreement No. MD01546, effective as of
May 9, 1996, between Home and the Federal National *
Mortgage Association.
10.13a First Amendment to Master Agreement No. MD01546,
effective as of July 3, 1996, between Home and the *
Federal National Mortgage Association.
10.13b Second Amendment to Master Agreement No. MD01546,
effective as of September 3, 1996, between Home and the *
Federal National Mortgage Association.
10.13c Third Amendment to Master Agreement No. MD01546,
effective as of October 25, 1996, between Home and the *
Federal National Mortgage Association.
10.14 Employment Agreement, dated as of June 1, 1996, between
Home and Tommy M. Parker. *
10.15 HomeCapital Investment Corporation 1996 Stock
Option Plan. *
10.16 Warehouse Loan Agreement, dated as of June 1, 1996,
between Home and Guaranty Federal Bank, F.S.B *
("Guaranty Federal").
10.16a First Amendment to the Loan Agreement, dated as of
July 9, 1996, between Home and Guaranty Federal. *
39
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
10.16b Second Amendment to the Loan Agreement, dated as of
September 17, 1996, between Home and Guaranty Federal. *
10.16c Third Amendment to the Loan Agreement, dated as of
October 15, 1996, between Home and Guaranty Federal. *
10.17 Unconditional Guaranty of the Company, dated as of
October 15, 1996. *
10.18 Working Capital Line of Credit and Security Agreement,
dated as of November 8, 1996, between Home and *
Guaranty Federal.
10.19 Unconditional Guaranty, dated as of November 8, 1996,
by the Company. *
10.20 Preferred Stock Purchase Agreement, dated May 3, 1996,
between the Company and HCI Equity Partners, L.P., (6)
including form of Registration Agreement.
10.21 Form of Subscription Agreement for Preferred Stock
Series A. *
10.22 License Agreement, dated November 27, 1996, between
Home and Builders Square, Inc. *
21 Subsidiaries of the Company (3)
27 Financial Data Schedule *
- ------------------
Reference Notes:
* Filed herewith
(1) Exhibit 2 was filed as an Exhibit to Registrant's
Current Report on Form 8-K, dated August 26, 1994, and is hereby
incorporated herein by this reference.
(2) Exhibits 3(i).1, 3(i).2, 3(i).3, 3(i).4, 3(i).5,
3(i).6, 3(i).7, 3(ii).1, 3(ii).3, 4.1, and 4.2 were filed as
Exhibits to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1993, and each is hereby
incorporated herein by this reference.
(3) Exhibits 3(i).8, 3(ii).2, 4.3, 4.4, 10.1, 10.2,
10.3, 10.4, 10.5, and 21 were filed as Exhibits to Registrant's
Annual Report on Form 10-KSB for the fiscal year ended September
30, 1994, and each is hereby incorporated herein by this
reference.
40
<PAGE>
(4) Exhibits 10.6, 10.7, 10.8, 10.9, 10.10, and 10.11
were filed as Exhibits to Registrant's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1995 and each is
incorporated herein by reference.
(5) Exhibit 10.12 was filed as an Exhibit to
Registrant's Quarterly Report on Form 10-QSB for the three months
ended March 31, 1996, and is hereby incorporated herein by their
reference.
(6) Exhibits 4.5 and 10.20 were filed as Exhibits to
Registrant's Quarterly Report on Form 10-QSB for the three months
ended June 30, 1996, and each is incorporated herein by this
reference.
(b) No Current Reports on Form 8-K were filed by the Company during
the last quarter of the fiscal year ended September 30, 1996.
[This space intentionally left blank]
41
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HOMECAPITAL INVESTMENT CORPORATION
(Registrant)
Date: December 27, 1996 By: /s/John W. Ballard
-----------------------------------
JOHN W. BALLARD, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: December 27, 1996 By: /s/ John W. Ballard
-----------------------------
JOHN W. BALLARD, President,
Chief Executive Officer and
Chairman of the Board of Directors
Date: December 27, 1996 By: /s/ Tommy M. Parker
-----------------------------
TOMMY M. PARKER, Treasurer
and Chief Financial Officer
Date: December 27, 1996 By: /s/ Rebecca F. Blanchard
-----------------------------
REBECCA F. BLANCHARD, Principal
Accounting Officer
Date: December 27, 1996 By: /s/ E. Jeff Bomer
-----------------------------
E. JEFF BOMER, Secretary
and Director
Date: December 27, 1996 By: /s/ Peter A. Pyhrr
-----------------------------
PETER A. PYHRR, Director
Date: December 27, 1996 By: /s/ Stephen A. Pyhrr
-----------------------------
STEPHEN A. PYHRR, Director
42
<PAGE>
Date: December 27, 1996 By: /s/ Gary J. Davis
------------------------------
GARY J. DAVIS, Director
Date: December 27, 1996 By: /s/ Charles R. Leone, III
------------------------------
CHARLES R. LEONE, III, Director
Date: December 27, 1996 By: /s/ Robert R. Neyland
------------------------------
ROBERT R. NEYLAND, Director
Date: December 27, 1996 By: /s/ Walter W. Stoeppelwerth
------------------------------
WALTER W. STOEPPELWERTH, Director
Date: December 27, 1996 By: /s/ J. Rolfe Johnson
------------------------------
J. ROLFE JOHNSON, General Counsel
and Director
43
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants F-2
Audited Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
HomeCapital Investment Corporation
We have audited the accompanying consolidated balance sheets of HomeCapital
Investment Corporation and Subsidiary as of September 30, 1996 and 1995 and the
related consolidated statements of operations, changes in 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 also 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 consolidated financial position of HomeCapital
Investment Corporation and Subsidiary as of September 30, 1996 and 1995 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Austin, Texas
December 11, 1996
F-2
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------------- --------------
<S> <C> <C>
Cash $ 343,484 $ 25,716
Cash deposits, restricted 705,754 -
Loans held for sale, net 4,479,550 1,697,735
Excess servicing receivable 5,078,584 -
Prepaid and other assets 240,681 56,267
Furniture, fixtures and equipment, net 646,082 373,860
Deferred tax assets 190,502 -
---------------- --------------
Total assets $ 11,684,637 $ 2,153,578
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 158,339 $ 383,335
Revolving lines of credit 4,064,180 1,498,057
Capital lease obligations 14,352 41,814
Accrued expenses and other liabilities 1,264,766 122,113
Allowance for credit losses on loans sold 175,000 80,000
Income taxes payable 1,104,543 -
---------------- --------------
Total liabilities 6,781,180 2,125,319
---------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
1,500,000 and 2,000 shares of cumulative convertible Series
A stock issued (liquidation value of $2,250,000 and $200,000) 15,000 20
Common stock, $.01 par value; authorized 100,000,000
shares; 7,292,711 and 6,887,975 shares issued and outstanding 72,927 68,879
Additional paid-in capital 3,688,433 1,325,201
Retained earnings (deficit) 1,184,348 (1,301,585)
Notes receivable for stock (57,251) (64,256)
--------------- -------------
Total stockholders' equity 4,903,457 28,259
--------------- -------------
Total liabilities and stockholders' equity $ 11,684,637 $ 2,153,578
=============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Revenues:
Gain on sale of loans $ 7,753,507 $ 3,201,491
Interest - loans 627,365 330,564
Interest - other 6,827 16,240
Loan servicing income 390,571 -
Other income 135,333 147,468
-------------- --------------
Total revenues 8,913,603 3,695,763
-------------- --------------
Costs and Expenses:
Salaries and employee benefits 2,211,579 1,718,297
Servicing costs 265,546 -
Loan costs 513,404 354,655
General and administrative 1,643,852 1,186,725
Occupancy 336,894 192,689
Interest 462,064 315,442
-------------- --------------
Total costs and expenses 5,433,339 3,767,808
-------------- --------------
Income (loss) before income taxes 3,480,264 (72,045)
Provision for income taxes 914,041 -
-------------- --------------
Net income (loss) $ 2,566,223 $ (72,045)
============== ==============
Income (loss) per common and common equivalent share:
Primary:
Earnings (loss) per common share $ .32 $ (.01)
============== ==============
Weighted average number of common and common
equivalent shares outstanding 7,824,111 6,109,177
============== ==============
Fully Diluted:
Earnings per common share $ .30
==============
Weighted average number of fully diluted common
shares outstanding 8,425,296
=============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Retained Notes
---------------------- ---------------------- Paid-In Earnings Receivable
Shares Dollars Shares Dollars Capital (Deficit) For Stock
--------- ---------- -------- --------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1994 4,936,720 $ 49,367 2,000 $ 20 $ 898,613 $ (1,190,587) $ (73,012)
Conversion of Subsidiary
preferred stock to the
Company's common stock 1,619,755 16,197 (2,000) (20) 22,776 (38,953) __
Conversion of debt to common
stock 331,500 3,315 __ __ 203,832 __ --
Write-off of loans of notes
receivable __ __ __ __ __ __ 8,756
Sale of preferred stock __ __ 2,000 20 199,980 __ __
Net loss __ __ __ __ __ (72,045) __
--------- -------- ---------- ---------- ------------ --------------- ----------
Balance, September 30, 1995 6,887,975 68,879 2,000 20 1,325,201 (1,301,585) (64,256)
--------- -------- ---------- ---------- ------------ --------------- ----------
Conversion of preferred
stock 337,708 3,378 (2,000) (20) __ (3,358) __
Sale of preferred stock __ __ 1,500,000 15,000 2,095,790 __ __
Exercise of Series A
warrants 67,028 670 __ __ 267,442 __ __
Write-off of notes
receivable __ __ __ __ __ __ 7,005
Preferred stock dividends __ __ __ __ __ (76,932) __
Net Income __ __ __ __ __ 2,566,223 __
--------- ---------- ---------- -------- ------------ --------------- ------------
Balance, September 30, 1996 7,292,711 $ 72,927 1,500,000 $ 15,000 $ 3,688,433 $ 1,184,348 $ (57,251)
========= ========== ========== ======== ============ =============== ============
<CAPTION>
Stockholders'
Equity
-----------
<S> <C>
Balance, October 1, 1994 $ (315,599)
Conversion of Subsidiary
preferred stock to the
Company's common stock __
Conversion of debt to common
stock 207,147
Write-off of loans of notes
receivable 8,756
Sale of preferred stock 200,000
Net loss (72,045)
-------------
Balance, September 30, 1995 28,259
-------------
Conversion of preferred
stock __
Sale of preferred stock 2,110,790
Exercise of Series A
warrants 268,112
Write-off of notes
receivable 7,005
Preferred stock dividends (76,932)
Net Income 2,566,223
-------------
Balance, September 30, 1996 $ 4,903,457
=============
</TABLE>
The accompanying notes are an intergral part of the consolidated financial
statements.
F-5
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,566,223 $ (72,045)
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 210,796 63,769
Deferred tax benefit (190,502) --
Provision for credit losses 220,000 50,000
Write-off of notes receivable 7,005 8,756
Gain on sale of loans (7,753,507) (3,201,491)
Proceeds from sale of loans 99,981,699 64,281,747
Purchase and origination of loans (100,304,528) (60,882,595)
Change in operating assets and liabilities:
Increase in cash deposits, restricted (705,754) --
(Increase) decrease in prepaid and other assets (189,088) 24,810
Increase (decrease) in accrued expenses and other
liabilities 2,247,196 (191,225)
------------------ ------------------
Net cash provided by (used in) operating activities (3,910,460) 81,726
------------------ ------------------
Cash flows used in investing activities -
Purchase of furniture, fixtures and equipment (387,408) (268,299)
Cash flows from financing activities:
Increase (decrease) in revolving lines of credit 2,566,123 (51,977)
Proceeds from notes payable 200,000 425,000
Payments on notes payable (174,995) (324,990)
Loans to stockholders -- (35,744)
Proceeds from sale of preferred stock 1,860,790 200,000
Proceeds from exercise of Series A warrants 268,112 --
Payments on capital lease obligations (27,462) --
Preferred stock dividends (76,932) --
------------------ ------------------
Net cash provided by financing activities 4,615,636 212,289
------------------ ------------------
Increase in cash and cash equivalents 317,768 25,716
Cash, beginning of year 25,716 --
------------------ ------------------
Cash, end of year $ 343,484 $ 25,716
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
--------------------
THE COMPANY AND SUBSIDIARY
--------------------------
HomeCapital Investment Corporation, a public holding company, (formerly
Andromeda Capital Corporation) ("HomeCapital") was incorporated in the
state of Nevada on October 8, 1980. On May 30, 1984, HomeCapital
voluntarily filed a petition in accordance with Sections 1107 and 1108 of
the Bankruptcy Code and was authorized to continue in possession of its
property and manage and operate its business as Debtor-in-Possession. On
October 3, 1989, a plan of reorganization (the "Plan") was confirmed and
approved by the Bankruptcy Court.
Pursuant to the Plan, all shares of preferred and common stock of
HomeCapital issued and outstanding as of the date of confirmation of the
Plan ("Old Shares"), were deemed canceled, annulled and extinguished. In
exchange for every 100 Old Shares, the holder was entitled, pursuant to the
Plan, to receive one unit of securities issued by HomeCapital (the
"Units"), each Unit consisting of one share of Common Stock ("New Shares")
and one Series A Warrant which upon exercise entitled the holder to one New
Share of Common Stock and one Series B Warrant. The holder of each Series
B Warrant was entitled, upon exercise, to one New Share of Common Stock.
(See Note 15)
HomeOwners Mortgage & Equity, Inc. ("Home") was formed in May 1993 as a
Delaware Corporation. On August 26, 1994, the shareholders of Home
contributed 100% of the outstanding common stock of Home to HomeCapital in
exchange for 4,100,376 newly issued shares of common stock of HomeCapital.
This transaction resulted in the previous shareholders of Home owning
approximately 83% of the outstanding common stock of HomeCapital, with
HomeCapital owning 100% of the outstanding common stock of Home. As of the
acquisition date, HomeCapital was a public company with no business
operations and net liabilities of $7,500. This reverse acquisition was
accounted for as a recapitalization with carryover basis of assets and
liabilities. Accordingly, the financial statements reflect the results of
the operations of Home prior to the acquisition date and consolidated (the
"Company") from that date forward. Intercompany transactions and balances
have been eliminated.
DESCRIPTION OF OPERATIONS
-------------------------
The Company through its loan correspondents and home improvement
contractors originates and purchases home improvement loans ("Loans") and
is approved to engage in lending activities under the Department of Housing
and Urban Development ("HUD") Title I Program. As such, the Company is
subject to regulation and examination by this agency. Pursuant to that
program, 90% of the principal balances of the Loans are U.S. Government
insured ("Title I Loans").
F-7
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
CASH DEPOSITS, RESTRICTED
-------------------------
Restricted cash represents unremitted funds received in connection with the
servicing of Loans sold with servicing retained that have not been remitted
to the purchasers of such Loans as of September 30, 1996. The liability
for these unremitted funds is included in the balance sheet under the
caption of accrued expenses and other liabilities.
LOANS HELD FOR SALE, NET
------------------------
Loans held for sale are carried at the lower of aggregated cost or market
value in the accompanying balance sheets. Loans held for sale at September
30, 1996 and 1995 have been either originated by the Company or purchased
from its Loan Correspondents. The Company funds these Loans primarily
through its warehouse line of credit. Purchase premiums, discounts, loan
origination fees and related direct origination costs are included in the
stated cost of Loans held for sale, and are deferred until the related
Loans are sold.
Provision for credit losses relating to Loans held for sale is charged to
income in amounts sufficient to maintain the allowance at a level
considered adequate to provide for anticipated losses resulting from
liquidation of outstanding Loans. The provision for credit losses is based
upon periodic analysis of the portfolio, economic conditions and trends,
historical credit loss experience, borrowers' ability to repay, collateral
values and giving effect to estimated Federal Housing Administration
("FHA") Insurance recoveries on Title I Loans.
REVENUE RECOGNITION
-------------------
Gain on sale of Loans is recognized upon delivery of Loans to investors.
Gain on sale of Loans is calculated based upon the difference between the
net sales proceeds and the carrying amount of the Loans sold, together with
excess servicing receivable determined on the date of sale.
The Company retains the right to service loans it sells to others for which
it receives a servicing fee expressed as a percent of the loan amount. The
servicing fee ranges from 1.00% up to a maximum of 5.00% of the outstanding
principal balance of the serviced loans. The Company presently subcontracts
the loan servicing activities for a fee of 0.75% which the Company
believes is a normal servicing fee.
F-8
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
EXCESS SERVICING RECEIVABLE
---------------------------
The excess servicing receivable is calculated based upon the present value
of the estimated future servicing revenues after considering the effects of
the estimated prepayments, defaults, servicing costs and other costs. The
discount rate utilized is based upon the assumptions that market
participants would use for similar financial instruments subject to
prepayments, defaults, collateral value and interest rate risks. The
carrying value of the excess servicing receivable is amortized in
proportion to and over the period of estimated net future excess servicing
fee income, for which the amortization is recorded as a charge against
servicing fee income.
The estimated future servicing cash flows were discounted using rates that
averaged 12.5% for the year ended September 30, 1996. The Company has
developed its prepayment and default assumptions based on experience with
its own portfolio, available market data and information from regulatory
agencies. In determining expected cash flows, management considers
economic conditions at the date of sale.
The Company periodically reviews the excess servicing receivable for
impairment. This review is performed on a disaggregated basis for the
predominant risk characteristics of the underlying loans which are loan
type, term, and credit quality. The Company generally makes loans to
individuals whose borrowing needs may not be met by traditional financial
institutions due to credit exceptions. The Company has found that these
borrowers are payment sensitive rather than interest rate sensitive.
Consequently, the Company does not consider interest rates a predominant
risk characteristic for purposes of impairment. Impairment, if any, is
recognized through a valuation allowance in the period of impairment.
There were no material adjustments to the carrying value of the excess
servicing receivable during fiscal 1996.
ALLOWANCE FOR CREDIT LOSSES ON LOANS SOLD
-----------------------------------------
Loans sold by the Company are sold with limited recourse (see note 14).
These transactions are accounted for as sales because 1) the Company
surrenders control of the future economic benefits of the loans, 2) the
obligation under the recourse provision can be reasonably estimated and 3)
the purchaser cannot require the Company to repurchase the loans except
pursuant to the recourse provision. The Company provides an estimate for
credit losses related to this recourse provision. Such amounts are
incurred over the period subject to recourse.
F-9
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES ON LOANS SOLD, CONTINUED
----------------------------------------------------
Recourse to the Company on sales of Loans is governed by the agreements
between the purchasers and the Company. The allowance for credit losses on
Loans sold represents the Company' s best estimate of its probable future
credit losses to be incurred over the life of the Loans, giving effect to
estimated FHA Insurance recoveries on Title I Loans. The allowance for
losses on Loans sold with recourse is shown separately as a liability on
the Company's balance sheet.
LOAN SERVICING INCOME
---------------------
Fees for servicing Loans originated or acquired by the Company and sold
with servicing rights retained are generally based on a stipulated
percentage of the outstanding principal balance of such Loans and are
recognized when earned. Interest received on Loans sold, less amounts paid
to investors, is reported as loan servicing income. Excess servicing
receivable is amortized systematically to reduce loan servicing income to
an amount representing normal servicing income and the present value
discount. Late charges and other ancillary income are recognized when
collected.
FURNITURE, FIXTURES AND EQUIPMENT, NET
--------------------------------------
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation. Expenditures for major renewals and improvements are
capitalized while minor replacements, maintenance and repairs which do not
improve or extend the life of such assets are charged to expense. Gains or
losses on disposal of fixed assets are reflected in operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets, ranging from 5 to 7 years.
Leasehold improvements are depreciated over the term of the lease, ranging
from 1 to 5 years.
FEDERAL AND STATE INCOME TAXES
------------------------------
The Company and Home file separate Federal and State income tax returns.
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and measured using the enacted tax rates and laws.
F-10
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
CREDIT CONCENTRATIONS
---------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, Loans held for
sale and excess servicing receivable. Concentration of credit risk and
mitigating factors regarding Loans and excess servicing receivable are
described above. The Company places its cash in several major financial
institutions thereby limiting the Company's exposure to concentrations of
credit risk. The operating accounts of the Company exceeded the amount
insured by the Federal Deposit Insurance Corporation by an aggregate of
$1,198,326 at September 30, 1996.
The Company is party to financial instruments with off-balance sheet credit
risk in the normal course of business. These financial instruments include
commitments to extend credit to borrowers and commitments to purchase loans
from others. As of September 30, 1996, the Company had outstanding
commitments to extend credit or purchase loans in the amounts of
approximately $45,073,000.
RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS
No. 121 is effective for fiscal years beginning after December 15, 1995.
In the event that facts and circumstances indicate that the cost of long-
lived assets other than financial instruments and deferred tax assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation of impairment is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's
carrying amount to determine if a write-down to market value or discounted
cash flow value is required. The Company believes SFAS No. 121 will have
no material impact on the Company's results of operations or financial
condition as a result of implementing the pronouncement during fiscal 1997.
In May 1995, the FASB issued SFAS No. 122 which requires that upon sale or
securitization of servicing-retained finance contracts, the Company
capitalize the cost associated with the right to service the finance
contracts based on their relative fair values. Fair value is determined by
the Company based on the present value of estimated net future cash flows
related to servicing income. The cost allocated to the servicing right is
amortized in proportion to and over the period of estimated net future
servicing fee income. The Company has not determined the effect on its
operating results or financial condition when it adopts SFAS No. 122, which
is required in fiscal 1997.
F-11
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED
-----------------------------------------------
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes
fair value-based financial accounting and reporting standards for all
transactions in which a company acquires goods or services by issuing its
equity instruments or by incurring a liability to suppliers in amounts
based on the price of its common stock or other equity instruments. The
Company will continue to account for stock-based compensation as prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and will make the required disclosures in its 1997 fiscal
year financial statements.
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This statement
provides new accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. This statement
also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings
and requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured
at fair value. It also requires that servicing assets be measured by
allocating the carrying amount between the assets sold and retained
interests based on their relative fair values at the date of transfer.
Additionally, this statement requires that the servicing assets and
liabilities be subsequently measured by (a) amortization in proportion to
and over the period of estimated net servicing income and (b) assessment of
impairment or increased obligation based on their fair values. The Company
has not adopted the new standard for the current period, but must adopt the
new requirements effective January 1, 1997. The Company has not determined
the effect on results of operations or financial condition in the period of
adoption.
EARNINGS PER SHARE
------------------
The computation of primary earnings per share is based on the weighted
average number of common shares outstanding during the period plus, when
dilutive, common equivalent shares which include outstanding warrants
(456,170) and stock options (see Notes 15 and 16) using the treasury stock
method. Fully diluted earnings per share additionally assumes conversion
of the Company's 1,500,000 outstanding shares of Preferred Stock, Series A.
The number of contingent shares used in the fully diluted calculation is
based on the market price of the Company's common stock as of September 30,
1996. Net earnings used in the computation of earnings per share are
reduced by preferred stock dividend requirements.
F-12
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
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
disclosure 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.
RECLASSIFICATIONS
-----------------
Certain accounts and balances in the financial statements for the year
ended September 30, 1995, have been reclassified to be consistent with the
1996 account classifications
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet. Fair values are based on estimates using
present value or other valuation techniques in cases where quoted market
prices are not available. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and , in many cases,
could not be realized in immediate settlement of the instrument.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
F-13
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
-----------------------------------------------
Estimated fair values, carrying values and various methods and assumptions
used in valuing the Company's financial instruments at September 30, 1996
are set forth below.
<TABLE>
<CAPTION>
Carrying Estimated Fair
Value Value
----------- --------------
<S> <C> <C>
Financial Assets:
Cash (a) $ 339,074 $ 339,074
Loans held for sale (b) 4,604,550 4,896,900
Excess Servicing Receivable (c) 5,078,584 5,078,584
Financial Liabilities:
Debt obligations (d) 4,078,532 4,078,532
----------------------
</TABLE>
(a) The carrying value of cash is considered to be a reasonable estimate
of fair value.
(b) The fair value is estimated by using current investor yields or
outstanding commitments from investors after consideration of non-qualified
loans and the collateral securing such Loans.
(c) The fair value is estimated by discounting future cash flows using
rates available for instruments with similar risks, terms and remaining
maturities.
(d) The debt obligations are primarily adjustable rate instruments and
indexed to the prime rate or Federal Funds rate; therefore, carrying value
is a reasonable estimate of fair value. Capitalized equipment leases have
implicit fixed interest rates ranging from 14.4% to 25.6%, which
approximate fair value in the aggregate.
The fair value estimates made at September 30, 1996 were based upon
pertinent market data and relevant information on the financial instruments
at that time. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the entire portion of the
financial instrument. Because no market exists for a portion of the
financial instruments, fair value estimates may be based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. In addition, the tax implications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
any of the estimates.
F-14
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. LOANS HELD FOR SALE
-------------------
Loans held for sale consisted of the following at September 30, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Title I Loans $ 4,387,460 $ 1,678,807
Conventional loans 52,462 -
Commercial loans 51,620 -
Capitalized loan origination fees and
costs, net 113,008 18,928
----------- -----------
4,604,550 1,697,735
Allowance for credit losses (125,000) -
----------- -----------
Total $ 4,479,550 $ 1,697,735
=========== ===========
</TABLE>
The serviced Loan portfolio which includes Loans sold to investors and
Loans retained by the Company aggregated approximately $92,743,000 at
September 30, 1996.
5. ALLOWANCE FOR CREDIT LOSSES
---------------------------
Changes in the allowance for credit losses for Loans consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Balance at beginning of year $ 80,000 $ 30,000
Provisions for credit losses 220,000 50,000
Credit losses incurred - -
----------- ----------
Balance at end of year $ 300,000 $ 80,000
=========== ==========
Components of Allowance:
Allowance for credit losses on Loans held for sale $ 125,000 $ -
Allowance for credit losses on Loans sold 175,000 80,000
</TABLE>
6. EXCESS SERVICING RECEIVABLE
---------------------------
The activity in the excess servicing receivable is summarized as follows
for the year ended September 30, 1996:
<TABLE>
<S> <C>
Balance, October 1, 1995 $ -
Excess servicing additions 5,169,521
Amortization (90,937)
--------------
Balance, September 30, 1996 $ 5,078,584
==============
</TABLE>
F-15
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. FURNITURE, FIXTURES AND EQUIPMENT
---------------------------------
Furniture, fixtures and equipment consisted of the following at September
30:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Furniture and fixtures $ 207,704 $ 159,763
Equipment 324,886 283,815
Leasehold improvements 12,569 7,567
Software cost 293,395 -
---------- -----------
838,554 451,145
Accumulated depreciation (192,472) (77,285)
---------- -----------
$ 646,082 $ 373,860
========== ===========
</TABLE>
At September 30, 1996, and 1995, furniture and fixtures includes $55,523
and $105,275, respectively of assets under capital lease with an associated
accumulated depreciation of $23,656 and $25,694, respectively.
8. NOTES PAYABLE:
--------------
Notes payable consisted of the following at September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -------------
<S> <C> <C>
Notes payable to stockholder, uncollateralized, payable
on demand, accruing interest at prime (8.25% at
September 30, 1995) plus 1.5% $ - $ 125,000
Note payable to bank, guaranteed by certain
stockholders of the Company, due on demand, or if no
demand is made, due April 5, 1998, accruing interest at
prime (8.25% at September 30, 1996) plus 2% (Interest
only due through April 5, 1995); monthly payments of
$8,333 thereafter 158,339 258,335
----------- -------------
$ 158,339 $ 383,335
=========== =============
</TABLE>
F-16
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. REVOLVING LINES OF CREDIT
-------------------------
The Company finances its loans held for sale through a $10,000,000
revolving line of credit agreement, effective September 17, 1996, which
matures January 31, 1997 and had an outstanding balance of $3,875,377 at
September 30, 1996. The Company receives funding for approximately 98% of
the principal on each loan it originates or purchases through the warehouse
line. The outstanding principal is collateralized by the original notes
and mortgages and repaid upon their sale. Interest accrues at the lower of
350 basis points over the Federal Funds rate (6.09%, at September 30, 1996)
or 150 basis points over the prime interest rate (8.25%, at September 30,
1996) and is due monthly. The agreement stipulates that the bank will hold
the original notes and mortgages for all loans funded under the line as
collateral. Upon sale of the loans, the purchaser will fund the bank
directly and the collateral will be released.
At September 30, 1995, the Company financed its loans held for sale through
a $5,000,000 revolving line of credit which matured July 31, 1996, and had
an outstanding balance of $1,498,057. Interest accrued at prime rate
(8.25% at September 30, 1995) plus 2.0% and was due monthly.
The composition of the revolving lines of credit was as follows at
September 30:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Payable to financial institution $ 3,875,377 $ -
Payable to financial institution, matured
July 31, 1996 188,803 1,498,057
------------ -----------
$ 4,064,180 $ 1,498,057
============ ===========
</TABLE>
Subsequent to September 30, 1996, the revolving line of credit was
increased to $15,000,000 and the Company entered into a separate working
capital line of credit (servicing collateralized) for $3,000,000 which
matures November 7, 1997. The interest rate on the working capital line of
credit is prime plus 2.25%.
In connection with the above borrowings, the Company has agreed to certain
financial covenants regarding tangible net worth, leverage ratios, and
liquidity. The Company is permitted to pay dividends as long as the
financial ratios are maintained.
F-17
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. PREFERRED STOCK
---------------
On September 28, 1995, the Company issued 2,000 shares of non-voting
preferred convertible stock at $100 per share. After January 16, 1996,
each preferred share was convertible into 160 common shares of the Company
at the option of the holder. The holders of the preferred stock were
entitled to a 10% annual cumulative dividend on the face amount of the
stock. Effective April 18, 1996, all outstanding shares of preferred stock
were converted, together with all accrued and unpaid dividends, into
337,708 shares of common stock.
On June 18, 1996, the Company issued 1,500,000 shares of Preferred Stock,
Series A, par value $.01 per share ("Series A Preferred Stock), for the
purchase price of $1.50 per share or an aggregate of $2,250,000. A total
of 1,000,000 shares of the Series A Preferred Stock was purchased by an
unaffiliated entity pursuant to a Preferred Stock Purchase Agreement, dated
May 3, 1996, as amended.
The Series A Preferred Stock has a cumulative annual preferred dividend of
$.18 per share, payable quarterly before any distribution to holders of
Common Stock, with mandatory payment of dividends required for the first
year after issue, and shares of Series A Preferred Stock are convertible at
any time into Common Stock at a conversion rate, subject to certain
adjustments, of one share of Common Stock for each share of Series A
Preferred Stock. The Series A Preferred Stock is redeemable at par, plus
accrued, unpaid dividends, at the option of the Company, at any time after
two years from the date of issuance. Each share of Series A Preferred Stock
is entitled to one vote with respect to all matters submitted to a vote of
the stockholders of the Company, and holders of Series A Preferred Stock
are entitled to vote as a class as provided by law in connection with any
amendment to the Articles of Incorporation or Bylaws of the Company, or any
other corporate action that would adversely affect the holders of Series A
Preferred Stock. Shares of Series A Preferred Stock are entitled to a
liquidation preference of $1.50 per share, plus any accrued, unpaid
dividends, before any distribution to holders of Common Stock upon
dissolution of the Company.
Holders of the Series A Preferred Stock were granted "piggyback"
registration rights covering the shares of Common Stock into which the
Series A Preferred Stock is convertible after nine months from the date of
issuance of the Series A Preferred Stock, which rights terminate after
three years from the date of issuance of the Series A Preferred Stock.
A total of 166,667 shares of the Series A Preferred Stock were issued in
payment and discharge of an aggregate $250,000 principal amount of loans
payable to certain stockholders of the Company.
F-18
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES
------------
The Company had net operating loss carryforwards of approximately
$1,002,000 at September 30, 1995, of which $759,000 was utilized for the
year ended September 30, 1996.
The provision for income taxes for the year ended September 30, 1996 is
comprised of the following:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Current:
Federal $ 1,080,832
State 23,711
------------
1,104,543
Deferred (benefit) provision (190,502)
------------
Provision for income taxes $ 914,041
============
</TABLE>
The components of deferred tax assets and liabilities were as follows at
September 30:
<TABLE>
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $ (39,075) $ (17,692)
------------- -----------
Deferred tax assets:
Net operating loss carryforwards 73,230 328,035
Bad debt reserve 102,000 27,200
Deferred compensation - 2,977
Unrealized gain 127,577 26,425
Other - 186
------------- -----------
Total deferred tax assets 302,807 384,823
Valuation allowance (73,230) (367,131)
------------- -----------
229,577 17,692
------------- -----------
Net deferred tax assets $ 190,502 $ -0-
============= ===========
</TABLE>
F-19
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED
-----------------------
The reconciliation between the income tax provision and the income tax
expense using the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Federal tax at statutory rate of 34% $ 1,183,290 $ (24,495)
State income taxes, net of federal tax benefit 15,649 -
Reduction of taxes provided in prior years - (12,010)
Expenses not deductible for tax purposes 9,003 5,057
------------ ------------
Tax expense (benefit) before change in valuation allowance 1,207,942 (31,448)
Increase (decrease) in valuation allowance (293,901) 31,448
--------------- ----------
Total income tax provision $ 914,041 $ -
=============== ==========
</TABLE>
During the year ended September 30, 1996, the Company reversed a
substantial portion of the valuation allowance recorded in prior years, as
management believes that it is more likely that not than the Company will
realize the deferred tax asset.
12. GAIN ON SALE OF LOANS
---------------------
Gain on sale of Loans, as defined in Note 2, and the related cost is as
follows for the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------- -------------
<S> <C> <C>
Gain on whole Loan sales $ 5,031,208 $ 3,935,744
Excess servicing gain 5,169,521 -
---------------- -------------
10,200,729 3,935,744
Premiums, net (2,424,553) (686,513)
Transaction costs (22,669) (47,740)
---------------- --------------
Gain on sale of Loans $ 7,753,507 $ 3,201,491
================ ==============
</TABLE>
13. SUPPLEMENTAL CASH FLOW DISCLOSURE
---------------------------------
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Cash paid for interest $ 419,491 $ 300,888
Noncash financing and investing activities:
Conversion of preferred stock to common stock of parent - 438,954
Preferred stock dividend accrual 76,932 38,954
Conversion of debt to equity 250,000 207,147
</TABLE>
F-20
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases its office space at its corporate headquarters and six
branch offices through operating leases expiring through 2001. Rent
expense for the years ended September 30, 1996 and 1995 totaled $270,670
and $165,553, respectively.
The Company also leases certain office equipment under various capital
leases. The economic substance of these leases is that the Company is
financing the acquisition of the assets through the leases. Required
minimum rental payments for the remaining terms of the leases are as
follows:
<TABLE>
<CAPTION>
Years Ending Capital Leases Operating Leases
------------ ----------------- ------------------
<S> <C> <C>
1997 $ 10,718 $ 315,662
1998 5,520 274,615
1999 465 276,020
2000 - 275,222
2001 - 177,619
Less amount representing interest (2,351) -
------------------ ------------------
$ 14,352 $ 1,319,138
================== ==================
</TABLE>
The Loans sold by the Company are sold with limited recourse. In the event
that the borrower defaults on its first payment the Company is committed to
repurchasing the loan. The Company submits a claim for 90% of the
principal amount of the loan to HUD under the Title I insured loan program
for such repurchased loans after exhausting their collection efforts as
required under the program. The remaining 10% of the loan is therefore
uninsured.
The Company is a party to various lawsuits from time to time which arise
during the normal course of business. In the opinion of management, the
potential claims against the Company from the lawsuits would not materially
affect the Company's financial position, results of operations, or cash
flows.
Home is required to maintain adjusted net worth, as defined by HUD,
amounting to $250,000. At September 30, 1996, Home had adjusted net worth
of $5,115,716.
F-21
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
15. STOCK WARRANTS
--------------
At September 30, 1996 and 1995, HomeCapital had 53,005,856 and 59,708,656
Series A Warrants and 72,468 and 2,668 Series B Warrants outstanding,
respectively. Holders of Series A Warrants are entitled to purchase one
share of HomeCapital common stock at $4 per share for each 100 warrants.
In addition, upon exercise of Series A Warrants, the holder is issued one
Series B Warrant. The holders of Series B Warrants are entitled to purchase
one share of HomeCapital common stock at $75 per share for each 100
Warrants. The Series A and B Warrants expire on December 31, 1996.
In addition, 456,170 warrants issued by Home prior to the acquisition of
HomeCapital were outstanding as of September 30, 1996 and 1995,
respectively. Each of these warrants entitle the holders to purchase one
share of HomeCapital common stock for $.20 per share and expire January 19,
1999. Subsequent to September 30, 1996, all of these warrants were
exercised.
16. STOCK OPTIONS
-------------
In June of 1993, Home issued options to purchase 555 shares of its common
stock at $120 per share to one of its employees. As a result of the
acquisition of HomeCapital, these options were converted into options to
purchase 409,668 shares of HomeCapital stock at $.16 per share. The
options, which are fully exercisable as of September 30, 1996, expire in
the year 2001. No shares have been exercised.
Effective March 21, 1996, the Board of Directors of the Company adopted the
HomeCapital Investment Corporation 1996 Stock Option Plan, which was
ratified by stockholder vote on August 16, 1996. The Stock Option Plan
provides that up to 500,000 shares of Common Stock may be issued upon
exercise of options granted under the Stock Option Plan, subject to
adjustment to reflect stock splits, stock dividends, mergers and similar
transactions. At September 30, 1996, options to purchase an aggregate of
200,000 shares of Common Stock had been granted under the Stock Option Plan
with an exercise price of $3.50 per share.
17. RELATED PARTY TRANSACTIONS
--------------------------
Home paid consulting fees and expenses of approximately $74,252 and $78,000
to certain directors of the Company for the years ended September 30, 1996
and 1995, respectively.
During the years ended September 30, 1996 and 1995, the Company paid
inspection fees totaling $69,715 and $55,675, respectively, to a company
controlled by a relative of the President of the Company.
F-22
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
18. 401(K) PROFIT SHARING PLAN
--------------------------
Home sponsors a savings and investment plan intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code").
All full-time employees of Home who are at least 20.5 years of age may
participate in the plan. Participating employees may make pre-tax
contributions, subject to limitations under the Code, not to exceed 18% of
their total compensation. Home, in its sole discretion, may make matching
contributions for the benefit of all participants who make pre-tax
contributions, as well as discretionary contributions for the benefit of
all participants regardless of whether they elect to make pre-tax
contributions to the plan. All employee contributions are fully vested.
Matching and discretionary contributions, will vest 20% after two years of
service and an additional 20% per year of service thereafter, provided that
such contributions become 100% vested upon an employee's death, disability
or retirement. The plan was adopted January 1, 1995, and Home has not made
any contributions to the plan through September 30, 1996.
19. SELECTED QUARTERLY DATA (UNAUDITED)
-----------------------------------
The following financial data summarizes quarterly results for the Company
for the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
December 31 March 31 June 30 September 30
---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Fiscal 1996
Revenues $ 1,868,407 $ 1,833,095 $ 2,380,695 $ 4,990,413
Net income (loss) 443,862 201,680 166,876 1,753,805
Income (loss) per common share .059 .026 .020 .217
Fiscal 1995
Revenues 919,527 981,692 1,178,344 1,302,713
Net income (loss) (72,260) (43,846) 138,202 (94,141)
Income (loss) per common share (.015) (.007) .020 (.014)
</TABLE>
20. SEGMENT INFORMATION (UNAUDITED)
-------------------------------
For the years ended September 30, 1996 and 1995, Title I Loan origination
and production (exclusive of paydowns and repurchases) is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
Source of Loan Production Amount % Amount %
--------------------------- ------------- ----- ------------- ----
<S> <C> <C> <C> <C>
Correspondent Loans $ 76,020,078 78.3% $ 35,062,570 58.4%
Dealer Loans 15,440,132 15.9 19,686,770 32.8
Direct Loans 5,606,397 5.8 5,308,198 8.8
--------------- ---- ------------- ----
Total Title I Loans $ 97,066,607 100% $ 60,057,538 100%
=============== ==== ============= ====
</TABLE>
F-23
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
20. SEGMENT INFORMATION (UNAUDITED), CONTINUED
------------------------------------------
Of the Title I Loans originated in fiscal 1996 and 1995, five Loan
Correspondents and three Loan Correspondents accounted for 36.8% and 17.1%,
respectively, of total Title I Loan production. Each of these Loan
Correspondents individually accounted for more than 5% of total Title I
Loan production.
The following table sets forth the states that represent the geographic
location of Loan originations greater than 3% of total Title I Loans for
the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
State 1996 1995
---------- ----- ----
<S> <C> <C>
California 67.3% 55.3%
Texas 17.9 33.0
Florida 4.0 -
Nevada 4.3 4.5
------ -----
93.5% 92.8%
====== =====
</TABLE>
The Company also originates conventional home improvement Loans through
several arrangements with other home improvement lenders on a pre-approved
basis. Total conventional loans originated in fiscal 1996 and 1995 were
$3,105,374 and $1,795,325, respectively. At September 30, 1996 and 1995,
$52,462 and $0, respectively, of conventional loans were held for sale
under firm purchase commitments.
Prior to October 1995, the Company sold all of its loans held for sale on a
servicing released basis. In October 1995, the Company commenced selling
the majority of its loan production to its warehouse lender on a servicing
retained basis. Additionally, effective March 1, 1996, the Company was
approved as a Seller/Servicer with Fannie Mae to sell Title I Loans to
Fannie Mae with servicing retained. The Company began selling Title I
Loans to Fannie Mae in June 1996. Following is a summary of loans sold
during the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Title I Loans Sold: 1996 1995
------------------------- ------------- -------------
<S> <C> <C>
Servicing released $ 3,411,890 $ 61,222,623
Servicing retained:
Financial institutions 61,318,895 -
Fannie Mae 29,711,453 -
------------- -------------
91,030,348 -
------------- -------------
Total Title I Loans Sold $ 94,442,238 $ 61,222,623
============= =============
</TABLE>
F-24
<PAGE>
EXHIBIT 4.6
HOMECAPITAL INVESTMENT CORPORATION
AMENDMENTS TO
CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK, SERIES A
HOMECAPITAL INVESTMENT CORPORATION, a Nevada corporation (the "Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors of the
Corporation by virtue of its Articles of Incorporation, as amended, and in
accordance with the Revised Statutes of the State of Nevada, and pursuant to the
authority conferred upon the Board of Directors by the Certificate of
Designation of Preferred Stock, Series A, of the Corporation filed in accordance
with the Revised Statutes of the State of Nevada effective June 14, 1996 (the
"Certificate of Designation"), the Board of Directors of the Corporation has
duly adopted the following resolutions on and as of September 30, 1996, for the
purpose of amending the Certificate of Designation of the Corporation to modify
the redemption provisions thereof and related rights of the Corporation and
holders of shares of the Preferred Stock, Series A, par value $.01 per share
(the "Series A Stock"), thereto:
"WHEREAS, at the request of the Corporation, the holders of in excess of fifty
percent (50%) of all of the issued and outstanding shares of Preferred Stock,
Series A ("Series A Stock"), of the Corporation have agreed to waive and
relinquish all rights to require the Corporation to redeem shares of issued and
outstanding Series A Stock and have consented to the amendment of the
Certificate of Designation of the Series A Stock as filed and effective June 14,
1996 ("Certificate of Designation"), so as to eliminate the right of holders of
Series A Stock to put or otherwise require the Corporation to redeem or purchase
issued and outstanding shares of Series A Stock; and
WHEREAS, at the request of the holders of in excess of fifty percent (50%) of
the issued and outstanding shares of Series A Stock, the Corporation has agreed
to defer for an additional year, from May 31, 1997 to May 31, 1998, the date
after which the Corporation may call outstanding shares of Series A Stock for
redemption pursuant to the Certificate of Designation; and
WHEREAS, the holders of in excess of fifty percent (50%) of the issued and
outstanding shares of Series A Stock have agreed and consented in writing to the
following amendments to the Certificate of Designation:
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Corporation by the Articles of Incorporation, as
amended, of the Corporation, and pursuant to the authority conferred upon the
Board of Directors by the Certificate of Designation, the Board of Directors
hereby amends the Certificate of Designation as follows:
<PAGE>
(1) Section 5 of the Certificate of Designation is hereby amended, so as to
defer for an additional year the date after which the Corporation may call the
Series A Stock for redemption. Accordingly, the first sentence of paragraph (a)
of Section 5 of the Certificate of Designation is amended so as to read in its
entirety as follows:
`The shares of Series A Stock may be redeemed, in whole or in part, at any
time from time to time or on or after May 31, 1998, at the option of the
Corporation out of funds legally available therefor, at a redemption price
of One and 50/100 Dollars ($1.50) per share plus accrued dividends
("Redemption Price").'
(2) Section 5 of the Certificate of Designation is amended, so as to eliminate
the right of holders of Series A Stock to demand that the Corporation redeem the
outstanding shares of Series A Stock. Accordingly, the provisions of paragraph
(c) of Section 5 of the Certificate of Designation are hereby deleted in their
entirety, the parenthetical expression in the first sentence of paragraph (d) of
the Certificate of Designation that refers to a "Mandatory Redemption Date" is
hereby deleted in its entirety, and paragraph (d) of Section 5 of the
Certificate of Designation is hereby redesignated as paragraph (c) of Section 5
of the Certificate of Designation.
FURTHER RESOLVED, that the Certificate of Designation, as amended, modified and
revised pursuant to these resolutions, be and it is hereby restated in its
entirety and attached hereto as the Amended Certificate of Designation, and
shall become effective, as amended, upon filing in the Office of the Secretary
of State of Nevada and as otherwise may be required by law.
FURTHER RESOLVED, that all holders of Series A Stock shall be notified of the
foregoing amendments to the Certificate of Designation, and that all
certificates evidencing shares of Series A Stock shall be surrendered to the
Corporation and stamped or printed with a conspicuous legend giving notice of
the foregoing amendments to the Certificate of Designation.
FURTHER RESOLVED, that the proper officers of the Corporation are hereby
authorized and directed to do all acts and things which be necessary or
advisable to carry into effect the purposes and intent of this and the foregoing
resolutions."
The holders of in excess of fifty percent (50%) of the issued and outstanding
shares of Series A Stock of the Corporation have duly agreed and consented in
writing to the foregoing amendments to the Certificate of Designation of the
Corporation, and due notice thereof has been given to all holders of issued and
outstanding shares of Series A Stock of the Corporation who have not agreed or
consented in writing to the amendments to the Certificate of Designation in
accordance with law.
-2-
<PAGE>
IN WITNESS WHEREOF, HomeCapital Investment Corporation has caused this
certificate to be duly executed effective on and as of this 30th day of
September, 1996.
HOMECAPITAL INVESTMENT CORPORATION
ATTEST:
/s/ Anna M. Walker By: /s/ John W. Ballard
- ------------------- -------------------------------
ANNA M. WALKER, Assistant JOHN W. BALLARD, President
Secretary
State of Texas
County of Travis
This instrument was acknowledged before me on December 18, 1996 by John W.
Ballard as President, and Anna M. Walker, as Assistant Secretary, of HomeCapital
Investment Corporation, a Nevada corporation.
/s/ Glenda Houchin
---------------------------------
Notary Public, State of Texas
-3-
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
AMENDED CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK, SERIES A
HOMECAPITAL INVESTMENT CORPORATION, a Nevada corporation (the "Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors of the
Corporation by virtue of its Articles of Incorporation, as amended, and in
accordance with the Revised Statutes of the State of Nevada, the Board of
Directors of the Corporation has duly adopted the following resolution on and as
of September 30, 1996 (amending and restating the resolution of the Board of
Directors duly adopted on and as of May 3, 1996), for the purpose of
establishing and designating a series of Preferred Stock, par value $.01 per
share, of the Corporation and fixing the voting powers, preferences,
limitations, restrictions and relative rights thereof:
"RESOLVED, that pursuant to the authority vested in the Board of Directors of
the Corporation by the Articles of Incorporation, as amended, of the
Corporation, the Board of Directors hereby authorizes and provides for the issue
of a series of Preferred Stock, $.01 par value per share, of the Corporation to
be designated as Preferred Stock, Series A, consisting of 1,500,000 shares, and
does hereby fix, state and express the designations, voting powers, preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof as follows:
SECTION 1. DESIGNATION. The series of Preferred Stock having the rights,
preferences, privileges, and restrictions set forth herein shall be designated
and known as the "Preferred Stock, Series A" of the Corporation (hereinafter
referred to as "Series A Stock"). Each share of Series A Stock shall be
identical in all respects with all other shares of Series A Stock.
SECTION 2. NUMBER OF SHARES. The number of shares constituting all of the
Series A Stock shall be 1,500,000. Shares of Series A Stock that are redeemed,
purchased or otherwise acquired by the Corporation or converted into Common
Stock of the Corporation shall be cancelled and shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series.
SECTION 3. DIVIDENDS. The holders of shares of Series A Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, which
declaration shall be made by the Board of Directors and dividends shall be paid
for each of the first four full quarterly periods following the issuance of the
Series A Stock, but only in each case out of funds legally available therefor,
cumulative cash dividends at the annual rate of $.18 per share, and no more,
payable quarterly on the first days of March, June, September and December,
respectively, in each year, commencing September 1, 1996, with respect to the
quarterly dividend period (or portion thereof) ending on the day preceding such
respective dividend
<PAGE>
payment date, to holders of record on the respective date, not more than sixty
(60) nor less than ten (10) days preceding such dividend payment date, fixed for
such purpose by the Board of Directors in advance of payment of each particular
dividend. So long as any share of Series A Stock remains outstanding, no
dividend whatever shall be paid or declared and no distribution shall be made on
any junior stock, other than a dividend payable solely in junior stock, and no
shares of junior stock shall be purchased, redeemed or otherwise acquired for
consideration by the Corporation, directly or indirectly (other than as a result
of a reclassification of junior stock, or the exchange or conversion of one
share of junior stock, in each case, for or into another share of junior stock),
unless all accrued dividends on all outstanding shares of Series A Stock for all
past quarterly dividend periods shall have been paid and the full dividend
thereon for the then current quarterly dividend period shall have been paid or
declared and set apart for payment. Subject to the foregoing, and not
otherwise, such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared and paid on any junior
stock from time to time out of any funds legally available therefor, and the
shares of Series A Stock shall not be entitled to participate therein. No
interest or penalty shall be payable on accrued dividends of Series A Stock.
SECTION 4. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
shares of Series A Stock shall be entitled to be paid out of the assets of the
Corporation legally available for distribution to its stockholders, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of the Common Stock, an amount equal to $1.50 per share of Series A
Stock, plus an amount equal to any accrued dividends, and no more. If upon the
occurrence of such event the assets distributable among the holders of Series A
Stock shall be insufficient to permit the payment of the full preferential
amounts for the Series A Stock, then the entire assets and funds of the
Corporation legally available for distribution to its stockholders shall be
distributed among the holders of Series A Stock then outstanding ratably per
share in proportion to the full preferential amounts per share to which they are
respectively entitled. After the holders of Series A Stock have received
payment or distribution of their full preferential amounts, the remaining assets
of the Corporation available for distribution to its stockholders shall be
distributed ratably to the holders of the outstanding shares of Common Stock,
except to the extent otherwise provided in the designation of any series of
capital stock. For the purposes of this Section 4, the consolidation or merger
of the Corporation with any other corporation shall not be deemed to constitute
a liquidation, dissolution or winding up of the Corporation.
SECTION 5. REDEMPTION.
(a) The shares of Series A Stock may be redeemed, in whole or in part,
at any time from time to time or on or after May 31, 1998, at the option of the
Corporation out of funds legally available therefor, at a redemption price of
One and 50/100 Dollars ($1.50) per share plus accrued dividends ("Redemption
Price"). In case of redemption of a part only of the shares of Series A Stock at
the time outstanding, the redemption may be either pro rata or by lot. The Board
of Directors shall have full power and authority, subject to the
-2-
<PAGE>
provisions herein contained, to prescribe the terms and conditions upon which
shares of Series A Stock shall be redeemed from time to time.
(b) Notice of redemption of Series A Stock shall be mailed by first
class mail, postage prepaid, addressed to the holders of record of shares of the
Series A Stock at the last addresses as they shall appear on the books of the
Corporation ("Redemption Notice") at least 10 days and not more than 30 days
prior to the redemption date (the "Redemption Date"). Any notice which is mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the stockholder receives such notice, and failure duly to
give such notice by mail, or any defect in such notice, to any holder of shares
of Series A Stock designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Series A Stock. The
Redemption Notice shall set forth the Redemption Price and the place where
holders of shares of Series A Stock may receive the Redemption Price upon
tendering certificates for shares of Series A Stock in the manner set forth in
the Redemption Notice.
(c) If on or before the Redemption Date all funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of Series A
Stock, so as to be and continue to be available therefor, then from and after
the Redemption Date, notwithstanding that any certificate for shares of Series A
Stock shall not have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, and all rights with respect to
shares of Series A Stock shall forthwith on the Redemption Date cease and
terminate except only as to the right of the holders thereof to receive the
redemption price of such shares so to be redeemed. Any funds so set aside or
deposited by the Corporation which shall not be required for such redemption
because of the exercise of any right of conversion or exchange subsequent to the
date of such deposit shall be released or repaid to the Corporation forthwith.
Any moneys so set aside by the Corporation and unclaimed at the end of three (3)
years from the Redemption Date shall revert to the general funds of the
Corporation.
SECTION 6. CONVERSION RIGHTS. The holders of shares of Series A Stock shall
have the right, at their option, to convert all or any part of the shares of
Series A Stock into shares of Common Stock at any time on and subject to the
following terms and conditions.
(a) Shares of Series A Stock shall be convertible at the office of the
Corporation, or, if the Corporation shall then have a transfer agent for Common
Stock, at the office of such transfer agent, into one (1) fully paid and
nonassessable share of Common Stock for each share of Series A Stock (the
"Conversion Rate"), subject to adjustment as provided in this Section 6. Upon
conversion of any shares of Series A Stock and at the time of delivery of
certificate for shares of Common Stock into which the shares of Series A Stock
is converted ("Conversion Common Stock"), the Corporation, at its option, shall
either (i) pay to the holder in cash by bank check drawn on immediately
available funds the amount of any accrued but unpaid dividends, or (ii) issue
additional shares of Conversion Common
-3-
<PAGE>
Stock to the holder of the Series A Stock in payment and discharge of accrued
dividends at the Dividend Conversion Price (as hereinafter defined) per share of
Common Stock.
(b) Before any holder shall be entitled to convert shares of Series A
Stock into shares of Common Stock, such holder shall: (i) surrender the
certificate or certificates representing shares of Series A Stock to be
converted, duly endorsed or assigned to the Corporation or in blank, at the
office of the Corporation, or, if the Corporation shall then have a transfer
agent for the Common Stock, at the office of such transfer agent; (ii) give
written notice to the Corporation at such office, attention to its Secretary,
that such holder elects to convert Series A Stock into Common Stock; and (iii)
state in such written notice the number of shares of Series A Stock to be
converted and the denominations in which such holder wishes the certificate or
certificates for Common Stock to be issued. The Corporation will, as soon as
practicable thereafter, cause to be issued and delivered to such holder
certificates for the number of full shares of Common Stock and Series A Stock to
which such holder shall be entitled as aforesaid, together with payment of any
accrued dividends to be paid in cash and payment in lieu of any fraction of a
share, as hereinafter provided. Such conversion shall be deemed to have been
made as of the close of business on the date the certificate or certificates
representing shares of Series A Stock to be converted are surrendered and
received at the office of the Corporation, or, if the Corporation shall then
have a transfer agent for the Common Stock, at the office of such transfer agent
(the close of business on such date being herein called the "Conversion Date"),
so that the rights of such holder as to such shares of Series A Stock shall
cease at such time, and the holder shall be entitled to receive the shares of
Common Stock upon conversion of such shares of Series A Stock and shall be
treated for all purposes as having been the record holder of such shares of
Common Stock at such time, and such conversion shall be at the Conversion Rate
in effect at such time. In case shares of Series A Stock are called for
redemption, the right to convert such shares shall cease and terminate at the
close of business on the third full business day prior to the date fixed for
redemption, unless default shall be made in payment of the Redemption Price.
(c) No fractional shares of Common Stock shall be issued upon conversion
of shares of Series A Stock, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the Dividend Conversion
Price on the Conversion Date.
(d) In the event that, while any shares of Series A Stock shall remain
outstanding, the Corporation shall at any time (i) subdivide its outstanding
Common Stock into a greater number of shares, or (ii) combine the outstanding
shares of Common Stock into a smaller number of shares, or (iii) issue
additional shares of Common Stock as a dividend or other distribution on the
Common Stock, the Conversion Rate in effect immediately prior to such
subdivision or combination or stock dividend or stock distribution shall be
proportionately adjusted so that, with respect to each such subdivision of
shares or stock dividend or stock distribution, the number of shares of Common
Stock deliverable upon conversion of each share of Series A Stock shall be
increased in proportion to the increase in the number of
-4-
<PAGE>
then outstanding shares of Common Stock resulting from such subdivision of
shares of stock dividend or stock distribution, and with respect to each such
combination of shares, the number of shares of Common Stock deliverable upon
conversion of each share of Series A Stock shall be decreased in proportion to
the decrease in the number of then outstanding shares of Common Stock resulting
from such combination of shares. Any such adjustment in the Conversion Rate
shall become effective, in the case of any subdivision or combination of shares,
at the close of business on the effective date thereof, and, in the case of any
such stock dividend or stock distribution, at the close of business on the
record date fixed for the determination of stockholders entitled thereto or on
the first business day during which the stock transfer books of the Corporation
shall be closed for the purpose of such determination, as the case may be.
Whenever the Conversion Rate shall be adjusted pursuant to this Section 6(d),
and the Corporation shall have a transfer agent for the Common Stock, the
Corporation shall, within thirty (30) days after such adjustment becomes
effective, file a notice of the Conversion Rate, as adjusted, with such transfer
agent.
(e) In the event that, while any shares of Series A Stock shall remain
outstanding, there shall be any consolidation or merger of the Corporation with
another corporation, or a sale to another corporation of all or substantially
all of the property of the Corporation (otherwise than for a consideration
which, apart from the assumption of liabilities, consists substantially or
entirely of cash), or a reclassification of the Common Stock of the Corporation
into securities including other than Common Stock, holders of Series A Stock
shall thereafter have the right to convert such shares of Series A Stock (or
such other stock or securities) into the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger, or
reclassification by a holder of the number of shares of Common Stock into which
such shares of Series A Stock could have been converted immediately prior to
such consolidation, merger, or reclassification. The instruments effecting such
consolidation, merger, or reclassification and, where appropriate, the articles
of incorporation of the surviving or resulting or purchasing corporation shall
provide for such conversion rights and for adjustments which shall be as nearly
as equivalent as practicable to the adjustments provided for in this Section 6,
and the provisions of this Section 6 shall similarly apply to successive
consolidations, mergers, sales, or reclassifications. In case securities or
property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all references to stock in this Section 6(e) shall
be deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
(f) The issuance of certificates for shares of Common Stock upon
conversion of shares of Series A Stock shall be made without charge to the
holders of Series A Stock for any original issuance tax in respect of the
issuance of such certificates, and such certificates shall be issued in the name
of, or in such name or names as may be directed by, the holders of Series A
Stock; provided, however, that the Corporation shall not be required to pay any
transfer tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name or names other than that
of the holders of Series A Stock and the Corporation shall not be required to
issue or deliver such certificates unless and until the holders of Series A
Stock shall have paid to the Corporation the amount of
-5-
<PAGE>
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid.
(g) No adjustment in the Conversion Rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Rate; provided, however, that any adjustments which by reason of this
Section 6(g) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations with respect to this
Section 6 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be. The certificate of any independent firm of public
accountants of recognized standing selected by the Board of Directors shall be
presumptive evidence of the correctness of any computation made under this
Section 6.
(h) In the event of the occurrence of any event or transaction not
contemplated by this Section 6 that would require an adjustment to the
Conversion Rate to remain consistent with the intent and purpose of this Section
6, then the Board of Directors shall make such adjustment to the Conversion Rate
as they shall deem reasonable and consistent with the intentions and purposes of
this Section 6 and general principles of equity. The Board of Directors shall
have the power to resolve any ambiguity or correct any error in this Section 6,
and its action in so doing shall be final and conclusive.
(i) In the event that the shares of Conversion Common Stock, when
issued, shall have not have been registered under the Securities Act of 1933, as
amended ("Securities Act"), or applicable state securities laws ("State Laws"),
then the shares of Conversion Common Stock shall be deemed to be "Restricted
Shares" and may not be sold, distributed, assigned, offered, pledged, or
otherwise transferred unless (i) there is an effective registration statement
under the Securities Act and the State Laws covering any such transaction
involving the Conversion Common Stock, (ii) the Corporation receives an opinion
of legal counsel for the holder of the Conversion Common Stock reasonably
satisfactory to the Corporation stating that such transaction is exempt from
such registration, or (iii) the Corporation otherwise satisfies itself that such
transaction is exempt from such registration; and certificates representing any
of the Conversion Common Stock shall bear a legend to the foregoing effect, and
the transfer agent, if any, of the Corporation with respect to Common Stock of
the Corporation shall be given a stop order by the Corporation with respect to
any proposed transfer of Conversion Common Stock that shall be Restricted
Shares.
SECTION 7. VOTING RIGHTS. Each outstanding share of Series A Stock shall be
entitled to one (1) vote on any matter submitted to a vote of the stockholders
of the Corporation. Notwithstanding the foregoing, however, the consent of the
holders of at least a majority of the outstanding shares of Series A Stock,
voting separately as a single class, shall be necessary to approve an amendment
to the Articles of Incorporation or Bylaws of the Corporation, or an act of the
Corporation, or a transaction involving the Corporation, that would: (i)
increase or decrease the aggregate number of authorized shares of Series A
Stock; (ii) effect an exchange, reclassification, or cancellation of all or part
of Series A Stock; (iii) effect or require an exchange or conversion of all or
any part of the shares of another
-6-
<PAGE>
class of stock into Series A Stock; (iv) change, in a manner prejudicial to the
holders of shares of Series A Stock, the designations, preferences, limitations,
or relative rights of Series A Stock or shares of any other class of stock; (v)
create a new class or enlarge an existing class of shares of stock having rights
or preferences senior or superior to the Series A Stock, or increase the rights
or preferences of any class of stock having rights or preferences senior or
superior to the Series A Stock; or (vi) authorize the payment of a dividend in
the form of shares of Series A Stock.
SECTION 8. DEFINITIONS. As used herein with respect to Series A Stock, the
following terms shall have the following meanings:
(a) The term "junior stock" shall mean the Common Stock and any other
class or series of stock of the Corporation hereafter authorized over which
Series A Stock has preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
(b) The term "accrued dividends," with respect to any share of any class
or series, shall mean an amount computed at the annual dividend rate for the
class or series of which the particular share is a part, from the date on which
dividends on such shares became cumulative to and including the date to which
such dividends are to be accrued, whether or not declared by the Board of
Directors, less the aggregate amount of all dividends theretofore paid thereon.
(c) The term "business day" shall mean each Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in Austin, Travis County,
Texas, are not authorized or obligated by law or executive order to close.
(d) The term "Dividend Conversion Price" on any day shall mean the
average of the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the average of the average of
the closing bid and asked prices in the over-the-counter market as reported by
the National Association of Securities Dealers' Automated Quotation System, or,
if not so reported, as reported by the National Quotation Bureau, Incorporated,
or any successor thereof, or, if not so reported, the average of the average of
the closing bid and asked prices as furnished by any member of that National
Association of Securities Dealers, Inc. selected from time to time by the
Corporation for that purpose, for the five (5) Trading Days (as hereinafter
defined) immediately preceding the determination date; provided, however, that
if the shares of Common Stock to which the Dividend Conversion Price is to be
attributable are Restricted Shares, then, notwithstanding the foregoing, the
Dividend Conversion Price shall be deemed to be and mean a value equal to
seventy-five percent (75%) of the Dividend Conversion Price determined in the
foregoing clause.
-7-
<PAGE>
(e) The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, a Monday,
Tuesday, Wednesday, Thursday or Friday on which banking institutions in Austin,
Travis County, Texas are not authorized or obligated by law or executive order
to close.
SECTION 9. OTHER RIGHTS. The shares of Series A Stock shall not have any
preemptive right to acquire any other shares of capital stock or other
securities of the Corporation or securities convertible into shares of capital
stock of the Corporation (herein "preemptive rights"), or any other powers,
preferences or relative, participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, other than as set forth
herein; provided that, in the event that the holders of shares of Common Stock
of the Corporation are granted any preemptive rights generally, then the holders
of shares of Series A Stock shall be entitled to exercise the same preemptive
rights in respect of the shares of Series A Stock of such holder as the shares
of Conversion Common Stock into which the Series A Stock may be convertible
would otherwise be entitled.
FURTHER RESOLVED, that the proper officers of the Corporation are hereby
authorized and directed to do all acts and things which be necessary or
advisable to carry into effect the purposes and intent of this and the foregoing
resolutions."
IN WITNESS WHEREOF, HomeCapital Investment Corporation has caused this
certificate to be duly executed effective on and as of this 30th day of
September, 1996.
HOMECAPITAL INVESTMENT CORPORATION
By: /s/ John W. Ballard
-----------------------------------
JOHN W. BALLARD, President
-8-
<PAGE>
Exhibit 10.13
MASTER AGREEMENT NO. MD01546
May 8, 1996
Mr. John Ballard
Home, Inc.
6836 Austin Center Blvd., Suite 280
Austin, TX 78731
Dear Mr. Ballard:
This letter shall constitute the master agreement ("Master Agreement") between
the Federal National Mortgage Association ("Fannie Mae") and Home, Inc. (the
"Lender") to enter into one or more transactions for the sale by the Lender and
purchase by Fannie Mae of residential mortgage loans ("Mortgages"). The
obligations of the Lender and Fannie Mae regarding each such transaction shall
be governed by the terms and conditions contained herein (including Exhibit 1
---------
and each of the Attachments attached hereto and incorporated herein by
reference) and by the terms and conditions of the applicable Fannie Mae purchase
program ("Program").
The Lender will sell to Fannie Mae, beginning on the Effective Date and ending
on the Expiration Date (as those terms are defined in Exhibit 1), Mortgages with
-----------
an aggregate outstanding principal balance equal to the Agreed Amount (as
defined in Exhibit 1) under one or more of the following Programs:
----------
(a) Fannie Mae's Mortgage-Backed Securities Program, under terms mutually
acceptable to the Lender and Fannie Mae and which will be set forth herein and
under the applicable MBS Pool Purchase Contract obtained through the Lender's
Fannie Mae lead regional office, or
(b) Fannie Mae's Negotiated Transaction Program for cash purchase under terms
mutually acceptable to Lender and Fannie Mae and which will be set forth herein
and when applicable, under a special commitment obtained through the Lender's
Fannie Mae lead regional office, or
(c) Fannie Mae's Standard Portfolio (cash) purchase commitment Program, under
the then-current terms and conditions applying thereto.
If the Agreed Amount is not sold to Fannie Mae prior to the Expiration Date,
the Lender shall pay Fannie Mae the Back-end Buyout Fee, as indicated in Exhibit
-------
1. (The undelivered and uncommitted portion of the Agreed Amount shall be the
- --
difference between (a) the Agreed Amount (taking into account the minus 5.00%
delivery tolerance, as specified in Exhibit 1), and (b) a sum equal to the
-----------
aggregate outstanding principal balance of Mortgages (for each Mortgage, as of
the time of sale of the Mortgage) that the Lender has sold to Fannie Mae under
this Master Agreement, plus the principal balance of Mortgages that the Lender
is still obligated to sell under any existing mandatory delivery contracts for
sale and purchase between the Lender and Fannie Mae.) This fee will be drafted
by Fannie Mae from the Lender's designated account immediately following the
Expiration Date of this Master Agreement. Fannie Mae's right to receive such a
<PAGE>
fee is in addition to any rights and remedies of Fannie Mae provided by law or
the applicable Program, and the receipt of such fee shall not affect or impair
any such rights and remedies.
All Mortgages shall conform to the requirements of the Mortgage Selling and
Servicing Contract between Fannie Mae and the Lender, the Fannie Mae Selling
Guide ("Selling Guide"), and the Fannie Mae Servicing Guide ("Servicing Guide"),
as applicable, as they may be amended from time to time, except as modified by
the variances contained in this Master Agreement and in the applicable Contracts
(defined below) entered into pursuant to this Master Agreement. (Any pool
purchase contract, in the case of MBS transactions, and cash commitment
contracts or voice recordings, in the case of cash transactions, are referred to
herein as a "Contract.")
Each Contract entered into under this Master Agreement constitutes: (i) an
agreement by the Lender to sell the Mortgages to, and service such Mortgages
for, Fannie Mae and (ii) an agreement by Fannie Mae to purchase the Mortgages
and, in the case of MBS transactions, to issue its Guaranteed Mortgage Pass-
Through Securities (the "Securities") backed by such Mortgages to the Lender or
its designee(s). By execution of this Master Agreement, the Lender and Fannie
Mae agree to the terms and conditions set forth herein and in any Contract
entered into simultaneously with this Master Agreement.
The Lender shall not disseminate or disclose in any manner any of the terms or
conditions of, or the form of, this Master Agreement to any person or entity
other than Lender's employees and agents who need to know the same in order to
perform their duties for the Lender, and who are legally obligated not to
further disseminate or disclose the same, unless the Lender is required by law
to do so and has given Fannie Mae prior written notice of such requirement and
of the information required to be disseminated or disclosed.
The Lender's right to sell, and Fannie Mae's obligation to purchase, Mortgages
under this Master Agreement may be terminated by Fannie Mae prior to the
Expiration Date of the Master Agreement if the Lender has breached the Mortgage
Selling and Servicing Contract it has entered into with Fannie Mae, or any of
the provisions of this Master Agreement, or any Contract entered into pursuant
to this Master Agreement. The Lender's responsibilities and liabilities under
this Master Agreement shall survive the expiration or earlier termination of the
Lender's right to sell, and Fannie Mae's obligation to purchase Mortgages under
this Master Agreement. This Master Agreement and any Contract entered into
pursuant to this Master Agreement may only be amended by the mutual agreement of
Fannie Mae and the Lender. Each amendment shall be in writing and shall consist
of a transmittal letter from Fannie Mae to the Lender generally describing the
amended provisions of the Master Agreement or the Contract, together with the
newly revised pages of the Master Agreement or the Contract. The revised pages
of the Master Agreement or the Contract should be added to the Master Agreement
as described in the transmittal letter. The Lender shall acknowledge its
acceptance of the amended terms and conditions by returning to Fannie Mae a duly
executed copy of the transmittal letter.
The Lender may not assign this Master Agreement or any rights or obligations
hereunder. The Lender may not assign any Contract entered into pursuant to this
Master Agreement or any rights or obligations thereunder.
The Lender hereby confirms, by checking the appropriate section below, that:
5/01/96
Master No. MD01546
MA - 2
<PAGE>
X It is not a federally-insured institution or an affiliate or subsidiary of
- ---- ----
a federally-insured institution.
____ It is a federally-insured institution or an affiliate or subsidiary of a
federally-insured institution, and
(a) the sale to, and (if applicable) servicing for, Fannie Mae of the Mortgages
delivered to Fannie Mae pursuant to this Master Agreement has either been (i)
specifically approved by the board of directors of the Lender and such approval
is reflected in the minutes of the meetings of such board of directors, or (ii)
approved by an officer of the Lender who was duly authorized by the board of
directors to enter into such types of transactions and such authorization is
reflected in the minutes of the board of directors' meetings; and
(b) this Master Agreement and any Contracts or amendments pursuant hereto,
together with the applicable Fannie Mae Guides and the Mortgage Selling and
Servicing Contract between the Lender and Fannie Mae, constitute the "written
agreement" governing the Lender's sale to, and servicing for, Fannie Mae of the
Mortgages delivered pursuant to this Master Agreement, and the Lender (or any
successor thereto) shall continuously maintain all components of such "written
agreement" as an official record.
The Lender must accept this Master Agreement by returning a duly-executed
duplicate original to Fannie Mae within ten business days of the date of this
Master Agreement. If the executed Master Agreement is not received by Fannie Mae
within ten business days from the date hereof, Fannie Mae may at its option
declare this Master Agreement null and void.
Sincerely,
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By:___________________________________________
Jerome Brister
Regional Vice President
Agreed, acknowledged, and accepted this 9th day of May, 1996.
---
HOME, INC.
By:___________________________________________
Name: John W. Ballard
-----------------------------------------
Title: President/CEO
----------------------------------------
5/01/96
Master No. MD01546
MA - 3
<PAGE>
EXHIBIT 1
<TABLE>
<S> <C>
Master Agreement Number: MD01546
Effective Date: MAY 1, 1996
Expiration Date: APRIL 30, 1997
Parties to Agreement: HOME, INC. AND THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION
Lender Number: 23772-000-8
Agreed Amount: $12,000,000.00, PLUS OR MINUS 5.00% (MANDATORY)
$-0- (OPTIONAL)
Back-end Buyout Fee: The greater of $1,000.00 OR 12.50 BASIS POINTS
(.1250%) multiplied by the undelivered and
uncommitted portion of the Mandatory Agreed
Amount.
</TABLE>
5/01/96
Master No. MD01546
MA - 4
<PAGE>
EXHIBIT 10.13(A)
[LETTERHEAD OF FANNIE MAE APPEARS HERE]
July 2, 1996
Home, Inc.
6836 Austin Center Blvd., Suite 280
Austin, TX 78731
Attention: Mr. John Ballard
Dear Mr. Ballard:
Subject: Master Agreement Number No.: MD01546
Amendment: FIRST
Lender Number: 237724)00-8
Dear Mr. Ballard:
By execution of this Letter Agreement, the Federal National Mortgage Association
("Fannie Mae") and Home, Inc. (the "Lender") agree to amend the above-referenced
Master Agreement and Contract (if applicable). The amended terms and conditions
are set forth in the amended pages to the Master Agreement and (if applicable)
the Contract attached to this Letter Agreement. The attachments should be
inserted into the Lender's Master Agreement binder as described below.
Capitalized terms used but not defined in this Letter Agreement, shall have the
meanings set forth in the Master Agreement.
For your convenience, we have summarized the amended terms and conditions below.
However, the summary set forth below is for reference purposes only. The Lender
and Fannie Mae shall rely solely on the attached amended pages for a complete
description of the amended terms and conditions.
The amended terms and conditions:
1. AMENDED TERM: Increase volume to $30,000,000.00 (Mandatory).
INSTRUCTIONS: (1) Replace page MA-4 (EXHIBIT 1) in your Master
Agreement binder with the enclosed page MA4 (EXHIBIT 1).
(2) All replaced pages and this letter should be inserted in
the "Amendment History" section of your binder.
<PAGE>
By execution of this Letter Agreement, Fannie Mae and the Lender agree to and
accept the amended terms and conditions as set forth in the attachments to this
Letter Agreement. The effective date of the amendments is the date of execution
of this Letter Agreement by the Lender. The Lender shall return a duly-executed
duplicate original of this Letter Agreement to Fannie Mae within ten business
days of the date this Letter Agreement is executed by Fannie Mae. If Fannie Mae
does not receive an executed duplicate original of this Letter Agreement from
the Lender within ten business days, Fannie Mae may, at its option, declare this
Letter Agreement null and void.
Sincerely,
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: ___________________________________________
(Authorized Signature)
Name: Jerome Brister, Regional Vice President
-------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this day of 1996.
HOME, INC.
By:_____________________________________________
(Authorized Signature
Name: John W. Ballard, President/CEO
-------------------------------------------
(Name and Title)
<PAGE>
EXHIBIT 1
Master Agreement Number: MD01546
Effective Date: MAY 1, 1996
Expiration Date: APRIL 30, 1997
Parties to Agreement: HOME, INC. AND THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION
Lender Number: 237724100-8
Agreed Amount: $30,000,000.00, PLUS OR MINUS 5.00% (MANDATORY)
$-0- (OPTIONAL)
Back-end Buyout Fee: The greater of $1,000.00 OR 12.50 BASIS POINTS
(.1250%) multiplied by the undelivered and
uncommitted portion of the Mandatory Agreed
Amount.
<PAGE>
EXHIBIT 10.13(B)
[LETTERHEAD OF FANNIE MAE APPEARS HERE]
August 30, 1996
Home, Inc.
6836 Austin Center Blvd., Suite 280
Austin, TX 78731
Attention: Mr. John Ballard
Dear Mr. Ballard:
Subject: Master Agreement Number: MD01546
Amendment: SECOND
Lender Number: 23772-000-8
Dear Mr. Ballard:
By execution of this Letter Agreement, the Federal National Mortgage Association
("Fannie Mae") and Home, Inc. (the "Lender") agree to amend the above-referenced
Master Agreement and Contract (if applicable). The amended terms and conditions
are set forth in the amended pages to the Master Agreement and (if applicable)
the Contract attached to this Letter Agreement. The attachments should be
inserted into the Lender's Master Agreement binder as described below.
Capitalized terms used but not defined in this Letter Agreement, shall have the
meanings set forth in the Master Agreement.
For your convenience, we have summarized the amended terms and conditions below.
However, the summary set forth below is for reference purposes only. The Lender
and Fannie Mae shall rely solely on the attached amended pages for a complete
description of the amended terms and conditions.
The amended terms and conditions:
1. Amended term: Increase volume to $50,000,000.00 (Mandatory).
Instructions: (1) Replace page MA-4 (Exhibit 1) in your Master
Agreement binder with the enclosed page MA-4 (Exhibit 1).
(2) All replaced pages and this letter should be inserted in
the "Amendment History' section of your binder.
<PAGE>
By execution of this Letter Agreement, Fannie Mae and the Lender agree to and
accept the amended terms and conditions as set forth in the attachments to this
Letter Agreement. The effective date of the amendments is the date of execution
of this Letter Agreement by the Lender. The Lender shall rerum a duly-executed
duplicate original of this Letter Agreement to Fannie Mae within ten business
days of the date this Letter Agreement is executed by Fannie Mae. If Fannie Mae
does not receive an executed duplicate original of this Letter Agreement from
the Lender within ten business days, Fannie Mae may, at its option, declare this
Letter Agreement null and void.
Sincerely,
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By:_____________________________________________
(Authorized Signature)
Name: Jerome Brister, Regional Vice President
-------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this__ day of ____________, 1996.
HOME, INC.
By:_____________________________________________
(Authorized Signature)
Name: President/CEO
-------------------------------------------
(Name and Title)
Page 2
8/30/96
Master No. MD01546 - Amd.2
<PAGE>
EXHIBIT 1
Master Agreement Number: MD01546
Effective Date: MAY 1, 1996
Expiration Date: APRIL 30, 1997
Parties to Agreement: HOME, INC. AND THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION
Lender Number: 23772-000-8
Agreed Amount: $50,000,000.00, PLUS OR MINUS 5.00% (MANDATORY)
$-0- (OPTIONAL)
Back-end Buyout Fee: The greater of $1,000.00 OR 12.50 BASIS POINTS
(.1250%) multiplied by the undelivered and
uncommitted portion of the Mandatory Agreed
Amount.
8/30/96
Master No. MD01546 - Amd.2
MA - 4
<PAGE>
EXHIBIT 10.13(C)
[LETTERHEAD OF FANNIE MAE APPEARS HERE]
October 23, 1996
Home, Inc.
6836 Austin Center Blvd., Suite 280
Austin, TX 78731
Attention: Mr. John Ballard
Dear Mr. Ballard:
Subject: Master Agreement Number: MD01546
Amendment: THIRD
Lender Number: 23772-000-8
Dear Mr. Ballard:
By execution of this Letter Agreement, the Federal National Mortgage Association
("Fannie Mae") and Home, Inc. (the "Lender") agree to amend the above-referenced
Master Agreement and Contract (if applicable). The amended terms and conditions
are set forth in the amended pages to the Master Agreement and (if applicable)
the Contract attached to this Letter Agreement. The attachments should be
inserted into the Lender's Master Agreement binder as described below.
Capitalized terms used but not defined in this Letter Agreement, shall have the
meanings set forth in the Master Agreement.
For your convenience, we have summarized the amended terms and conditions below.
However, the summary set forth below is for reference purposes only. The Lender
and Fannie Mae shall rely solely on the attached amended pages for a complete
description of the amended terms and conditions.
The amended terms and conditions:
1. Amended term: Increase volume to $75,000,000.00 (Mandatory).
Instructions: (1) Replace page MA-4 (EXHIBIT 1) in your Master
Agreement binder with the enclosed page MA-4 (EXHIBIT 1).
(2) All replaced pages and this letter should be inserted in
the "Amendment History" section of your binder.
<PAGE>
2. AMENDED TERM: add Pool Purchase Contract No. D02970 for delivery of FHA
Title I mortgages.
INSTRUCTIONS: (1) Insert the attached pages FRM-1 through FRM-4 along with
the attached "Fixed-Rate" tab in your Master Agreement binder.
(2) Insert this letter under the "Amendment History" tab.
By execution of this Letter Agreement, Fannie Mae and the Lender agree to and
accept the amended terms and conditions as set forth in the attachments to this
Letter Agreement. The effective date of the amendments is the date of execution
of this Letter Agreement by the Lender. The Lender shall return a duly-executed
duplicate original of this Letter Agreement to Fannie Mae within ten business
days of the date this Letter Agreement is executed by Fannie Mae. If Fannie Mae
does not receive an executed duplicate original of this Letter Agreement from
the Lender within ten business days, Fannie Mae may, at its option, declare this
Letter Agreement null and void.
Sincerely,
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By:_________________________________________________
(Authorized Signature)
Name: Jerome Brister, Regional Vice President
-----------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this 25th day of October, 1996.
HOME, INC.
By:_________________________________________________
(Authorized Signature)
Name: John W. Ballard, President/CEO
---------------------------------------------
(Name and Title)
10/23/96
Master No. MD01546 - Amd.3
Page 2
<PAGE>
EXHIBIT 1
Master Agreement Number: MD01546
Effective Date: MAY 1, 1996
Expiration Date: APRIL 30, 1997
Parties to Agreement: HOME, INC. AND THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION
Lender Number: 23772-4}00-8
Agreed Amount: $75,000,000.00, PLUS OR MINUS 5.00% (MANDATORY)
$-0- (OPTIONAL)
Back-end Buyout Fee: The greater of $1,000.00 OR 12.50 BASIS POINTS
(.1250%) multiplied by the undelivered and
uncommitted portion of the Mandatory Agreed
Amount.
10/23/96
Master No. MD01546 - Amd.3
MA-4
<PAGE>
EXHIBIT 10.14
HOMEOWNERS MORTGAGE & EQUITY, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") dated as of June 1, 1996
("effective date"), is by and between HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation (the "Company"), as employer, and Tommy M. Parker (the
"Executive"), as the employee.
WITNESSETH
WHEREAS, the Company and the Executive have agreed on the employment of the
Executive by the Company and each of them desires to set forth herein the terms
and conditions of such employment.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for good and valuable consideration the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company agrees to employ the Executive and the
----------
Executive agrees to accept such employment by the Company, upon the terms and
conditions set forth herein. The employment of the Executive under this
Agreement shall be for a term of three (3) years commencing with the date of
this Agreement, subject to renewal, extension or early termination as provided
herein (such period, as renewed, extended or terminated early is referred to as
the "Term of Employment").
2. Duties and Authority. During the Term of Employment, the Executive
--------------------
shall serve as an Executive Vice President with the functions of chief operating
officer and chief financial officer of the Company, and if elected or appointed
by the applicable board of directors, the Executive shall serve as an officer or
officers of any subsidiary of the Company or as such additional officers of the
Company or any affiliate to which he may be elected or appointed from time to
time, without any compensation other than that provided for in this Agreement,
provided that such elections or appointments are reasonable in nature and do not
materially expand the scope of the duties required of the Executive herein. Any
material expansion of the Executives duties beyond those defined herein shall be
upon terms and conditions, including but not limited to additional compensation
to the Executive, mutually approved by the Executive and the Company. During
the Term of Employment, subject to the direction, supervision and control of the
President and the Board of Directors of the Company (the "Board"), the Executive
shall perform the duties and have the powers and authority which are consistent
with and generally of the nature delegated and granted to an Executive Vice
President and functions of chief operating officer and chief financial officer
of a financial services company as may be provided in the Bylaws of the Company
or determined by the Board from time to time, and Executive shall perform such
other duties and have such other powers and authority as may be prescribed by
the President and the Board from time to time; and provided that such
Executive's position of Executive Vice President functioning as chief operating
officer and chief
<PAGE>
financial officer does not violate any federal, state or local laws or
regulations. The duties of the Executive as of the date hereof are generally
described in Exhibit A, attached hereto and made a part of this Agreement, but
which duties are subject to revision by the Board of Directors or amendments to
the Bylaws of the Company time to time; and further provided that the President
or the Board may, in their sole discretion, withhold, withdraw, retain or
reassign any of the authority and responsibility initially delegated to the
Executive pursuant to this Agreement, if either the President or the Board shall
determine, in their sole discretion, and for any reason whatsoever, that it
would be in the best interest of the Company for some of the duties delegated to
the Executive to be performed by the President or the Board or delegated to or
among one or more other executive officers of the Company, including but not
limited to a determination that the functions and duties of chief financial
officer and chief operating officer should be separately delegated to more than
one person.
3. Compensation. The Company hereby agrees to pay the Executive and
------------
the Executive hereby agrees to accept as compensation for all services rendered
by the Executive in any capacity during the Term of Employment (including,
without limitation, services, as described in Section 2 hereof, as any officer,
director or member of any committee of the Company or any subsidiary and
affiliate thereof) the following:
(a) Base Salary. The Company shall pay the Executive an annual
-----------
base salary (the "Base Salary") as follows during each year of the Term of
Employment beginning on June 1:
1996 $125,000
1997 150,000
1998 175,000
The Base Salary for any years of the Term of Employment subsequent to 1998
as a result of any renewal of the Term of Employment pursuant to Section 6
hereof, shall be as determined by the Board on or before April 30 of each
year, but shall not be less than the Base Salary of Executive for the
previous year of the Term of Employment.
The Base Salary shall be payable by Company bank check drawn on immediately
available funds on the first and fifteenth days of each calendar month in
an amount equal to one twenty-fourth (1/24th) of the Base Salary, less
applicable federal, state, local income tax and social security withholding
and health, retirement and other benefit plan and other customary payroll
deductions.
(b) Annual Incentive Bonus. The Executive will be entitled to
----------------------
participate, at the discretion of the Board, in an annual incentive bonus
plan ("Incentive Bonus Plan") based upon the consolidated net income of
HomeCapital Investment Corporation, the parent company of the Company (the
"Registrant"), based upon the audited annual consolidated financial
statements of the Registrant
2
<PAGE>
by an independent public accounting firm selected by the Board, in
accordance with an Incentive Bonus Plan to be adopted by the Board of
Directors applicable to executive officers of the Company during the Term
of Employment. The Incentive Bonus Plan shall allocate at least twenty-
five percent (25%) of the aggregate bonus fund or pool to the Executive.
Compensation under the Incentive Bonus Plan shall be paid by Company bank
check drawn on immediately available funds no later than thirty (30) days
following the completion of the audit of and report of the accountants on
the consolidated financial statements of the Registrant.
(c) Performance Incentive Bonus. In addition to the Incentive
---------------------------
Bonus payments provided in Section 3(b) hereof, the Executive will also be
eligible to receive a Performance Incentive Bonus ("Performance Bonus") as
follows:
(i) The Executive will be entitled to receive one-half (1/2) of
one percent (.5%) of the proceeds, net of underwriting fees and
offering expenses, to the Registrant from the first public offering of
securities of the Registrant for cash pursuant to an effective
registration filed with the Securities and Exchange Commission ("SEC")
on SEC Form SB-2, S-1 or S-3, or other forms of general applicability,
whether, equity, debt, or a combination thereof, during the Term of
Employment, to the extent and only if the Company may legally make
such a payment to Executive, and such payment does not violate
applicable corporate or federal or state securities laws in the
opinion of counsel to the Company, or adversely affect the success of
negotiations with an underwriter of the securities in connection with
such public offering. The Performance Bonus will be paid by Company
bank check drawn on immediately available funds to the Executive
immediately following the funding of the proceeds to the Registrant or
the Company by the investment banking company.
(ii) The Executive will be entitled to receive two percent (2%)
of the net savings of federal, state, and local income taxes realized
by the Company and/or the Registrant with respect to total taxes
reported as payable by the Company and/or the Registrant applicable to
each fiscal year ending September 30 during the Term of Employment, as
a result of tax planning strategies initiated by the Executive.
The tax savings realized will be measured by comparing the total
federal, state, and local income taxes reported as payable on a
consolidated basis for each fiscal year ended September 30, as
reflected in the respective federal, state, and local income tax
returns, to the total federal, state, and local income taxes for such
period that would have been payable, computed on a pro forma basis, if
the tax planning strategies initiated by the Executive had not been
implemented or realized. The tax planning strategies employed by
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the Company and/or the Registrant eligible for a Performance Bonus
shall be approved by tax counsel for the Company and approved and
determined at the time of approval to be eligible for the Performance
Bonus by the Board.
The Performance Bonus, if any, will become payable to the Executive by
Company bank check drawn on immediately available funds upon filing of
the federal, state, and local income tax returns, or as soon
thereafter as the necessary computation of any tax savings and any
Performance Bonus can reasonably be made. In the event that any
payments shall be made to Executive hereunder as a result of tax
strategies that are subsequently disallowed, in whole or in part, by
the Internal Revenue Service, then the Executive shall repay to the
Company the amount of the Performance Bonus attributable to any
disallowed items.
(d) Grant of Stock Options. Upon the execution of this Agreement,
----------------------
or as soon thereafter as the Registrant shall have adopted the Employee
Stock Option Plan ("Plan") heretofore approved by the Board, the Registrant
shall grant to the Executive stock options under the Plan, which entitle
the Executive to acquire 150,000 shares of the Registrant's shares of $.01
par value common stock in accordance with the Plan.
The Executive acknowledges and agrees that the Registrant may issue
additional shares of common stock from time to time which shall have the
effect of diluting the equity ownership interests of existing shareholders,
including the Executive from time to time.
4. Benefits and Perquisites.
--------------------------
(a) In addition to the compensation provide in Section 3 hereof, the
Executive shall be included in all welfare benefit programs established by
the Company and/or Registrant for all eligible employees, including family
health insurance coverage and life insurance. Accordingly, the Executive
shall be entitled to annual vacation in each year as determined pursuant to
the Company's vacation policy for all employees, and the Executive shall be
eligible to participate in any defined benefit or defined contribution
retirement plan or capital accumulation plan established by the Company
and/or Registrant for all eligible employees.
(b) In addition to the compensation provided in Section 3 hereof,
during the Term of Employment, the Company shall furnish to the Executive,
without any expense to the Executive, the following:
(i) The Company shall pay or reimburse the Executive for all
authorized and reasonable travel and entertainment expenses incurred or
paid by him in connection with the performance of his duties hereunder,
upon presentation
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to the Company of expense statements and such other documentation as the
Company may reasonably require.
(ii) The Company shall furnish, at its expense, an office,
including appropriate office fixtures, telephone service and secretarial
assistance to the Executive and the Company shall provide to the Executive
any other perquisites provided to other management employees of the Company
unless otherwise expressly provided for herein.
(iii) The Company shall provide to the Executive an automobile
allowance of $500.00 per month and shall pay the reoccurring charges of an
automobile phone of the Executive. The Executive will be responsible for
all other automobile costs and expenses.
(iv) The Company shall pay or reimburse the Executive for fees
and expenses incurred or paid by him in connection with the maintenance by
the Executive of his certificate and license with the State Board of Public
Accountancy (License No. 12459). The fees and expenses include the annual
licensing fee, cost of continuing education courses and dues related to
professional accounting societies.
The Executive's perquisites shall not be reduced or altered in any material
respects without the prior approval of the Executive.
5. Relocation. In connection with the relocation of the Executive from
----------
Oklahoma City, Oklahoma, area to the Austin, Texas, area, the Company shall pay
and/or reimburse the Executive for the following: (i) all reasonable expenses
related to the moving of all household possessions to the Austin, Texas, area
and any additional federal, state or local income tax resulting from such
payments of moving expenses, (ii) a $5,000 cash payment for miscellaneous
expenses incidental to such relocation, and (iii) reimbursement of closing costs
associated with the Executive's purchase of a home in Austin to the extent such
costs are customary for a buyer to pay.
6. Renewal of Term of Employment. On the third anniversary of the
-----------------------------
effective date hereof and on each subsequent anniversary date (each, a "Renewal
Date"), this Agreement shall be automatically renewed and extended for an
additional term of one year without further action by either party, unless at
least ninety (90) days prior to any such Renewal Date the Executive or the
Company shall have given written notice to the other party hereto that this
Agreement shall not be renewed and extended, in which event the Term of
Employment shall terminate as of such Renewal Date. This Section shall not
otherwise limit or restrict the rights of the Company or the Executive to
terminate this Agreement pursuant to any other provision hereunder.
7. Disability. If during the Term of Employment, the Executive is
----------
unable to carry out the normal and usual duties of his employment hereunder for
four (4) consecutive months, by reason of physical or mental disability, then
the employment of the Executive
5
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may be terminated by action of the Board upon thirty (30) days prior notice to
the Executive. During the period of the Executive's disability prior to the
termination of the Executive's employment hereunder, including the thirty (30)
day period after receipt of notice thereof, the Executive shall continue to earn
and be paid all compensation provided herein as if he had not been disabled. In
addition to such compensation, the Executive shall be paid any disability
benefits provided by the Company as part of its welfare benefit program for all
eligible employees. In the event a dispute arises between the Executive and the
Company concerning the Executive's physical or mental ability to continue or
return to the performance of his duties, the Executive shall submit to
examination by a competent physician mutually agreeable to both parties, and
such physician's opinion as to the Executive's capability to so perform will be
final and binding. Upon the termination of the Executive's employment by reason
of disability, this Agreement shall terminate, but such termination shall not,
however, terminate or adversely effect any rights of the Executive then vested
or accrued under any disability or benefit program of the Company then in
effect. Furthermore, the termination of this Agreement under Section 7 hereof,
shall not terminate or adversely affect any rights the Executive may have
accrued and earned under Section 3 through the date of termination.
8. Termination for Cause.
---------------------
(a) At anytime during the Term of Employment, subject to the
provisions of this Section, the Company may discharge the Executive for
cause and thereby terminate this Agreement by delivering to the Executive a
notice of such discharge. Upon such discharge, (i) the Executive shall be
entitled to receive any compensation pursuant to Section 3 hereof which has
been earned or accrued by the Executive through the date of such discharge,
and any other compensation or benefits to which the Executive is entitled
under any pension, retirement or disability plan provided as part of the
welfare benefit programs for all eligible employees of the Company
following such termination, and (ii) if such termination occurs within the
first three (3) years of the Term of Employment, the Executive shall be
obligated to reimburse the Company the relocation expenses paid to the
Executive pursuant to Section 5 hereof.
(b) The Executive may be discharged for cause upon the occurrence of
any of the following events:
(i) The Executive has acted dishonestly or engaged in
misconduct in the performance of his duties as prescribed from time to
time by the President or the Board;
(ii) The Executive has breached a fiduciary duty owed to the
Company or any of its affiliates;
(iii) The Executive has materially breached a published policy
of the Company, communicated to the Executive in writing prior to such
breach;
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(iv) The Executive has materially failed to perform his duties
as prescribed from time to time by the President or the Board, except
during the term of any disability of the Executive pursuant to Section
7 hereof;
(v) The Executive has violated any law, regulation or
ordinance of a governmental entity (other than traffic violations and
similar minor offenses) or has violated any judicial decree applicable
to the Company or any of its affiliates known to him which violation
has a material and adverse effect on the Company or the ability of the
Executive to perform his duties hereunder; or
(vi) The Executive has materially breached any of the terms of
this Agreement or any other written agreement between him and the
Company, or any of the Employee's representations and warranties under
any provision hereof prove to be materially false.
(c) Before any of the above (other than a dishonest act under
paragraph (i) or violation of law under paragraph (v), neither of which
shall require an opportunity to cure) shall constitute "cause," the Company
shall notify the Executive of such default or violation and the Executive
shall have a period of twenty-one (21) days after receipt of such notice in
which to demonstrate to the satisfaction of the Board that such alleged
"cause" has been cured.
(d) The authority of the Company to terminate the Executive's
employment hereunder (or to exercise any other rights of the Company
hereunder) shall be exercised by a majority of the members of the Board
acting through the Chairman of the Board.
9. Payment Due Upon Termination Other Than for Cause or Disability;
----------------------------------------------------------------
Delivery of Release Upon Termination. Nothing contained in this Agreement
- ------------------------------------
shall prevent the Company from terminating the employment of the Executive at
any time during the Term of Employment with or without cause, and upon
termination, the Executive shall have no obligation to the Company to provide
further employment services pursuant to paragraph 2 of this Agreement. However,
if (i) the Company terminates such employment other than for cause or disability
in accordance with Sections 7 or 8 hereof, respectively, or (ii) the Executive
terminates his employment for "Good Reason" as provided for in Section 11
hereof, then the Company shall pay the Executive an amount (the "Severance
Payment") equal to (x) the annual Base Salary then payable pursuant to Section
3(a) hereof as of the date of such termination of employment, if such
termination of the employment of Executive occurs at any time during the first
two (2) years of the Term of Employment, or (y) the product of the remaining
Term of Employment (computed by dividing the number of days remaining in the
Term of Employment by 365) and the Base Salary then payable pursuant to Section
3(a) hereof as of the date of such termination of employment, if such
termination of the employment of Executive occurs at any time during the last
year of the term of Employment, including any renewal period pursuant to Section
6 hereof. The
7
<PAGE>
Severance Payment shall be paid to the Executive, at the election of the
Company, (i) in monthly installments at the applicable Base Salary through the
remaining Term of Employment, or (ii) a lump sum equal to the present value of
the applicable monthly payments discounted at the prime rate of Frost Bank-
Austin, Austin, Texas, plus two percent (2%) per annum within thirty (30) days
of the date of termination of employment. The payment provided for in this
Section shall be in addition to any other compensation or benefit to which
Executive may be entitled under any welfare benefit program of the Company or
any other amount owed under Sections 3(b) and 3(c) hereof. Upon payment by the
Company of the Severance Payment and other amounts payable hereunder to the
Executive (or the Executive's estate), the Company shall have no liability or
obligation whatsoever under this Agreement to the Executive (or the Executive's
estate) related to the Executive's employment or other capacities with the
Company or related to the termination of the Executive's employment with the
Company. As a condition to payment of the Severance Payment and any other
amounts payable to the Executive upon termination of his employment, the
Executive or his estate shall deliver to the Company a full and unconditional
release of the Company under this Agreement (in form and substance satisfactory
to the Company) to effectuate the provisions of the preceding sentence.
10. Death Benefit. If the Executive dies during the Term of Employment,
-------------
the Company shall pay to the Executive's beneficiary or estate an amount equal
to the twelve (12) months Base Salary then payable under Section 3(a) hereof and
amounts earned under Sections 3(b) and 3(c) hereof, as of the date of death.
The amount of any payment provided for in this Section shall be in addition to
any benefit payment or payments to which the Executive may be entitled under any
welfare benefit program of the Company. The preceding death benefit payment by
the Company shall be made within 30 days of the latter of: (i) presentation of
proof of death acceptable to the Company, or (ii) notice of the appointment, by
proper authority, of a personal representative of the Executive's estate to
receive the death benefit. The Company may carry life insurance on the life of
the Executive, the proceeds of which may be used, in part, to fund any death
benefit payment to the Executive.
11. Termination by Executive for Good Reason. Termination by the
----------------------------------------
Executive of his employment for "Good Reason" shall include any of the
following:
(a) The assignment of duties to the Executive by the Company which is
materially different from the duties contemplated by Section 2 hereof,
without his express written consent; or
(b) The removal of the Executive from or any failure to reelect the
Executive to the position of Executive Vice President functioning as either
(i) the chief operating officer, or (ii) the chief financial officer of the
Company, except upon the disability of Executive as described in Section 7
hereof or in connection with a termination of his employment by the Company
as provided for in Section 8 hereof; or
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<PAGE>
(c) A reduction by the Company of the Executive's Base Salary,
failure to compensate Executive under Incentive Bonus Plan adopted by the
Board, or reduction in the amount due, if any, as a Performance Bonus; or
(d) The relocation of the principal executive offices of the Company
to a location outside of the Austin, Texas, area, or the relocation of
Executive to an office location other than the Company's principal
executive offices, except for required travel on business to an extent
substantially consistent with his business travel obligations at the time
this Agreement was entered into, or, in the event the Executive consents to
any such relocation of the Company's principal executive offices, the
failure by the Company to pay or reimburse Executive for all reasonable
moving expenses incurred by the Executive in relocation, as provided for in
Section 5 hereof.
If any of the preceding events specified in this Section occur, the
Executive may terminate his employment hereunder and shall receive the Severance
Payment and other compensation described in Section 9 hereof.
12. No Violation of Other Agreements. The Executive hereby represents
--------------------------------
and warrants to the Company that neither his entering into this Agreement nor
the performance of his duties and obligations hereunder shall constitute a
breach or other violation of any agreement or understanding between the
Executive and any other person, firm, corporation or other entity, including,
without limitation, any former employer of the Executive.
13. Confidentiality. The Executive acknowledges that by reason of the
---------------
nature of the Executive's duties, the Executive will or may have access to and
become informed of confidential and secret information which is a competitive
asset of the Company, including without limitation (i) customer information such
as names, addresses, sales histories, purchasing habits, credit status, and
pricing levels, (ii) certain prospective customer information and lists, (iii)
product and systems specifications, concepts for new or improved financial
products and other financial product or systems data, (iv) future corporate
planning data, (v) marketing strategies, (vi) the Company's financial results
and business condition, and (vii) any of the foregoing which belong to any other
person or company but to which the Executive has had access by reason of his
employment with the Company (collectively, "Confidential Information"). The
Executive agrees to keep in strict confidence, and not, either directly or
indirectly, to make known, divulge, reveal, furnish, make available or use
(except for use in the regular course of the Executive's duties hereunder), any
Confidential Information. The Executive acknowledges that all sales manuals,,
instruction books, catalogs, information and records, technical manuals and
documentation, drafts of instructions, guides and manuals, maintenance manuals,
and other documentation (whether in draft or final form), and other sales or
information and aids relating to the Company's business and any and all other
documents containing Confidential Information furnished to the Executive by a
representative of the Company or otherwise acquired or developed by the
Executive in connection with his employment with the Company (collectively,
"Recipient Materials") shall at all times be the property of the Company. Upon
termination of the
9
<PAGE>
Executive's employment with the Company, the Executive shall return to the
Company any Recipient Materials which are in the Executive's possession, custody
or control. The Executive's obligations under this Section 13 shall survive
such termination of the Executive's employment with the Company, but shall not
be applicable to (i) any such Confidential Information which becomes, through no
fault of the Executive, generally known to the trade or publicly available; (ii)
information in the public domain; (iii) such information is independently
derived without the aid, application or use of such information; and (iv) such
information is required to be disclosed by law or for financial accounting
purposes. The Executive's obligations under this Section 13 are in addition to,
and not in limitation or preemption of, all other obligations of confidentiality
which the Executive may have to the Company under general legal or equitable
principles.
14. Non-Competition.
---------------
(a) The Executive acknowledges that during the Term of Employment,
the Executive's access to the Confidential Information will enable the
Executive to benefit from the Company's goodwill and know-how. The
Executive further acknowledges that it would be inherent in the performance
of the Executive's duties as a director, officer, employee, agent or
consultant of any company which competes with the Company or any Affiliated
Company, as hereinafter defined, or which intends to or may compete with
the Company or any such Affiliated Company, to disclose or use the
Confidential Information, and the Company's or the Affiliated Companies'
goodwill and know-how, to or for the benefit of such other company. The
Company's primary business relates to residential real estate home
improvement loans insured by the FHA under Title I of the National Housing
Act (collectively, the "Property Improvement Loans"). Accordingly,
"Competitive Business" (as used herein) shall mean the underwriting,
origination, servicing, acquisition, holding, ownership, sale, transfer,
assignment, pledge, financing and refinancing of Property Improvement Loans
and any activities incidental to the foregoing activities, including
without limitation any activities involving the origination of Property
Improvement Loans from home owners or the acquisition of Property
Improvement Loans from contractors, correspondents, banks or other sources
of loan production and acquisition by the Company, and the issuance,
ownership, sale, acquisition or transfer of securities backed by Property
Improvement Loans. To protect these vital interests of the Company and its
Affiliated companies, the Executive agrees that during the Term of
Employment and for a period of one (1) year following the termination of
the Executive's employment hereunder, the Executive will not, without the
prior written consent of the Company, directly or indirectly, whether as a
director, officer, employee, agent or consultant, or otherwise:
(i) invest or engage in any Competitive Business or accept
employment with or render services to any entity engaged in any
Competitive Business or take any action inconsistent with the
fiduciary duties of the Executive to the Company;
10
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(ii) solicit sales of, or sell or deliver, any financial
product, services or system of the kind and character sold, provided
or distributed in connection with the Competitive Business of the
Company or any Affiliated Company to any person, firm, corporation or
other entity called upon or served by the Executive on behalf of the
Company or any Affiliated Company during the Term of Employment;
(iii) solicit, attempt to solicit or seek to divert from the
Company or any Affiliated Company, the business or patronage of any
person, firm, corporation or other entity with whom the Executive has
had business relations in connection with the Competitive Business of
the Company or any Affiliated Company; or
(iv) engage, suggest, assist in, or influence, the engagement
or hiring by any competing organization of any salesman, distributor,
dealer, contractor, employee or source of the Company or any
Affiliated Company related to the Competitive Business of the Company
or any Affiliated Company.
(b) This covenant not to compete shall apply whether the Executive
acts as an individual or for his own account, or as a partner, employee,
agent, salesman, distributor, consultant or representative of any person,
firm, corporation or other entity. The restriction herein contained shall
be limited in geographical scope to each of the geographical areas in the
United States in which the Company conducts business, provides services or
sells financial products at any time during the Term of Employment.
Moreover, the restriction herein contained shall prohibit the Executive
from competing with the Company and any Affiliated Company only in the line
or lines of business actually conducted in a particular geographical area
by the Company or any Affiliated Company. During the Term of Employment,
the Executive shall disclose to the Board any investments he may make in
businesses which are related in terms of product line or customer base to
products which, at such time, the Company or any Affiliated Company is
engaged in marketing or has definitive plans to market.
(c) As used in this Agreement, "Affiliated Company" includes any
legal entity which owns, either directly or indirectly, more than 50% of
the voting power of the Company, or in which the Company owns more than 50%
of the voting power.
(d) The Executive agrees that each of the Affiliated Companies are
third party beneficiaries to this Section 14 and each Affiliated Company is
entitled to enforce the provisions of the Section 14 in the event that any
violation of this Section 14 causes, or threatens to cause, injury to its
business or property.
(e) Notwithstanding the above, the covenant-not-to-compete contained
in this Section 14 shall not be applicable in the event the Executive's
employment with the Company is terminated as a result of the Company's
insolvency or bankruptcy.
11
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15. Assignability; Change of Control. In the event that the Company (or
--------------------------------
any entity resulting from any merger or consolidation referred to in this
Section or which shall be a purchaser or transferee so referred to), shall at
any time be merged or consolidated into or with any other entity or entities, or
in the event that substantially all of the assets of the Company or any such
entity shall directly or indirectly, be sold or otherwise be transferred to
another person or entity, the provisions of this Agreement shall be binding upon
and shall inure to the benefit of the continuing entity or the entity resulting
from such merger or consolidation or the entity to which such assets shall be
sold or transferred.
16. Equitable Remedies. The Executive acknowledges and agrees that in
------------------
the event of any breach or threatened breach of the provisions of Section 13 or
14 hereof, the Company would have no adequate remedy at law, and thus, the
Company shall be entitled to temporary and/or permanent injunctive relief to
enforce such provisions of this Agreement without prejudice to any and all other
remedies which the Company may have at law or in equity.
17. Waiver. A waiver by either party of any of the terms and conditions
------
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such terms or conditions for the future, or of any subsequent breach
thereof.
18. Notices. Any and all notices required or permitted to be given
-------
hereunder shall be in writing and be deemed delivered only when received by the
party to which it is sent. All notices shall be sent to each party at an
address to be provided by such parties to one another from time to time during
the Term of Employment. Either party may change by notice the address to which
notices to it are to be addressed.
19. Severability. If any provision of this Agreement, as applied to
------------
either party or to any circumstances, shall be adjudged by a court to be void or
unenforceable, the same shall in no way affect any other provision of this
Agreement or the applicability of such provision to any other circumstances.
20. Applicable Law. This Agreement is made and entered into in Austin,
--------------
Texas, and shall be construed and interpreted under the applicable laws and
decisions of the State of Texas. Venue of any action under this Agreement shall
be exclusively in the State and Federal courts located in Travis County, Texas.
21. Counterpart Execution. This Agreement may be executed in several
---------------------
counterparts, each of which shall be fully effective as an original and all of
which together shall constitute one and the same instrument.
22. Entire Agreement. This Agreement contains the entire understanding
----------------
of the parties hereto with respect to the employment of the Executive by the
Company and provisions hereof may not be altered, amended, modified, waived, or
discharged in any way whatsoever, except by written agreement executed by each
party hereto.
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23. Headings and Captions. Headings and Section captions used in this
---------------------
Agreement are intended for convenience of reference only and shall not affect
the interpretation of this Agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Employment
Agreement as of the effective date first above written.
COMPANY EXECUTIVE
- ------- ---------
HomeOwners Mortgage & Equity, Inc.,
a Delaware corporation
By:_________________________________ _____________________________________
John W. Ballard Tommy M. Parker
President
REGISTRANT
- ----------
HomeCapital Investment Corporation,
a Nevada corporation
By:_________________________________
John W. Ballard
President
13
<PAGE>
Exhibit A
HOMEOWNERS MORTGAGE & EQUITY, INC.
("HOME, INC.")
JOB DESCRIPTION EFFECTIVE DATE: JUNE 1, 1996
CHIEF OPERATING OFFICER
CHIEF FINANCIAL OFFICER
SUMMARY OF FUNCTIONS:
Responsible to the President of Home, inc., for the administration of the
operations of the Company and the administration of the financial matters of the
Company.
Responsible for all long-range financial matters and for establishing company-
wide financial and administrative objectives, policies, programs, and practices
which will insure the Company of a continuously sound financial and operating
structure. As Chief Financial Officer, establish and administer financial
accounting and reporting policies (internal and external), coordinate matters
with the Securities and Exchange Commission, coordinate relationships with
lenders, and oversee the development and implementation of the Management
information systems.
MAJOR DUTIES AND RESPONSIBILITIES: /CHIEF OPERATING OFFICER
1. Develop, monitor, approve and implement policies and procedures
appropriate to the operations of the Company.
2. Coordination of and resource allocation among loan operations, loan
administration, and management information systems.
3. Monitor and develop the annual budget for approval by the President
and the Board of Directors.
4. Ensure that Company operations comply with all applicable laws,
regulations, and Company policies.
5. In conjunction with the President handle negotiations with outside
parties on behalf of the Company.
6. To develop in conjunction with the managers of the Company, plans for
the growth and development of the Company.
7. Coordinate the development, implementation, and maintenance of all
computer hardware and software systems.
14
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MAJOR DUTIES AND RESPONSIBILITIES: /CHIEF FINANCIAL OFFICER
1. Ensure the maintenance of appropriate financial and income tax records
and preparation of required financial reports and income tax returns.
Coordinate with outside tax counsel and the independent accounting
firm for the Company, annual tax compliance and various income tax
planning matters.
2. Establish and execute programs for providing capital required by the
business, including negotiating the procurement of capital and
maintaining the required financial arrangements. Coordinate the long-
range plans of the Company, assess the financial requirements implicit
in these plans and develop alternative ways in which financial
requirements can be satisfied.
3. To approve all agreements concerning financial obligations, such as
contacts for products or services and other actions requiring a
commitment of financial resources.
4. To manage the cash flow position of the Company. Responsibility
includes authority to establish credit and collections and purchasing
policies and to establish schedules for the payment of bills and
financial obligations.
5. Maintain relationship with financial institutions in conjunction with
the President. Administer banking arrangements and loan agreements,
receive, have custody of and disburse the Company's funds and
securities. Maintain adequate sources for the Company's current
borrowings from commercial banks and other lending institutions.
Invest the Company's funds as appropriate.
6. Oversee the development, enhancement, and implementation of the
Management Information Systems.
7. Responsible for the financial aspects of real estate transactions, and
execute bids, contracts and leases.
8. Oversee the loan operations and loan administration function and
coordinate policies with outside investors.
9. Establish and maintain an adequate market for the Company's securities
and in connection therewith, maintain adequate liaison with investment
bankers, financial analysts and shareholders in conjunction with the
President. Administer all incentive stock option plans.
2
<PAGE>
10. Analyze Company shareholder relations policies and information program
including the annual and interim reports to shareholders and recommend
to the President new or revised policies or programs when needed.
11. Coordinate with outside securities counsel, Securities and Exchange
Commission matters, including periodic reporting and securities
placement and registration matters.
12. Coordinate the procurement of insurance coverage as required.
13. Provide advice on all matters to the President in formulation
objectives.
ORGANIZATIONAL RELATIONSHIPS:
Directly accountable to the President and the Board of Directors through the
President for performance of all responsibilities related to operational
administration and financial management. Provides reports on Company finances
as requested by the President and the Board of Directors.
3
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HOMECAPITAL INVESTMENT CORPORATION
1996 STOCK OPTION PLAN
MARCH 21, 1996
AS APPROVED BY STOCKHOLDERS AUGUST 16, 1996
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
1996 STOCK OPTION PLAN
SUMMARY OF PLAN PROVISIONS
PLAN PURPOSE
The HomeCapital Investment Corporation 1996 Stock Option Plan is designed to
provide significant financial incentives to key directors, executive officers
and employees of the Company and its operating subsidiary, HomeOwners Mortgage
& Equity, Inc., to increase stockholder value. To accomplish this, the Plan
will offer management and a select group of employees the opportunity to
accumulate substantial equity ownership in the Company. The Plan will also
assist in retaining and recruiting talented management.
TYPE OF OPTIONS
Options granted to Participants under the Plan may be Incentive Stock Options,
Non-Qualified Stock Options or a combination of Incentive Stock Options and
Non-Qualified Stock Options.
EFFECTIVE DATE
The effective date of the Plan is March 21, 1996. The Plan must be approved by
the stockholders of the Company within twelve months before or after the date
on which the Board of Directors of the Company adopted the Plan.
ADMINISTRATION OF THE PLAN
The Board of Directors or a Stock Option Committee appointed by the Board will
administer the Plan.
PARTICIPANTS
Directors, officers and other key employees are recommended by the President
and selected by the Board to participate in the Plan.
NUMBER OF SHARES RESERVED FOR OPTIONS
Shares will be reserved initially for Options under the Plan to purchase an
aggregate of 500,000 shares of Company common stock. However, in the event of
changes in the existing composition of the Company's Stock (such as a stock
dividend, recapitalization, reorganization, merger, consolidation, or similar
change), the Board or Committee may adjust the number of shares of Stock
subject to Options, as well as the number of Options and their Exercise Price.
GRANT OF OPTIONS
Options may be granted to Participants at any time during the ten-year period
following the Effective Date of the Plan.
VESTING
Options granted to a Participant shall vest at a rate determined by the Board
or Committee subject to any condition of continued employment of the
Participant with the Company.
<PAGE>
In the event of a Change of Control of the Company, all outstanding Options
will become fully vested.
OPTION AGREEMENT
The Company and each Participant shall execute an Option Agreement which will
specify: (a) the type of Options granted, (b) the Exercise Price of the
Options, (c) the number of shares of Stock to which each Option pertains, (d)
the vesting provision, (e) a requirement to notify the Board or Committee, if
stock acquired through the exercise of an Incentive Stock Option is disposed
of prior to certain holding periods, and (f) any other provision determined by
the Board or Committee.
EXERCISE OF OPTIONS
Participants may exercise Options by tendering the Exercise Price in cash, in
Company Stock or in a combination of cash and such Stock. All Options expire
ten (10) years following the date of grant.
DEATH
If a Participant dies while employed by the Company or Home, Options which
were outstanding and exercisable immediately prior to death of the Participant
may be exercised for a period of one (1) year (not to exceed the expiration
date of the Options) by a person entitled thereto under a will or the laws of
descent and distribution.
DISABILITY
If a Participant becomes disabled and subsequently terminates employment with
the Company and Home, Options which were outstanding and exercisable
immediately prior to the disability may be exercised for a period of one year
(not to exceed the expiration dated of the Options). A Participant is
considered disabled for purposes of the Plan if the Participant qualifies to
receive disability payments under the Social Security Administration's
disability program.
TERMINATION OF EMPLOYMENT
If a Participant terminates employment with the Company and Home for any
reason other than death or disability, Options which were outstanding and
exercisable immediately prior to termination of employment may be exercised
for a period of three months (not to exceed the expiration date of the
Options) thereafter. In the event that the employment of a Participant is
terminated because of Termination-for-Cause, all Options shall immediately
expire as of the date of the termination and may no longer be exercised.
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
I. Purpose and Effective Date of Plan..........................1
1.1 Purpose................................................1
1.2 Effective Date.........................................1
II. Definitions.................................................2
2.1 Definitions............................................2
(a) "Board".........................................2
(b) "Change of Control".............................2
(c) "Code"..........................................2
(d) "Committee".....................................2
(e) "Company".......................................2
(f) "Exchange Act"..................................2
(g) "Exercise Price"................................2
(h) "Fair Market Value".............................3
(i) "Home"..........................................3
(j) "Incentive Stock Option"........................3
(k) "Non-Qualified Stock Option"....................3
(l) "Option"........................................3
(m) "Participant"...................................4
(n) "Permanent Disability"..........................4
(o) "Plan"..........................................4
(p) "Securities Act"................................4
(q) "Stock".........................................4
(r) "Ten Percent Stockholder".......................4
(s) "Termination-for-Cause".........................4
(t) "Vested"........................................4
2.2 Gender and Number......................................4
III. Eligibility and Participation...............................5
IV. Administration..............................................6
V. Stock Subject to Plan.......................................7
5.1 Number.................................................7
5.2 Unused Stock...........................................7
5.3 Adjustment in Capital..................................7
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS (continued)
- -----------------------------
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
VI. Duration of Plan....................................... 9
VII. Terms of Options....................................... 10
7.1 Grant of Options.................................. 10
7.2 Option Agreement.................................. 10
7.3 Exercise Price.................................... 10
7.4 Term of Options................................... 10
7.5 Vesting of Options................................ 11
7.6 Nontransferability of Options..................... 11
7.7 Restriction on Stock Transferability.............. 11
7.8 Exercise of Options............................... 11
7.9 Purchase for Investment........................... 11
7.10 Notice of Certain Dispositions.................... 12
VIII. Termination of Employment.............................. 13
8.1 Termination of Employment......................... 13
8.2 Death............................................. 13
8.3 Permanent Disability.............................. 13
8.4 Termination-for-Cause............................. 13
IX. No Contract of Employment.............................. 14
X. Amendment, Modification, and Termination of Plan....... 15
XI. Withholding Tax........................................ 16
XII. Unfunded Plan.......................................... 17
XIII. Requirement of Law..................................... 18
13.1 Requirement of Law............................. 18
13.2 Governing Law.................................. 18
</TABLE>
Stock Option Agreement Appendix A
-ii-
<PAGE>
ARTICLE I
PURPOSE AND EFFECTIVE DATE
1.1 Purpose.
-------
The Plan is intended to enable the Company to remain competitive and
innovative in its ability to attract, motivate, reward and retain a strong
management team of superior capability and to encourage the holding of
proprietary interests in the Company to make awards that recognize the
creation of value for the stockholders of the Company and promote the
Company's growth and success. In furtherance of that purpose, eligible
persons may receive Incentive Stock Options or Non-Qualified Stock Options
or a combination of Incentive Stock Options or Non-Qualified Stock Options.
1.2 Effective Date.
--------------
The Effective Date of the Plan shall be March 21, 1996. The Plan must be
approved by stockholders within twelve months before or after the date on
which the Board of Directors of the Company adopts the Plan. If the Plan is
not approved by the stockholders within the period of time designated
within this Section 1.2, this Plan and all Options granted hereunder, if
any, shall be voided.
-1-
<PAGE>
ARTICLE II
DEFINITIONS
2.1 Definitions.
-----------
Whenever used herein, the following terms shall have the respective
meanings set forth below:
(a) "Board" means the Board of Directors of HomeCapital Investment
Corporation.
(b) "Change of Control" shall be deemed to have occurred if (i) a tender
offer by any person other than existing stockholders shall be made and
consummated for the ownership of 50% or more of the outstanding voting
securities of the Company, (ii) the Company shall be merged or
consolidated with another corporation and as a result of such merger
or consolidation less than 50% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the aggregate
by the former stockholders of the Company, (iii) the Company shall
sell at least 75% of its assets by value in a single transaction or in
a series of transactions to another person or corporation which is not
a wholly owned subsidiary of the Company, or (iv) a person, within the
meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the
date thereof) of the Exchange Act, shall acquire 50% or more of the
outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record). For purposes hereof, ownership
of voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-
3(d)(1)(i) (as in effect of the date thereof) pursuant to the Exchange
Act.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Board of Directors of HomeCapital Investment
Corporation or a Stock Option Committee appointed from time to time by
the Board of Directors to administer this Plan, however designated.
(e) "Company" means HomeCapital Investment Corporation, a Nevada
corporation.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(g) "Exercise Price" means:
(1) With respect to an Incentive Stock Option, a value which is not
less than (i) the Fair Market Value, or (ii) in the case of
Incentive Stock Options granted to a Ten Percent Stockholder, 110
percent of the Fair
-2-
<PAGE>
Market Value of a share of Stock on the date the Incentive Stock
Option is granted, as determined by the Committee.
(2) With respect to a Non-Qualified Stock Option, a value which may
be more or less than the Fair Market Value on the date the Non-
Qualified Stock Option is granted, as determined by the
Committee.
(h) "Fair Market Value" means for a share of Stock as of any date,
(1) The closing price, regular way, for the shares on the New York
Stock Exchange on such date (or if such Exchange was not open for
trading on such date, the next preceding date on which it was
open); or
(2) If there is no price as specified in (1), the mean of the last
reported bid-and-asked quotations, regular way, for the shares on
the New York Stock Exchange on such date or next preceding date
as the case may be; or
(3) If there is no price as specified in (2), the closing sales
price, regular way, or in the absence thereof the mean of the
last reported bid-and-asked quotations, for the shares on any
other exchange on which the shares are permitted to trade having
the greatest volume of trading in the shares during the thirty-
day period preceding such date, on such date or next preceding
date as the case may be; or
(4) If there is no price as specified in (3), the final reported
sales price, or, if not so reported, then the highest bid
quotation, in the over-the-counter market for the shares as
reported by the National Association of Securities Dealers
Automated Quotation System, or if not so reported, then as
reported by the National Quotation Bureau Incorporated, or if
such organization is not in existence, by an organization
providing similar services, on such date (or if such date is not
a date for which such system or organization generally provides
reports, then on the next preceding date for which it does so);
or
(5) If there is no price as specified in (4), the price determined by
the Committee by reference to bid-and-asked quotations for the
shares provided by members of an association of brokers and
dealers registered pursuant to subsection 15(b) of the Exchange
Act, which members make a market in the shares, on such recent
dates as the Committee shall determine to be appropriate for
fairly determining current market value; or
(6) If there is no price as specified in (5), the amount determined
in good faith by the Committee based on such relevant facts,
which may include opinions of independent experts, as may be
available to the Committee.
-3-
<PAGE>
(i) "Home" means HomeOwners Mortgage & Equity, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company.
(j) "Incentive Stock Option" means an Option granted under the Plan that
complies with the terms and conditions of Section 422 of the Code and
is designated by the Committee as an Incentive Stock Option.
(k) "Non-Qualified Stock Option" means an Option granted under the Plan
other than an Incentive Stock Option.
(l) "Option" means the contractual right granted to a Participant to
purchase a number of shares of Stock under the Plan at a stated
Exercise Price for a specified period of time. An Option may be
either an Incentive Stock Option or a Non-Qualified Stock Option.
(m) "Participant" means any director, executive officer or key employee
designated by the Committee to participate in the Plan pursuant to
Article III.
(n) "Permanent Disability" means the physical or mental condition of a
Participant which renders a Participant incapable of continuing his
customary employment with the Company and Home. A Participant will be
considered disabled for purposes of this Plan if the Participant
qualifies to receive disability payments under the Social Security
Administration's disability program.
(o) "Plan" means the HomeCapital Investment Corporation 1996 Stock Option
Plan, as it may be amended from time to time.
(p) "Securities Act" means the Securities Act of 1933, as amended.
(q) "Stock" means the common stock, par value $.01 per share, of the
Company.
(r) "Ten Percent Stockholder" means an individual who owns stock
possessing more than 10 percent of the total combined voting power of
all classes of capital stock of the Company.
(s) "Termination-for-Cause" means the termination of a Participant's
employment by the Company or Home, by written notice to the
Participant, specifying the event relied upon for such termination,
due to the Participant's conviction of a felony or perpetration of a
common law fraud involving the Company or Home or any of its
affiliates or subsidiaries, or theft, fraud, embezzlement, dishonesty
or other conduct which is or has resulted or is likely to result in
material economic damage to the Company or any of its affiliates or
subsidiaries.
-4-
<PAGE>
(t) "Vested" means that an Option is nonforfeitable and exercisable with
regard to a designated number of shares of Stock as specified in
Section 7.5, except as provided in Article VIII.
2.2 Gender and Number.
-----------------
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender, the
feminine gender shall include the masculine gender, the singular shall
include the plural, and the plural shall include the singular.
-5-
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be recommended by the President of the Company
and approved by the Committee from among directors, executive officers and key
employees of the Company or Home who have or are expected to have a significant
and lasting impact on long-term Company strategy and on the long-term success of
the Company.
-6-
<PAGE>
ARTICLE IV
ADMINISTRATION
The Board of Directors shall be responsible for the administration of the Plan.
The Board of Directors may appoint a Stock Option Committee to administer the
Plan on behalf of the Board of Directors. The Committee shall consist of two or
more directors, each of whom is a "disinterested person" within the meaning of
Rule 16b-3(c)(2)(i) promulgated under Section 16 of the Exchange Act. From time
to time, the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members to fill any vacancies. The Board of Directors may also
administer the Plan directly, if each member of the Board is a "disinterested
person."
The Committee, subject to the approval of the Board, is authorized to interpret
the Plan and any Options awarded thereunder, to prescribe, amend, and rescind
rules and regulations relating to the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of the Plan. Determinations, interpretations, or other actions
made or taken by the Committee pursuant to the provisions of the Plan shall be
final, binding and conclusive for all purposes and upon all persons.
The Committee may, in its absolute discretion, (i) accelerate the date on which
any Option granted under the Plan becomes exercisable or (ii) extend the date on
which any Option granted under the Plan ceases to be exercisable.
In addition, the Committee may, in its absolute discretion, grant Options to
Participants on the condition that such Participants surrender to the Committee
for cancellation such other Options (including, without limitation, Options with
higher exercise prices) as the Committee specifies. Options granted on the
condition of surrender of outstanding Options shall not count against the
limitation on the Stock subject to the Plan set forth in Article V until such
time as such Options are surrendered.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including reasonable attorneys' fees) or liability (including any sum
paid in settlement of a claim with the approval of the Board or the Committee)
arising out of any action, omission or determination relating to the Plan,
unless, in either case, such action, omission or determination was taken or made
by such member, director or employee in bad faith and without reasonable belief
that it was in the best interests of the Company.
-7-
<PAGE>
ARTICLE V
STOCK SUBJECT TO PLAN
5.1 Number.
------
Except as provided in Section 5.2 and subject to adjustment as provided by
Section 5.3, the total number of shares of Stock reserved for Options and
subject to issuance under the Plan may not exceed 500,000 shares of Stock.
The shares to be delivered under the Plan may consist, in whole or in part,
of authorized but unissued Stock or treasury Stock, not reserved for any
other purpose.
5.2 Unused Stock.
------------
In the event any shares of Stock are subject to an Option which, for any
reason, expires or is terminated unexercised as to such shares, such shares
again shall become available for issuance under the Plan.
5.3 Adjustment in Capitalization.
----------------------------
(a) Outstanding Options: Increase or Decrease in Issued Shares Without
-------------------------------------------------------------------
Consideration
-------------
Subject to any required action by the stockholders of the Company, in
the event of any increase or decrease in the number of issued shares
of Stock resulting from a subdivision or consolidation of shares of
Stock or the payment of a stock dividend (but only on the shares of
Stock), or any other increase in the number of such shares effected
without receipt of consideration by the Company, the Committee shall
proportionally adjust the number of shares and the exercise price per
share of Stock subject to each outstanding Option.
(b) Outstanding Options: Certain Mergers
------------------------------------
Subject to any required action by the stockholders of the Company, if
the Company shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of which
the holders of shares of Stock receive securities of another
corporation), each Option outstanding on the date of such merger or
consolidation shall entitle the Participant to acquire on exercise the
securities that a holder of the number of shares of Stock subject to
such Option would have received in such merger or consolidation.
(c) Outstanding Options: Certain Other Transactions
------------------------------------------------
In the event of a dissolution or liquidation of the Company, a sale of
all or substantially all of the Company's assets, a merger or
consolidation involving
-8-
<PAGE>
the Company in which the Company is not the surviving corporation or a
merger or consolidation involving the Company in which the Company is
the surviving corporation but the holders of shares of Stock receive
securities of another corporation and/or other property, including
cash, the Committee shall, in its absolute discretion, have the power
to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of
such cancellation, pay to the Participant to whom such Option was
granted an amount in cash for each share of Stock subject to such
Option equal to the excess of (A) the value, as determined by the
Committee in its absolute discretion, of the property (including
cash) received by the holder of a share of Stock as a result of
such event, over (B) the exercise price of such Option; or
(ii) provide for the exchange of each Option outstanding immediately
prior to such event (whether or not then exercisable) for an
option on some or all of the property for which such Option is
exchanged and, incident thereto, make an equitable adjustment as
determined by the Committee in its absolute discretion in the
exercise price of the Option, or the number of shares or amount
of property subject to the Option or, if appropriate, provide for
a cash payment to the Participant to whom such Option was granted
in partial consideration for the exchange of the Option.
(d) Outstanding Options: Other Changes
----------------------------------
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections
5.3(a), (b) or (c) hereof, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares
subject to Options outstanding on the date on which such change occurs
and in the per share exercise price of each such Option as the
Committee may consider appropriate to prevent dilution or enlargement
of rights.
(e) No Other Rights
---------------
Except as expressly provided in the Plan, no Participant shall have
any rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class or any
dissolution, liquidation, merger or consolidation of the Company or
any other corporation. Except as expressly provided in the Plan, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the
-9-
<PAGE>
number of shares of Stock subject to, or the Exercise Price of, any
Option granted under the Plan.
-10-
<PAGE>
ARTICLE VI
DURATION OF PLAN
The Plan shall remain in effect, subject to the Board's right to terminate the
Plan pursuant to Article X, until all Stock subject to the Plan shall have been
purchased or acquired pursuant to the provisions hereof. Notwithstanding the
foregoing, no Option may be granted under the Plan on or after the tenth
anniversary of the Effective Date of the Plan.
-11-
<PAGE>
ARTICLE VII
TERMS OF OPTIONS
7.1 Grant of Options.
----------------
Subject to the provisions of Section 5.1 and Articles III and VI, Options
may be granted to Participants at any time following the Effective Date of
the Plan as determined by the Committee. With input from the President,
the Committee shall have complete discretion in determining the number of
Options granted to each Participant. The Committee shall also determine
whether an Option is to be an Incentive Stock Option, or a Non-Qualified
Stock Option or a combination of both, which shall be clearly designated
by the terms of the Option Agreement. To the extent, however, that any
Option designated as an Incentive Stock Option fails to qualify as such
pursuant to the provisions of Section 422 of the Code, it shall
automatically be considered a Non-Qualified Stock Option. Incentive Stock
Options may only be granted to Participants who are employed by the
Company or Home.
The aggregate Fair Market Value (determined at the date of grant) of Stock
with respect to which the Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year under this Plan or any
other plan of the Company meeting the requirements of Section 422 of the
Code, may not exceed $100,000. To the extent that the $100,000 limit is
exceeded, such Options shall not be treated as Incentive Stock Options,
and the determination of which Options are Incentive Stock Options and
which are not Incentive Stock Options will be made on the basis of the
order in which such Options are granted. Nothing in this Article VII of
the Plan shall be deemed to prevent the grant of Non-Qualified Stock
Options in excess of the maximum established by Section 422(d)(1) of the
Code.
7.2 Option Agreement.
----------------
Each Option shall be evidenced by an Option Agreement that shall specify
the type of Options granted, the Exercise Price, the term of the Options,
the number of shares of Stock subject to the Option, the vesting schedule,
the events by which the Options become Vested, a requirement to notify the
Committee if Stock acquired pursuant to the exercise of an Incentive Stock
Option is disposed of prior to the expiration of the holding periods
specified in Section 422(a)(1) of the Code (as described in Section 7.10
hereof), and such other provisions as the Committee may determine.
7.3 Exercise Price.
--------------
Any Option granted pursuant to the Plan shall have an Exercise Price,
defined in Section 2.1(g), that is established by the Committee.
-12-
<PAGE>
7.4 Term of Options.
---------------
Subject to the provisions of Article VIII, each Option shall expire at
such time as the Committee shall determine at the time it is granted;
provided, however, that no Option shall be exercisable on or after ten
(10) years following the date of grant. In the case of a Ten Percent
Stockholder, such period shall not exceed five (5) years from the date of
grant regarding any grant of an Incentive Stock Option.
7.5 Vesting of Options.
------------------
(a) The Committee has the discretion to determine the schedule by which
an Option becomes exercisable. This vesting schedule shall be set
forth in the Option Agreement.
(b) Notwithstanding Section 7.5(a), in the event of a Change of Control,
any Option granted under the Plan shall become 100% Vested and
exercisable for a period of one year or until expiration, whichever
is earlier, except to the extent that the exercisability of any such
Option would result in an "excess parachute payment" within the
meaning of Section 280G of the Code, as determined by the Board based
on information available to it at said time.
7.6 Nontransferability of Options.
-----------------------------
No Option granted under the Plan, may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, otherwise than by will
or by the laws of descent and distribution. During the lifetime of a
Participant, Options may be exercised only by such Participant.
7.7 Restriction on Stock Transferability.
------------------------------------
Shares of Stock purchased pursuant to an Incentive Stock Option cannot be
sold or otherwise transferred within two (2) years from the date the
Option was granted, or within one (1) year from the date the Option was
exercised, whichever is later.
Shares of Stock purchased upon exercise of an Option may not be sold or
otherwise transferred except pursuant to transactions that are exempt from
registration under applicable securities laws, including sales (after the
applicable holding period) in accordance with the requirements of Rule 144
promulgated under the Securities Act.
The Committee may impose such restrictions on any shares of Stock acquired
pursuant to the exercise of an Option under the Plan as it may deem
advisable, including, without limitation, restrictions under applicable
federal securities laws, under the requirements of any stock exchange upon
which such shares of Stock are then listed, under any blue sky or state
securities laws applicable to such shares and under any buy/sell
agreements entered into by the existing stockholders, and the Articles of
Incorporation of the Company. Certificates evidencing any shares of
-13-
<PAGE>
Stock acquired upon exercise of an Option shall bear a legend, describing
any applicable transfer restrictions.
7.8 Exercise of Options.
-------------------
A Participant shall exercise an Option which has Vested by written notice
to the Company, directed to the attention of the Secretary and delivered
not less than five (5) business days prior to the proposed exercise date,
specifying the number of shares of Stock to be purchased. Options shall be
exercisable in whole or in part with respect to whole shares of Stock.
Upon the partial exercise of an Option, the new Option Agreement shall be
returned to the Participant with a notation thereon of the remaining
unexercised shares of Stock subject to the Option. The Exercise Price of
any Vested Option shall be payable to the Company in full at the time of
the exercise of the Option either (i) in cash or its equivalent, (ii) by
tendering shares of previously acquired Stock having a Fair Market Value
on the date of exercise equal to the total Exercise Price (subject to any
applicable federal and state securities laws), or (iii) by a combination
of (i) and (ii). The notice of exercise to the Company shall be
accompanied by the Exercise Price and the Option Agreement. The proceeds
from such a payment shall be added to the general funds of the Company and
shall be used for general corporate purposes.
7.9 Purchase for Investment.
-----------------------
At the time of any exercise of any Option, the Committee may, if it shall
deem it necessary for any reason connected with any law or regulation of
any governmental authority relating to the regulation of securities,
require as a condition to the issuance of Stock that the Participant
represent in writing to the Company an intention to acquire the Stock for
the account of the Participant for investment only and not for resale or
distribution. In the event such a representation is required and made, no
Stock shall be issued to the Participant unless and until the Company is
satisfied with respect to the validity of such representation.
Certificates for Stock as to which such representations are required and
made may, in the discretion of the Committee, be endorsed with a legend
noting such representations and any appropriate restrictions resulting
therefrom.
7.10 Notice of Certain Dispositions .
-------------------------------
Any Participant who disposes of any Stock acquired through the exercise of
an Incentive Stock Option granted hereunder either (i) within two years
from the date of the grant of the Option pursuant to which the subject
shares were acquired or (ii) within one year after the transfer of such
Stock to the Participant, whichever is later, shall promptly notify the
Company of such disposition and the amount of consideration realized upon
such disposition.
-14-
<PAGE>
ARTICLE VIII
TERMINATION OF EMPLOYMENT
8.1 Termination of Employment.
-------------------------
In the event that an employee Participant shall cease to be employed by
the Company or Home for any reason other than death, Disability, or
Termination-for-Cause, any outstanding Vested Options may be exercised by
the Participant for a period of three (3) months following termination of
employment, or such earlier date as the Options would have expired
according to their terms. All non-Vested Options shall expire at the close
of business on the date of such termination.
8.2 Death.
-----
If the Participant shall die while in the employ of the Company or Home,
the Participant's estate or personal representative shall have the right
to exercise any outstanding Vested Options for a period of one (1) year
from said date of death or such earlier date as the Options would have
expired according to their terms. All non-Vested Options shall expire at
the close of business on the date of death of the Participant.
8.3 Permanent Disability.
--------------------
In the event the Participant shall cease to be employed by the Company or
Home by reason of Permanent Disability, any outstanding Vested Options may
be exercised by the Participant for a period of the earlier of one (1)
year following termination of employment, or the expiration date of the
Options. All non-Vested Options shall expire at the close of business on
the date of termination of employment.
8.4 Termination-for-Cause.
---------------------
In the event the Participant shall cease to be employed by the Company or
Home by reason of Termination-for-Cause, any outstanding Options, whether
Vested or not, shall immediately expire at the close of business on the
date of termination of employment and may no longer be exercised.
-15-
<PAGE>
ARTICLE IX
NO CONTRACT OF EMPLOYMENT
Nothing in the Plan shall interfere with or limit in any way the right of the
Company or Home to terminate any Participant's employment at any time, nor does
participation in the Plan confer upon any Participant any right to continue in
the employ of the Company or Home.
-16-
<PAGE>
ARTICLE X
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board may at any time terminate, and from time to time may amend or modify
the Plan, provided, however, that no such action of the Board, without the
approval by vote of the holders of a majority of the outstanding shares of Stock
may:
(a) Increase the total amount of Stock which may be issued under the Plan,
except as provided in Sections 5.1 and 5.3 of the Plan.
(b) Change the class of individuals eligible to receive Options.
(c) Change the provisions of the Plan regarding the Exercise Price, except
as permitted by Section 5.3.
(d) Materially increase the cost of the Plan or materially increase the
benefits to Participants.
(e) Extend the period during which Options may be granted under the Plan.
(f) Extend the maximum period after the date of grant during which Options
may be exercised.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Option previously granted under the Plan without the
consent of the affected Participant.
-17-
<PAGE>
ARTICLE XI
WITHHOLDING TAX
Whenever shares of Stock are to be issued under the Plan, the Company shall have
the power to require the recipient of the Stock to remit to the Company an
amount sufficient to satisfy federal, state, and local tax and payroll
withholding requirements deemed by the Company to be applicable in its sole
discretion. The Company may also deduct the necessary amount of minimum
withholding from the Participant's salary or, upon the exercise of an Option,
withhold from delivery to the recipient a number of shares, the Fair Market
Value of which is sufficient to satisfy federal, state, and local minimum
withholding requirements.
-18-
<PAGE>
ARTICLE XII
UNFUNDED PLAN
The Plan shall be unfunded. The Company shall not be required to segregate any
assets that may be represented by Options. The Company shall not be deemed to
be a trustee of any amounts to be paid under any Option. Any liability of the
Company to pay any Participant with respect to an Option shall be based solely
upon any contractual obligations created pursuant to the provisions of the Plan;
no such obligation shall be deemed to be secured by any pledge or encumbrance on
any property of the Company.
-19-
<PAGE>
ARTICLE XIII
REQUIREMENT OF LAW
13.1 Requirement of Law.
------------------
The granting of Options and the issuance of shares of Stock shall be
subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as
may be required. The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Stock to be
issued hereunder or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company shall not be
obligated to cause to be issued or delivered any certificates evidencing
shares of Stock pursuant to the Plan, unless and until the Company is
advised by its counsel that the issuance and delivery of such certificates
is in compliance with all applicable laws, regulations of governmental
authority and the requirements of any securities exchange on which shares
of Stock are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing shares of Stock pursuant
to the terms hereof, that the recipient of such shares make such
covenants, agreements and representations, and that such certificates bear
such legends, as the Committee, in its sole discretion, deems necessary or
desirable.
The exercise of any Option granted hereunder shall only be effective at
such time as counsel to the Company shall have determined that the
issuance and delivery of shares of Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental
authorities and the requirements of any securities exchange on which
shares of Stock are traded.
13.2 Governing Law.
-------------
The Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of Texas and applicable federal
law. No person shall have any rights as a stockholder with respect to any
shares of Stock covered by or relating to any Option granted pursuant to
this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section
5.3 hereof, no adjustment to any Option shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
-20-
<PAGE>
Appendix A
HOMECAPITAL INVESTMENT CORPORATION
INCENTIVE OR NON-QUALIFIED
--------------------------
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT ("Agreement") is entered into between
HomeCapital Investment Corporation Holding Company ("Company"), a Nevada
corporation and __________________________ ("Grantee").
WITNESSETH:
WHEREAS, the Board of Directors ("Board") of the Company has approved the
grant of stock options to directors, executive officers and key employees
pursuant to the HomeCapital Investment Corporation 1996 Stock Option Plan
("Plan"); and
WHEREAS, the Grantee is an employee of the Company or HomeOwners Mortgage &
Equity, Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("Home"), and has been selected to receive Incentive Stock Options and/or Non-
Qualified Stock Options under the Plan.
NOW, THEREFORE, in consideration of the premises, the Company and the
Grantee agree as follows:
I. GRANT OF STOCK OPTIONS
Incentive Stock Options. Subject to the terms and conditions set forth
-----------------------
herein and in the Plan which is attached hereto and incorporated herein by
reference and made a part hereof for all purposes, the Grantee is hereby awarded
Incentive Stock Options to purchase ____________ shares of the Company's common
stock, par value $.01 per share (the "Stock"). For purposes of this Agreement
the date of grant of the Option is __________________. As of the date of grant,
this Option shall have an Exercise Price equal to _______ per share.
Non-Qualified Stock Options. Subject to the terms and conditions set forth
---------------------------
herein and in the Plan which is attached hereto and incorporated herein by
reference and made a part hereof for all purposes, the Grantee is hereby awarded
Non-Qualified Stock Options to purchase ___________ shares of the Company's
common stock, par value $.01 per share (the "Stock"). For purposes of this
Agreement, the date of grant of the Option is ________________. As of the date
of grant, this Option shall have an Exercise Price equal to _______ per share.
-21-
<PAGE>
II. VESTING OF OPTIONS
The Grantee may exercise this Option only with respect to those shares that
have vested in accordance with this Section II. Options granted pursuant to
this Agreement shall vest during Grantee's employment with the Company with
respect to ___________ percent (__%) of the shares of Stock subject to this
Agreement each year beginning on _________________, 199_, and shall be fully
vested on __________________, 199_.
In event of a Change of Control (as defined in the Plan) of the Company,
all Options subject to this Agreement will be fully vested.
This Option may not be exercised after the earlier of (i) _____________ (no
longer than ten years following the date of grant), or (ii) the day that is
three (3) months (one year in the event of disability or if employment is
terminated by death) after the date of termination of the employment of Grantee.
Neither Grantee nor any other person entitled to exercise the Option under
the terms of the Plan shall be, or have any of the rights or privileges of, a
stockholder of the Company in respect of any shares of Stock issuable on
exercise of the Option, unless and until the Exercise Price for such shares has
been paid in full.
III. EXERCISE AND PAYMENT
Subject to the limitations set forth in this Agreement, the Grantee may
exercise this Option by delivering, no less than five (5) business days prior to
the proposed date of exercise, written notice to the Secretary of the Company
specifying the number of shares of Stock to be purchased. The Exercise Price of
any Option shall be payable to the Company in full at the time of exercise of
the Option either (i) in cash or its equivalent, (ii) by tendering shares of
Stock previously acquired by the Grantee having a Fair Market Value on the date
of exercise equal to the total Exercise Price, or (iii) by a combination of (i)
and (ii).
Any Option granted under the Plan may be exercised by a broker-dealer
acting on behalf of a Participant if (i) the broker-dealer has received from the
Participant or the Company a duly endorsed Stock Option Agreement evidencing
such Option and instructions signed by the Participant requesting the Company to
deliver the shares of Stock subject to such Option to the broker-dealer on
behalf of the Participant and specifying the account into which such shares
should be deposited, (ii) adequate provision has been made with respect to the
payment of any withholding taxes due on such exercise and (iii) the broker-
dealer and the Participant have otherwise complied with Section 220.3(e)(4) of
Regulation T, 12 CFR Part 220.
Notation of any partial exercise shall be made by the Company on Schedule 1
attached hereto, and thereafter this Agreement shall be effective only as to the
balance of the Option shares remaining.
-22-
<PAGE>
IV. DISPOSITIONS OF STOCK
Grantee hereby recognizes that the Options granted pursuant to this
Agreement may not be transferred, except by will or under the laws of intestacy,
descent and distribution upon the death of Grantee; and represents and warrants
that shares of Stock acquired upon exercise of the Option shall be acquired only
for the account of Grantee and not with a view to resale or distribution. In no
event shall Grantee sell or otherwise dispose of shares of Stock acquired upon
exercise of the Option prior to two (2) years from the date of grant of the
Option or one (1) year from the date the shares of Stock were acquired, whatever
is later. No sale or disposition of shares of Stock will be permitted, unless
the Company is satisfied, by opinion of legal counsel satisfactory to the
Company at the expense of the Grantee, that the proposed transaction is exempt
from registration or qualification under, or otherwise complies with, applicable
securities laws.
The Grantee shall be required to promptly notify the Company in the event
of a sale or other disposition of any Stock acquired through the exercise of an
Incentive Stock Option granted hereunder either (i) within two (2) years from
the date of grant of the Option pursuant to which the subject shares of Stock
were acquired, or (ii) within one (1) year after the acquisition of such Stock
pursuant to the exercise of the Option. The Grantee shall also be required to
disclose in the notice to the Company the amount of consideration realized upon
such disposition.
V. GENERAL
Administration. Administration of this agreement will be governed by the
--------------
terms and conditions set forth in the HomeCapital Investment Corporation 1996
Stock Option Plan (the "Plan") in effect on the date of this grant, which
document is incorporated herein in its entirety.
Notices. Every notice or other communication relating to this Agreement
-------
shall be in writing, and shall be mailed to or delivered to the party for whom
its is intended at such address as may from time to time be designated by such
party. Unless and until some other address is so designated, all notices or
communications by the Grantee to the Company shall be mailed to HomeCapital
Investment Corporation, 6836 Austin Center Blvd., Suite 280, Austin, Texas
78731, Attention: John W. Ballard, President.
All notices by the Company to the Grantee may be delivered to the Grantee
personally or may be mailed to the Grantee at the address shown on the records
of the Company.
Withholding. The Company shall deduct from a payment of any kind due to
-----------
the Grantee, any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of the Stock Options.
Interpretation. This Agreement is subject in all respects to the terms of
--------------
the Plan, and in the event that any provision of the Agreement shall be
inconsistent with the terms of the Plan, then the terms of the Plan shall
govern. Any question of interpretation arising
-23-
<PAGE>
under this Agreement shall be determined by the Committee and its determinations
shall be final and conclusive upon all parties in interest.
Counterparts. This Agreement may be executed in one or more counterparts,
------------
each counterpart of which will be regarded for all purposes as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
_______ day of ___________________, 19_______.
GRANTEE: COMPANY:
HOMECAPITAL INVESTMENT CORPORATION
_________________________ By: ____________________________________
Name: JOHN W. BALLARD, President
Address: ________________
_________________________
_________________________
-24-
<PAGE>
SCHEDULE 1
----------
NOTATIONS AS TO PARTIAL EXERCISE
Date of Number of Balance of Authorized Notation
Exercise Purchased Shares Option Shares Signature Date
- ---------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.16
WAREHOUSE LOAN AGREEMENT
------------------------
THIS WAREHOUSE LOAN AGREEMENT ("Agreement") is made and entered into as of
---------
the 1st day of June, 1996, between HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation ("Borrower") d/b/a HOME, INC., and GUARANTY FEDERAL BANK,
--------
F.S.B., a federal savings bank ("GFB" or "Bank").
--- ----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower has requested that Bank make a loan (the "Loan") to
----
Borrower in the amount of $2,000,000.00 to enable Borrower to originate and/or
purchase conventional home improvement and second lien mortgage loans and hold
such loans in its loan portfolio for up to sixty (60) days prior to purchase by
Investors (hereinafter defined);
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and of the loans and Commitment of Bank hereinafter referred
to, Borrower and Bank agree as follows:
ARTICLE I
---------
GENERAL TERMS
-------------
Section 1.01 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the-following meanings, unless the context otherwise
requires:
"Adjusted Tangible Net Worth" shall mean, as of any date, the amount
---------------------------
equal to (i) the sum of (A) the Net Worth of Borrower as of such date plus
(B) an amount equal to ninety percent (90%) of the Capitalized Servicing of
Borrower as of such date plus (C) an amount equal to ninety percent (90%)
of the Excess Servicing Receivables of Borrower, minus (ii) the value of
all Intangible Assets, Capitalized Servicing, Excess Servicing Receivables
and receivables from Affiliates of Borrower on such date.
"Advance" means a Warehouse Advance.
-------
"Affiliate" shall mean (i) any Person (hereinafter defined) directly
---------
or indirectly (through one or more intermediaries) controlling, controlled
by or under common control, with the Person in question, which in the case
of a Person which is a partnership, shall include each of the constituent
partners, whether general or limited partners thereof, or (ii) any Person
who is a director, shareholder, officer or employee of (a) such Person or
(b) any person described in the preceding clause (i). The term "control",
as used in the immediately preceding sentence, means, with respect to a
corporation, any ownership interest which exceeds ten percent (10%) of the
issued and outstanding stock in such corporation, and, with respect to an
entity that is not a corporation, the possession, directly or indirectly,
of any ownership interest which exceeds ten percent (10%) of the ownership
interests in such entity.
"Agency" means FNMA, FHLMC or GNMA.
------
"Agency Commitment" means a binding and enforceable agreement on the
-----------------
part of (a) FNMA or FHLMC to issue Mortgage Backed Securities in exchange
for Mortgage Loans or (b) GNMA to guaranty Mortgage Backed Securities to be
issued by the Borrower. Agency Commitment includes the FNMA Guide, the
FHLMC Guide or the GNMA Guide, as applicable pursuant to which such Agency
Commitment was issued.
<PAGE>
"Agency Custodian" means GFB in its capacity as document custodian on
----------------
behalf of an Agency.
"Agency Forms" means forms promulgated by an Agency for use in
------------
connection with the delivery of Mortgage Loans and the issuance or guaranty
of a Mortgage Backed Security pursuant to an Agency Commitment.
"Agreement" shall mean this Warehouse Loan Agreement, as the same may
---------
from time to time be amended or supplemented.
"Appraisal" means a written statement as to the market value of the
---------
property upon which a Lien is granted pursuant to a Mortgage to secure a
Mortgage Loan.
"Appraisal Laws and Regulations" means laws set forth in Title XI of
------------------------------
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
the Federal Deposit Insurance Corporation Improvement Act of 1991 and
regulations promulgated by the Office of the Comptroller of the Currency
(the "OCC") or any other Governmental Authority in connection therewith
---
regarding Appraisals with respect to loans made by Persons regulated by the
OCC.
"Average Advances" shall mean for any period of time, the product of
----------------
the following calculation, (a) the sum of the daily totals of outstanding
Advances, divided by (b) the number of days in such period of time.
"Average Deposit Balances" means for any period of time, the average
------------------------
daily amount of free collected balances maintained in non-interest bearing
demand deposit accounts in the name of Borrower or its Affiliates with
Bank, including any escrow or custodial accounts held for third parties,
after deducting float and balances required by Bank under its normal
practices to compensate Bank for the maintenance of such accounts and
taking into consideration all Reserve Requirements applicable to such
accounts. Borrower represents and warrants to Bank that the only deposits
made by such Borrower with Bank shall be deposits which shall not be
subject to any legal requirement or contractual or regulatory provision (a)
requiring payment of interest by any party or depository on such deposits,
or (b) resulting in the classification of such deposits as special deposits
rather than general deposits. Borrower represents and warrants to Bank that
Borrower shall deposit with Bank only those funds for which Bank is an
authorized depository under any material agreement of Borrower and all
applicable laws and regulations.
"Bank" shall have the meaning assigned to such term in the preamble
----
hereof.
"Base Rate" means the rate of interest per annum equal to the base or
---------
prime rate for commercial loans as publicly announced from time to time by
Bank, as the same may vary from time to time upward or downward with (and
effective as of the date of) each announcement, without notice to Borrower
or any guarantor (such rate being set by Bank as a general rate of
reference, taking into account such factors as Bank may deem appropriate,
it being understood that many of its commercial and other loans are priced
in relation to such rate, that it is not necessarily the lowest or best
rate actually charged to any of Bank's customers and that it may make
various commercial or other loans at rates of interest having no
relationship to such rate), subject, however, to the right of Bank, at any
------- -------
time and from time to time, to substitute a substantially comparable
reference rate of interest in lieu of the base rate of Bank, upon giving
notice to Borrower.
"Borrower" shall have the meaning assigned to such term in the
--------
preamble hereof.
-2-
<PAGE>
"Borrowing" shall mean a borrowing consisting of an Advance by the
---------
Bank in connection with a Credit Request.
"Borrowing Base" as of any time of determination means the aggregate
--------------
Collateral Value of all Mortgage Collateral.
"Borrowing Date" with respect to a particular Borrowing shall mean the
--------------
Business Day, identified by Borrower in the related Credit Request, as the
date on which Borrower requests that the Bank make Advances in respect of
such Borrowing.
"Business Day" shall mean any day on which Bank is open for business.
------------
"Capitalized Servicing" shall mean the servicing owned by Borrower
---------------------
which is capitalized on the balance sheet of Borrower in accordance with
GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and
----------------
fully guaranteed or insured by the United States Government or any agency
or instrumentality thereof which mature within ninety days from the date of
acquisition and (ii) time deposits and certificates of deposit, which
mature within ninety days of the date of acquisition of any domestic
commercial bank having capital and surplus in excess of $200,000,000.00,
which has, or the holding company of which has, a commercial paper rating
of at least A-1 or the equivalent thereof by Standard & Poors Corporation
or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Collateral" shall have the meaning given to such term in the Security
----------
Agreement.
"Collateral Schedule" shall mean a schedule delivered to Bank along
-------------------
with a Credit Request pursuant to the terms of Section 4.02 hereof.
------------
"Collateral Value" shall mean as of any date of determination, with
----------------
respect to Mortgage Loans, an amount equal to ninety-seven percent (97%) of
the least of: (i) the actual out of pocket costs to Borrower of such
Mortgage Collateral (or in the case of any Mortgage Note funded by
Borrower, the original principal amount of such Mortgage Note minus any
discount points paid to Borrower upon the closing of the loan evidenced by
such Mortgage Note), or (ii) the Take-Out Value of such item of Mortgage
Collateral, or (iii) the outstanding principal balance of the Mortgage
Collateral, or (iv) at the option of Bank, the Market Value of such
Mortgage Note; provided, however, that (a) any Mortgage Note shall be
utilized in the computation of Collateral Value for a maximum period of
sixty (60) days, (b) any Mortgage Note which is in default, shall be
excluded from the computation of Collateral Value, (c) the cumulative
Collateral Value at any time attributable to Second Lien Mortgage Loans
other than (i) Conventional Home Improvement Loans, (ii) Conventional
Purchase Money Second Lien Loans and (iii) Conventional Equity Recovery
Loans, shall be limited to $1,000,000.00, and (d) the cumulative Collateral
Value at any time attributable to Mortgage Notes which evidence Wet
Advances shall be limited to $500,000.00.
"Commitment" as to Bank shall mean the obligation of Bank to make
----------
Advances to Borrower pursuant to Section 2.01 hereof in an aggregate amount
------------
not to exceed at any one time outstanding the amount of $2,000,000.00.
"Commitment Termination Date" (or maturity date of the Loan) shall
---------------------------
mean January 31, 1997 or such earlier date on which the Commitment
terminates as provided in this Agreement.
-3-
<PAGE>
"Company Loan Number" shall mean the number assigned by the Borrower
-------------------
to a Mortgage Loan to facilitate the servicing of such Mortgage Loan by the
Borrower and the delivery, holding and transfer of Mortgage Documents
relevant to such Mortgage Loan pursuant to this Agreement.
"Compliance Certificate" shall mean the Compliance Certificate
----------------------
attached hereto as Exhibit "L" incorporated herein by this reference.
-----------
"Conventional Equity Recovery Loan" shall mean a Conventional Loan
---------------------------------
which is secured by a first or second lien mortgage on a non-homestead
second or vacation home and the proceeds are not used for the purchase of
the home.
"Conventional Home Improvement Loan" shall mean a Conventional Loan
----------------------------------
which is secured by a second lien mortgage and the proceeds of which are
utilized solely for construction of improvements to the home encumbered by
such Mortgage.
"Conventional Loan" means a Mortgage Loan (excluding FHA Loans and VA
-----------------
Loans) reasonably satisfactory to the Bank, which conforms to the
eligibility requirements established by an Investor pursuant to the
requirements of a Take-out Commitment acceptable to Bank.
"Conventional Purchase Money Second Lien Loan" shall mean a
--------------------------------------------
Conventional Loan which is secured by a second lien mortgage and the
proceeds of which are utilized to purchase the home encumbered by such
Mortgage.
"Covered Mortgage Loan" means a Conventional Loan, a Conventional Home
---------------------
Improvement Loan, a Conventional Purchase Money Second Lien Loan, or
Conventional Equity Recovery Loan, with respect to which Borrower has a
Take-Out Commitment (excluding Take-out Commitments issued by an Affiliate
of Borrower) for the sale of that specific Mortgage Loan as evidenced by
the written approval of Investor as to that specific Mortgage Loan.
"Credit Request" shall mean a Mortgage Warehouse Credit Request for a
--------------
Borrowing in the form of Exhibit "A" attached hereto.
-----------
"Custodian Fees" are defined in Section 11.03 hereof.
-------------- -------------
"Debtor Laws" shall mean 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" shall mean any of the events specified in Section 8.01
------- ------------
hereof, whether or not any requirement for notice or lapse of time or any
other condition has been satisfied.
"Delivery Commitment Certificate" means an agreement in the form
-------------------------------
attached hereto as Exhibit "B" which Borrower may from time to time deliver
-----------
to the Bank pursuant to the terms hereof.
"Dividends" in respect of any corporation, shall mean:
---------
(i) 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
-4-
<PAGE>
(ii) 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.
"Dry Advance" shall mean an Advance which is not a Wet Advance.
-----------
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"ERISA Affiliate" of Borrower or any Subsidiary of Borrower shall mean
---------------
any trade or business (whether or not incorporated) which, together with
Borrower or such Subsidiary, as the case may be, would be treated as a
single employer under Section 4001 of ERISA.
"Event of Default" shall mean any of the events specified in Section
---------------- -------
8.01 hereof, provided that there has been satisfied any requirement in
----
connection with such event for the giving of notice or the lapse of time.
"Excess Servicing Receivables" shall mean the difference in the note
----------------------------
rate of a Mortgage Loan which has been sold to an Agency or Investor by
Borrower on a servicing retained basis and the rate given with respect to
such Mortgage Loan by Borrower to such Agency or Investor to the extent
such receivable is capitalized on the balance sheet of Borrower in
accordance with GAAP.
"FDIC Percentage" shall mean, on any day, the net assessment rate
---------------
(assessed as a percentage rounded to the next highest .01 of one percent)
which is in effect on such day (under the regulations of the Federal
Deposit Insurance Corporation or any successor) for determining the
assessments paid by Bank to the Federal Deposit Insurance Corporation (or
any successor) for insuring time deposits made in dollars at Bank's
principal offices in Dallas, Texas. Each determination of said percentage
made by Bank shall, in the absence of manifest error, be binding and
conclusive.
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Bank from three Federal funds brokers of recognized standing selected by
it.
"FHA" shall mean the Federal Housing Administration.
---
"FHA Loan" shall mean a Mortgage Loan, payment of which is completely
--------
insured by the FHA under the National Housing Act or Title V 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" shall mean the Federal Home Loan Mortgage Corporation, a
-----
wholly-owned corporate instrumentality of the United States of America
created pursuant to the Emergency House Finance Act of 1970, or its
successor.
"FHLMC Guide" means the FHLMC Sellers' & Servicers' Guide, as amended,
-----------
modified or supplemented from time to time.
-5-
<PAGE>
"FHLMC Securities" shall mean participation certificates representing
----------------
undivided interests in mortgage loans purchased by FHLMC pursuant to the
Emergency Home Finance Act of 1970, as amended.
"Fixed Rate" shall mean a fixed rate of interest equal to three and
----------
three quarters percent (3.75%) per annum.
"FNMA" shall mean the Federal National Mortgage Association, or its
----
successor.
"FNMA Guide" means the FNMA Selling Guide and the FNMA Servicing
----------
Guide, as amended, modified or supplemented from time to time.
"FNMA Securities" shall mean modified pass-through mortgage backed
---------------
certificates guaranteed by FNMA pursuant to the National Housing Act, as
amended.
"FRB" shall mean any Federal Reserve Bank chartered under the laws of
---
the United States of America.
"FRB Member" shall mean any national banking association or other
----------
Person which is authorized to hold and trade Uncertificated Mortgage Backed
Securities in its name for the account of others through an FRB and which
is acceptable to the Bank in its sole discretion.
"Funding Account" shall mean the non-interest bearing demand checking
---------------
account (Account Number 3940000965) established by Borrower with the Bank
to be used for (i) the deposit of proceeds of Advances; and (ii) the
funding of Mortgage Notes by Borrower.
"Generally Accepted Accounting Principles" or "GAAP" shall mean 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,
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" shall mean the Government National Mortgage Association, a
----
wholly-owned corporate instrumentality of the United States of America
within the Department of Housing and Urban Development, or its successor.
"GNMA Guide" means the GNMA I and GNMA II Mortgage Backed Securities
----------
Guides, GNMA Handbooks 5500.1 and 5500.2, as amended, modified or
supplemented from time to time.
"GNMA Securities" shall mean modified pass-through type mortgage
---------------
backed certificates guaranteed by GNMA pursuant to Section 306(g) of the
National Housing Act, as amended.
"Governmental Authority" means any nation or government, any agency,
----------------------
department, state or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Governmental Requirement" shall mean any law, statute, code,
------------------------
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other direction
or
-6-
<PAGE>
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, county, municipal or other government, quasi-
governmental agency, department, commission, board, court, agency or any
other instrumentality of any of them (including without limitation, FHLMC,
GNMA, FNMA, HUD, VA and FHA), which exercises jurisdiction over Borrower or
any of its Property.
"Guaranty" of any Person shall mean any contract, agreement or
--------
understanding of such Person pursuant to which such Person guarantees, or
in effect guarantees, any Indebtedness of any other Person (the "Primary
-------
Obligor") in any manner, whether directly or indirectly, including without
-------
limitation agreements: (i) to purchase such Indebtedness or any property
constituting security therefor; (ii) to advance or supply funds (A) for the
purchase or payment of such Indebtedness, or (B) to maintain working
capital or other balance sheet conditions, or otherwise to advance or make
available funds for the purchase or payment of such Indebtedness; (iii) to
purchase property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the Primary
Obligor to make payment of the Indebtedness; or (iv) otherwise to assure
the holder of the Indebtedness of the Primary Obligor against loss in
respect thereof; except that "Guaranty" shall not include the endorsement
------
in the ordinary course of business of negotiable instruments or documents
for deposit or collection.
"Indebtedness" of any Person shall mean (i) all indebtedness of such
------------
Person, whether or not represented by bonds, debentures, notes or other
securities, for the repayment of money borrowed, (ii) all deferred
indebtedness of such Person for the payment of the purchase price of
property or assets purchased, (iii) all obligations of such Person under
any lease which are required to be capitalized for balance sheet purposes,
(iv) all Guaranties of such Person, (v) all indebtedness secured by any
Lien existing on property owned by such Person, whether or not the
indebtedness secured thereby shall have been assumed by such Person, (vi)
all unfunded benefit liabilities (within the meaning of 4001(a)(18) of
ERISA) under each Plan maintained by such Person or its Related Persons,
(vii) any obligation of such Person (a) created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person, or (b) under letters of credit,
acceptances or similar obligations issued or created for the account of
such Person.
"Intangible Assets" of any Person shall mean those assets of such
-----------------
Person which are (i) deferred assets, (ii) contract rights to service
mortgage loans, patents, copyrights, trademarks, trade names, franchises,
goodwill, experimental expenses, and other similar assets which would be
classified as intangible on a balance sheet of such Person prepared in
accordance with GAAP, (iii) unamortized debt discount and expense and (iv)
assets located, and notes and receivables due from obligors domiciled
outside the United States of America.
"Interest Payment Date" means (i) the tenth day of each month,
---------------------
beginning July 10, 1996, and (ii) any day on which past due interest or
principal is owed hereunder and is unpaid.
"Interest Rate Election Notice" shall mean a notice given by Borrower
-----------------------------
in the form attached hereto as Exhibit "M" pursuant to Section 2.04(a).
----------- ---------------
"Investor" shall mean any Person (other than an Affiliate of
--------
Borrower), which may include GFB, approved by Bank in its sole discretion
who agrees to purchase Mortgage Notes pursuant to a Take-Out Commitment.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
----
deposit arrangement, encumbrance, lien (whether statutory or otherwise), or
preference, priority or other security agreement or
-7-
<PAGE>
preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement
under the uniform commercial code or comparable law of any jurisdiction in
respect of any of the foregoing).
"Loan" shall mean at any time the aggregate unpaid principal amount of
----
all Advances.
"Loan Documents" shall mean this Agreement, the Note, the Security
--------------
Agreement and any and all other agreements or instruments now or hereafter
executed and delivered by Borrower or any other Person in connection with,
or as security for the payment or performance of, the Note or this
Agreement, as such agreements may be amended or supplemented from time to
time.
"Market Value" of any Mortgage Note shall mean at any time the market
------------
value of such Mortgage Note 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 yield is not available from
Telerate Mortgage Services, Bank shall obtain such posted net yield from
FNMA. If the Bank is unable to obtain any yield, bid price or factor from
the source or alternative source called for under this definition, such
yield, price or factor shall be that established by the Bank in good faith.
"Material Adverse Effect" shall mean any event or set of circumstances
-----------------------
that (i) would have a material adverse effect on the validity or
enforceability of this Agreement, the Note or any Loan Document, (ii) is,
or upon the passage of time or happening of an event will be, material and
adverse to the financial condition or business operations of Borrower, or
(iii) would materially impair the ability of Borrower to fulfill its
obligations under this Agreement, the Note or any Loan Document to which it
is a party.
"Maximum Loan Amount" means, at any time, the sum of $2,000,000.00.
-------------------
"Maximum Rate" means at the particular time in question the maximum
------------
rate of interest which, under applicable law, may then be charged on each
Note. If such maximum rate of interest changes after the date hereof, the
Maximum Rate shall be automatically increased or decreased, as the case may
be, without notice to Borrower from time to time as of the effective time
of each change in such maximum rate. If applicable law ceases to provide
for such a maximum rate of interest, the Maximum Rate shall be a per annum
rate of interest equal to six percent (6.0%) plus the Base Rate from time
to time in effect.
"Mortgage" shall mean a mortgage or deed of trust, on standard forms
--------
approved by VA, FHA, FNMA or FHLMC or otherwise in form and substance
satisfactory to Bank, granting a perfected first-priority (or second-
priority in the case of a Second Lien Mortgage Loan) lien on residential
real property consisting of land and a single family (1-4 family) dwelling
thereon which is completed and ready for occupancy.
"Mortgage Backed Securities" shall mean FHLMC Securities, FNMA
--------------------------
Securities and GNMA Securities, whether such securities are issued in
certificated form or book entry form.
"Mortgage Collateral" shall mean all Mortgage Notes and those items
-------------------
described in Delivery Commitment Certificates, which Bank has accepted as
Mortgage Collateral hereunder supported by the documentation specified
herein, which meets continuously the following additional conditions: (i)
which at all times constitute a Covered Mortgage Loan, (ii) which are made
payable to the order of Borrower or have been endorsed (without restriction
or limitation) payable to the order of Borrower, (iii) in which the Bank
has been granted and continues to hold a perfected first-priority security
interest, (iv) which are in
-8-
<PAGE>
form and substance acceptable to the Bank in its reasonable discretion, (v)
which are secured by Mortgages, (vi) which, together with such Mortgages,
conform in all respects with all the requirements for purchase of such
Mortgage Notes under the Take-Out Commitments and are valid and enforceable
in accordance with their respective terms, (vii) under which there shall be
no default as to the payment of any installment of principal or interest,
or other default, and foreclosure or other similar proceedings shall not
have been commenced with respect thereto, (viii) there shall be no pending
claim for any credits, allowance or adjustment with respect thereto, (ix)
each Mortgage Loan is delivered to Bank not more than five (5) Business
Days after the date of funding of such Mortgage Loan, (x) if required by
applicable Appraisal Laws and Regulations, is covered by an Appraisal which
complies with all applicable Appraisal Laws and Regulations and (xi) which
are one of the following, a Conventional Equity Recovery Loan, a
Conventional Home Improvement Loan, a Conventional Purchase Money Second
Lien Loan or a Second Lien Mortgage Loan.
"Mortgage Documents" means, for any Mortgage Loan, the Principle
------------------
Documents and the Other Mortgage Documents relevant thereto.
"Mortgage File" means the Mortgage File Summary and the Principle
-------------
Mortgage Documents relevant to a Mortgage Loan.
"Mortgage File Summary" means a summary setting forth the pertinent
---------------------
information for the Principle Mortgage Documents relevant to a Mortgage
Loan.
"Mortgage Loan" means a loan represented by a Mortgage Note which
-------------
bears interest at either a fixed rate or an adjustable rate and which is
collateralized or secured by a Mortgage; provided, that in no event shall
Mortgage Note mean a promissory note evidencing a commercial loan.
"Mortgage Note" shall mean a promissory note evidencing a Conventional
-------------
Loan, Second Lien Mortgage Loan, Conventional Equity Recovery Loan,
Conventional Home Improvement Loan, or Conventional Purchase Money Second
Lien Loan.
"Net Collateral Deficit" means, at any time, the amount, if any, by
----------------------
which the aggregate Collateral Value of all Mortgage Collateral is exceeded
by the outstanding principal balance of the Loan.
"Net Collateral Surplus" means, at any time, the amount, if any, by
----------------------
which the aggregate Collateral Value of all Mortgage Collateral exceeds the
outstanding principal balance of the Loan.
"Net Income" means, for any period of time, the net income appearing
----------
on an income statement of such Person prepared as of the end of such
calendar quarter in accordance with GAAP.
"Net Worth" of any Person shall mean, as of any date, the total
---------
shareholder's equity (including capital stock, additional paid-in capital
and retained earnings after deducting treasury stock) which would appear on
a balance sheet of such Person prepared as of such date in accordance with
GAAP.
"Note" means the Warehouse Promissory Note delivered by the Borrower
----
to the Bank pursuant to Section 2.02 in the form attached hereto as Exhibit
------------ -------
"C" (together with all renewals, extensions and other modifications
---
thereof), evidencing the obligation of Borrower to repay Advances made
hereunder and all other Obligations.
"Obligations" shall mean all present and future indebtedness,
-----------
obligations, and liabilities of Borrower to the Bank, and all renewals and
extensions thereof, or any part thereof, arising pursuant to this
-9-
<PAGE>
Agreement or any other Loan Document, and all interest accruing thereon,
and reasonable attorneys' fees incurred in the drafting, negotiation,
enforcement or collection thereof, regardless of whether such indebtedness,
obligations, and liabilities are direct, indirect, fixed, contingent,
joint, several or joint and several.
"OCC" means the Office of the Comptroller of the Comptroller of the
---
Currency of the United States of America and any Governmental Authority
succeeding to the functions of such office.
"Operating Account" means the non-interest bearing demand deposit
-----------------
account (Account Number 3206017075) established by the Borrower with the
Bank which account, subject to the provisions of Section 3.06, is subject
------------
to the sole dominion and control of the Borrower.
"Other Mortgage Documents" shall mean the Mortgage Loan documents
------------------------
(other than the Principle Mortgage Documents) including but not limited to
those documents listed in Section 3.02 (other than the Principle Mortgage
------------
Documents).
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
----
successor to any or all of the Pension Benefit Guaranty Corporation's
functions under ERISA.
"Permitted Liens" shall mean: (i) Liens granted to the Bank to secure
---------------
the Obligations, or (ii) Liens for taxes, assessments or other governmental
charges either not yet due or being diligently contested in good faith (and
for the payment of which adequate reserves have been established) by
appropriate proceedings so long as such proceedings do not involve any
material danger of the sale, forfeiture, loss or loss of use of the
affected Property.
"Person" shall mean any individual, corporation, partnership, joint
------
venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof, or
any other form of entity.
"Plan" shall mean any employee benefit plan or other plan which is
----
subject to the provisions of Title IV of ERISA or to the minimum funding
standards under Section 412 of the Code and which is maintained for
employees of Borrower or any Subsidiary of Borrower or any of their
respective ERISA Affiliates.
"Principle Mortgage Documents" shall mean those documents listed in
----------------------------
Section 3.02(a), (b) and (c).
----------------------------
"Prohibited Transaction" shall mean any transaction described in
----------------------
Section 406 of ERISA which is not exempt under Section 408 of ERISA, and
any transaction described in Section 4975(c) of the Code which is not
exempt under Section 4975(c)(2) or 4975(d) of the Code, or by the
transitional rules of Sections 414(c) of ERISA.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"PTC" shall mean the Participants Trust Company.
---
"PTC Member" shall mean any Person which is authorized to hold and
----------
trade Uncertificated GNMA Securities in its name for the account of others
through the PTC and which is acceptable to the Bank in its sole discretion.
-10-
<PAGE>
"Regulation U" shall mean Regulation U promulgated by the Board of
------------
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior
Regulation U and having substantially the same function.
"Regulation X" shall mean Regulation X promulgated by the Board of
------------
Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any other
regulation hereafter promulgated by said Board to replace the prior
Regulation X and having substantially the same function.
"Related Person" means the Borrower and any of Borrower's Affiliates.
--------------
"Reportable Event" shall mean a reportable event described in Section
----------------
4043 of ERISA or the regulations thereunder for which the 30-day notice is
not waived by such regulations, a withdrawal from a Plan described in
Section 4063 or 4064 of ERISA, or a cessation of operations described in
Section 4062(e) of ERISA.
"Requirement of Law" as to any Person shall mean the articles of
------------------
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, statute, code, ordinance, order, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other determination, 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 arbitrator, court or other
governmental authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its
Property is subject.
"Reserve Requirements" means (a) the maximum aggregate reserve
--------------------
requirement imposed on the Bank (including all basic, supplemental,
marginal and other reserves and taking into account any transitional
adjustments or other scheduled changes in reserve requirements) that is
imposed on non-personal time deposits of $100,000 or more, and (b) the net
assessment rate per annum payable to the Federal Deposit Insurance
Corporation (or any successor) for the insurance of domestic deposits of
Bank during the calendar year in which such assessment rate is determined,
as reasonably estimated by Bank.
"Second Lien Mortgage Loan" shall mean a Mortgage Loan which qualifies
-------------------------
qunder the definition of Mortgage Collateral except for the fact that it is
qsecured by a Mortgage which grants a perfected second-priority lien on
------
residential real property consisting of land and a single family (1-4
family) dwelling thereon which is completed and ready for occupancy. Such
Mortgage Loan shall be a Covered Mortgage Loan.
"Securities Credit Transaction Regulation" shall mean Regulations G,
----------------------------------------
U and X issued by the Board of Governors of the Federal Reserve System as
in effect from time to time.
"Security Agreement" shall mean that certain Security Agreement (and
------------------
Assignment of Rights) dated of even date herewith executed by Borrower for
the benefit of the Bank and all renewals, modifications, replacements or
supplements to such agreement.
"Servicing Agreements" shall mean all agreements relating to Servicing
--------------------
Rights owned by Borrower, between Borrower and Persons other than Borrower
pursuant to which Borrower undertakes to service loans evidenced by
Mortgage Notes and pools of loans evidenced by Mortgage Notes owned,
insured or guaranteed by such Persons.
"Servicing Records" shall mean all contracts and other documents,
-----------------
books, records and other information (including without limitation,
computer programs, tapes, discs, punch cards, data processing software and
related property and rights) maintained with respect to the Servicing
Rights.
-11-
<PAGE>
"Servicing Rights" shall mean all of Borrower's right, title and
----------------
interest in and under the Servicing Agreements, including, without
limitation, the rights of Borrower to income and reimbursement thereunder.
"Settlement Account" shall mean the non-interest bearing demand
------------------
checking account (Account No. 3940000973) established by Borrower with the
Bank to be used for (i) the deposit of proceeds from the sale of Mortgage
Collateral and (ii) the payment of the Obligations.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate
entity, enterprise or organization which is directly or indirectly (through
one or more intermediaries) controlled by or owned in any percentage by
such Person.
"Take-Out Commitment" shall mean a current, valid, binding and
-------------------
enforceable commitment to purchase that specific Mortgage Note which
constitutes Mortgage Collateral (evidenced by the written approval of that
Mortgage Loan from the Investor) within a period of not more than sixty
(60) days from the date of such Mortgage Note related thereto in an amount,
form and substance satisfactory to Bank in its reasonable discretion,
issued by an Investor and with respect to which there shall be no condition
which cannot be reasonably anticipated to be satisfied or complied with
prior to its expiration.
"Take-Out Price" means, with respect to each Mortgage Loan, the
--------------
Take-Out Commitment price, expressed as a percentage. In the event that the
price set forth in a Take-Out Commitment is stated as a yield and not as a
percentage of par, a yield so stated shall be converted to a percentage
price by the use of the "Net Yield Tables for GNMA Mortgage Backed
Securities" published by Financial Publishing Company or the "Mortgage
Yield Conversion Tables" published by FNMA, as applicable and as agreed
upon by the Bank.
"Take-Out Value" of a Mortgage Loan means the lesser of (a) the amount
--------------
at which an Investor has committed to purchase such Mortgage Loan pursuant
to a Take-Out Commitment or, if such Take-Out Commitment relates to a
security to be backed by a pool of Mortgage Loans which includes such
Mortgage Loan, the amount equal to (i) the commitment price for such
security times (ii) the fraction of the aggregate outstanding principal
balance of such pool of Mortgage Loans which is attributable to such
Mortgage Loan and (b) the Take-Out Price of such Mortgage Loan.
"Tangible Net Worth" of Borrower shall mean at any time, as determined
------------------
by GAAP, an amount equal to the sum of (i) Borrower's Net Worth, minus (ii)
the value of all assets of Borrower that would be characterized as
Intangible Assets.
"Total Liabilities" of Borrower shall mean, as of any date, all
-----------------
amounts which would be included as liabilities on a balance sheet of
Borrower as of such date prepared in accordance with GAAP.
"UCC" shall mean the Uniform Commercial Code as adopted in the State
---
of Texas, TEX. BUS. & COM. CODE ANN. (S)1.101 ET SEQ. (Vernon 1968 and
Supp. 1991), as the same may hereafter be amended.
"Uncertificated Mortgage Backed Security" shall mean a Mortgage Backed
---------------------------------------
Security which is in uncertificated form, as such term is used in the UCC.
"VA Loan" shall mean a Mortgage Loan covering real estate improved by
-------
single family dwellings, payment of which is partially or completely
guaranteed by the Veteran's Administration (the "VA") under the
--
Serviceman's Readjustment Act of 1944 or Chapter 37 of Title 38 of the
United States Code or with
-12-
<PAGE>
respect to which there is a current binding and enforceable commitment for
such a guaranty issued by the VA.
"Voting Shares" of any corporation shall mean shares of any class or
-------------
classes (however designated) having ordinary voting power for the election
of at least a majority of the board of directors (or other governing
bodies) of such corporation, other than shares having such power only by
reason of the happening of a contingency.
"Warehouse Advance" means an Advance by the Bank to the Borrower
-----------------
pursuant to Section 2.01(b).
---------------
"Warehouse Promissory Note" means the promissory note delivered by the
-------------------------
Borrower to the Bank pursuant to the first sentence of Section 2.02 in the
------------
form attached hereto as Exhibit "C" and all renewals, extensions,
-----------
modifications and rearrangements thereof."
"Wet Advance" shall mean an Advance under the provisions of Section
----------- -------
2.03(b) hereof.
-------
Section 1.02 Other Definitional Provisions.
-----------------------------
(i) All meanings defined in this Agreement shall have the above-
defined meanings when used in the Note or any Loan Document, certificate,
report or other document made or delivered pursuant to this Agreement,
unless the context therein shall otherwise require. Defined terms not
specifically defined in the preceding provisions shall have the meaning
specified in the Security Agreement.
(ii) Defined terms used herein in the singular shall import the
plural and vice versa.
---- -----
(iii) The words "hereof," "herein," "hereunder" and similar terms
when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(iv) Section, schedule and exhibit references herein are references
to sections, schedules and exhibits to this Agreement unless otherwise
specified.
(v) As used herein, in the Note, or in any other Loan Document,
certificate, report or other document made or delivered pursuant hereto,
accounting terms relating to any Person and not specifically defined in
this Agreement or otherwise shall have the respective meanings given to
them under GAAP.
(vi) Unless otherwise specified herein, all times set forth herein
are Dallas, Texas time.
ARTICLE II
----------
AMOUNT AND TERMS OF CREDITS
---------------------------
Section 2.01. Commitment.
----------
(a) Advances in General. Subject to the terms and conditions
-------------------
contained in this Agreement and applicable laws and regulations and so long
as no Default or Event of Default has occurred and is continuing, the Bank
agrees to make Warehouse Advances according to the Commitment, to or for
the
-13-
<PAGE>
account of the Borrower on a revolving credit basis from time to time on
any Business Day from the date of this Agreement through the earlier to
occur of the Commitment Termination Date in an amount not to exceed at any
one time outstanding the Commitment of the Bank.
(b) Warehouse Advances. Each Borrowing under this Section 2.01(b)
------------------ ---------------
shall be in an aggregate amount of not less than $2,500.00 and shall
consist of Warehouse Advances made on the Borrowing Date by the Bank
according to its Commitment; provided, however, that: (i) the aggregate
amount of Warehouse Advances at any time outstanding shall not exceed the
Commitment; and (ii) the aggregate amount of Warehouse Advances outstanding
shall not at any time exceed the Borrowing Base. Within the limits of the
Bank's Commitment and subject to the other terms and conditions hereof, the
Borrower may borrow, repay pursuant to Section 2.06 and reborrow under this
------------
Section 2.01(b).
---------------
Section 2.02. Note. The Warehouse Advances made by Bank pursuant to
----
Section 2.01(b) shall be evidenced by a Warehouse Promissory Note payable to
- ---------------
Bank in the principal amount of the Commitment of Bank. The Note shall be
payable and bear interest as set forth therein.
Section 2.03. Notice and Manner of Obtaining Borrowings; Wet Advances.
-------------------------------------------------------
(a) Borrowings. Borrower shall give the Bank (i) prior to
----------
9:00 p.m. (Dallas, Texas time) on the Business Day prior to a Borrowing
Date, telephonic or telecopy notice of the amount of such requested
Borrowing and (ii) written notice by means of a Credit Request sent to Bank
by telecopy or Federal Express and received by Bank prior to 10:30 a.m.
(Dallas, Texas time) on the Borrowing Date in accordance with the
provisions of Section 4.02 hereof. The Bank will make such funds available
------------
to the Borrower in accordance with Section 3.06.
------------
(b) Wet Advances. Borrower may from time to time request that
------------
certain Advances be funded prior to the delivery to the Bank of the items
of Mortgage Collateral described in Sections 3.02(a), (b) and (c) (such
-----------------------------
Advances being hereinafter referred to individually as a "Wet Advance" and
-----------
collectively as "Wet Advances"). The Bank hereby agrees to make Warehouse
------------
Advances to fund such Wet Advances in accordance with Section 2.03(a)
---------------
subject to the terms and conditions of this Agreement, including, without
limitation, the following terms and conditions:
(i) (A) Simultaneously with the delivery to Bank of a Credit
Request requesting a Wet Advance, Borrower shall deliver to Bank each of
the following:
(1) a true and correct copy of a Collateral Schedule
(attached as Schedule I to the Credit Request) identifying the
----------
Mortgage Notes offered as collateral pursuant to such Credit
Request.
(B) No later than 10:30 a.m. (Dallas, Texas time) on the
Borrowing Date, Borrower shall cause to be delivered directly to Bank
via Federal Express by the title company (which shall not be an
Affiliate of Borrower) closing each Mortgage Note funded by such Wet
Advance each of the following:
(1) a true and complete photocopy of each such proposed
Mortgage Note, although the same has not yet been signed by the
maker thereof;
(2) a true and complete photocopy of the proposed
Mortgage related to each such Mortgage Note, although the same
has not yet been signed by the grantor thereof;
-14-
<PAGE>
(3) a true and complete photocopy (or if requested by Bank,
an original) of the executed Take-Out Commitment relating to each
such Mortgage Note;
(4) an original assignment (leaving the name of the
assignee blank) executed by Borrower for each such Mortgage Note
and the Mortgage securing such Mortgage Note, in recordable form,
and otherwise in form satisfactory to Bank;
(5) (a) a true and complete photocopy of the closing
instructions executed by Borrower and the title company closing
the transaction (which shall not be an Affiliate of Borrower)
evidenced by each such Mortgage Note and (b) copies of the
Federal Truth in Lending Act and Real Estate Settlement
Procedures Act disclosure statements required to be provided to
the maker of such Mortgage Note; and
(6) a Delivery Commitment Certificate in the form attached
hereto as Exhibit "B".
-----------
(ii) No Wet Advance shall be made if, after the making of
such Wet Advance, the aggregate principal amount of all Wet Advances
outstanding would exceed $500,000.00;
(iii) Borrower shall, and does hereby, grant to Bank pursuant
to the Security Agreement, a perfected, first priority security
interest in the Mortgage Notes identified in the Credit Request
delivered to Bank in connection with such Wet Advance; and
(iv) Borrower shall cause the title company closing the
transaction evidenced by each such Mortgage Note to deliver to the
Bank, not later than five (5) Business Days after the date of each Wet
Advance, the original each of such Mortgage Notes, endorsed in blank
and the original filed copy, or a true and correct copy of the
original filed copy acceptable to the Bank, of the Mortgage relating
to each such Mortgage Note, certified by the title company as being
true, correct and complete, as described in Sections 3.02(a) and (b),
------------------------
with respect to such Wet Advance.
Section 2.04. Interest. (a) On or before 5:00 p.m. (Dallas, Texas time)
--------
on that date which is four (4) Business Days prior to the first day of each
calendar month (the "Applicable Month") during the term of this Loan, Borrower
----------------
shall transmit to Bank by telecopy received by Bank prior to 5:00 p.m. (Dallas,
Texas time) ("Minimum Notice Period") on the next Business Day ("Interest
--------------------- --------
Election Date"), an Interest Rate Election Notice in the form attached hereto as
- -------------
Exhibit "M". By such notice Borrower shall inform Bank of its election that the
- -----------
Applicable Month be considered a Base Rate Month (herein so called) or a Federal
Funds Rate Month (herein so called). In the event that Borrower elects a Base
Rate Month, then commencing with the first day of the Applicable Month the Base
Rate shall apply during such calendar month. In the event that Borrower chooses
a Federal Funds Rate Month, then the Federal Funds Rate shall apply during such
calendar month. To the extent that Borrower has not made an effective election
under and in accordance with this subparagraph, the Base Rate shall apply
pursuant to the provisions contained herein.
(b) The Bank shall calculate the interest owed by Borrower under its Note
and submit to Borrower on the fifth day of each calendar month, Bank's invoice
to Borrower with respect to interest, principal and any fees and expenses owed
by Borrower to Bank for the preceding calendar month.
(c) Prior to a Default, interest shall accrue on the outstanding principal
balance of the Note as follows:
-15-
<PAGE>
(1) In a Federal Funds Rate Month, interest shall accrue at the Fixed
Rate for such month; provided, however, that to the extent that
Bank's Average Advances exceeds the Bank's Average Deposit
Balance in any calendar month, as determined as of the last day
of such calendar month, the amount of such excess shall bear
interest for such month at a rate per annum equal to the lesser
of (a) the sum of the Federal Funds Rate and three and three
quarters percent (3.75%) or (b) the Maximum Rate.
(2) In a Base Rate Month, interest shall accrue at the Fixed Rate for
such month; provided, however, that to the extent that Bank's
Average Advances exceeds Bank's Average Deposit Balance in any
calendar month, as determined as of the last day of such calendar
month, the amount of such excess shall bear interest for such
month at the rate per annum equal to the lesser of (a) the sum of
the Base Rate and one and three quarters percent (1.75%) or (b)
the Maximum Rate.
In the event that at any time any of the rates set forth in this
subparagraph (c) shall exceed the Maximum Rate, thereby causing the interest on
- ----------------
such portion of the principal balance of a Note to be limited to the Maximum
Rate, then any subsequent reduction in any interest rate shall not reduce the
rate of interest below the Maximum Rate until the total amount of interest
accrued on the Note equals the amount of interest which would have accrued on
the Note if the rate so limited had at all times been in effect.
(d) After a Default, interest shall accrue on the outstanding principal
balance of a Note at a rate per annum equal to the lesser of (x) the Base Rate
plus 6%, or (y) the Maximum Rate. All calculations of interest shall be on the
basis of a 360 day year, except that calculations of interest based on the
Maximum Rate shall be on the basis of a 365/366 day year, as applicable.
Section 2.05 Net Collateral Deficit. At any time that a Net Collateral
----------------------
Deficit is found to exist, Borrower shall within three (3) Business Days
eliminate such Net Collateral Deficit either (a) by delivering to the Bank
Mortgage Collateral, the Collateral Value of which is equal to or greater than
the amount of such Net Collateral Deficit, or (b) by paying to the Bank, the
amount of such deficit in accordance with Section 2.06 hereof.
------------
Section 2.06 (a) Payment Procedure. All payments of the principal of and
-----------------
interest upon the Note shall be paid by Borrower to Bank before 12:00 noon
(Dallas, Texas time) in federal or other immediately available funds on the
respective dates when due at Bank's principal office at 8333 Douglas Avenue,
Dallas, Texas 75225, in each case to be applied in accordance with the terms of
this Agreement. Funds received after 12:00 noon (Dallas, Texas time) shall be
treated for all purposes as having been received by Bank on the Business Day
next following the date of receipt of such funds.
(b) Order and Notice of Payments. Contemporaneously with the making of
----------------------------
any payments in respect of the Advances, the Borrower shall give the Bank
telecopy notice of the amount being repaid. If no Default or Event of Default
exists, all payments shall be applied to principal or interest on the Note, or
to fees and other amounts payable by the Borrower hereunder, as the Borrower may
direct. At any time when a Default or Event of Default exists, all payments in
respect of the Obligations shall be applied first, to all costs, expenses, fees
-----
and reasonable attorneys' fees incurred by, and Custodian Fees due to, Bank
arising out of or in connection with this Agreement, the Note or the other Loan
Documents, including, without limitation, to the extent not previously paid, all
costs, expenses, fees and reasonable attorneys' fees arising out of or in
connection with the negotiation, preparation and enforcement of such documents;
second, to the payment of all expenses due and payable under Section 6.05;
- ------ ------------
third, to the payment of fees due and payable under Section 11.02 and 11.03;
- ----- ------------- -----
fourth, to the payment of interest then due and payable under the Note; and
- ------
fifth, to the payment of principal of the Note.
- -----
-16-
<PAGE>
Section 2.07 Business Days. If the date for any payment hereunder falls on
-------------
a day which is not a Business Day, then for all purposes of the Note and this
Agreement such payment shall be deemed to have fallen on the next following
Business Day, and such extension of time shall be included in the computation of
payments of interest.
Section 2.08 Yield Protection. If at any time after the date hereof, and
----------------
from time to time, the Bank reasonably determines that the adoption or
modification of any applicable law, rule or regulation regarding taxation,
Bank's required levels of reserves, deposits, insurance or capital (including
any allocation of capital requirements or conditions), or similar requirements,
or any interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation,
administration or compliance of Bank with any of such requirements, has or would
have the effect of (a) increasing Bank's costs relating to the obligation
hereunder, or (b) reducing the yield or rate of return of Bank on the obligation
hereunder, to a level below that which Bank could have achieved but for the
adoption or modification of any such requirements, the Borrower shall, within
thirty (30) days of any request by Bank, either (i) agree in writing to pay to
Bank such additional amounts as Bank reasonably determines is necessary to
maintain the yield, rate of return and/or level of Bank's costs, which Bank
would have achieved but for the above-referenced adoption or modification of
applicable law, rule or regulation or (ii) pay in full all sums owed hereunder
including all principal, interest, expenses and fees and deliver to the Bank
notification that the Bank shall have no further obligation to make Advances
hereunder and that the Bank shall have no further obligations to Borrower
hereunder. No failure by Bank to immediately demand payment of any additional
amounts payable hereunder shall constitute a waiver of Bank's right to demand
payment of such amounts at any subsequent time. Such additional amounts shall
not be charged retroactively, that is all such additional amounts shall only be
charged for that period of time following the thirty (30) day notice period
required in this paragraph. Nothing herein contained shall be construed or so
operate as to require Borrower to pay any interest, fees, costs or charges
greater than is permitted by applicable law.
ARTICLE III
-----------
COLLATERAL
----------
Section 3.01 Collateral. To secure the payment of the Note and the
----------
performance by Borrower of its Obligations hereunder and under the Loan
Documents, Borrower has granted to the Bank, pursuant to the Security Agreement
a first and prior security interest in and to the Collateral, and shall execute
all documents and instruments, and perform all other acts reasonably deemed
necessary by Bank, to perfect and maintain the security interest and priority of
Bank, in and to such Collateral. The Borrower hereby confirms such grant in all
respects and acknowledges and agrees that:
(a) This Agreement constitutes the "Loan Agreement" as defined in the
Security Agreement; and
(b) the Obligations (as defined herein) constitute "obligations"
secured by the security interests granted under the Security Agreement.
From time to time the Borrower may grant the Bank, a security interest in
additional collateral pursuant to this Agreement and the Security Agreement.
The Borrower hereby agrees to execute all documents and instruments, and perform
all other acts reasonably deemed necessary by Bank, to perfect the security
interest of the Bank in and to the collateral identified in the granting clause
of the Security Agreement.
Section 3.02 Delivery to Bank. Simultaneously with delivery to Bank of a
----------------
Credit Request and Collateral Schedule identifying the Mortgage Notes offered as
security for the Obligations and setting forth the Collateral Value
-17-
<PAGE>
attributed to each such item at the time of delivery thereof, as required by
Section 4.02 hereof, Borrower shall deliver to Bank the following items with
- ------------
respect to the Mortgage Notes thereby offered as security:
(a) the original of each Mortgage Note referenced in such Collateral
Schedule, endorsed as follows:
"Pay to the order of ____________________, ______________________.
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a Home, Inc.
By: _______________________
Name:___________________
Title:__________________"
(b) the original filed copy, or a copy of the original filed copy,
certified by the title company that insured title to the mortgaged
property, as being true and complete, of the Mortgage relating to each
Mortgage Note;
(c) an original assignment (leaving the name of the assignee blank)
executed by Borrower, for each Mortgage Note and the Mortgage securing such
Mortgage Note, in recordable form, and otherwise in form satisfactory to
the Bank [and if the Borrower is not the named payee on the face of such
Mortgage Note, copies (bearing evidence of recordation or certification by
the Borrower that such intervening assignment has been sent to the
appropriate Governmental Authority for recordation) of all intervening
assignments of such Mortgage Note and the related Mortgage];
(d) Evidence satisfactory to Bank that all Mortgage Loans pledged as
Collateral hereunder including those listed on the Collateral Schedule are
Covered Mortgage Loans and no later than the Business Day following the
date of the Credit Request, Borrower shall deliver to Bank a true and
complete photocopy (or if requested by Bank, an original) of the executed
Take-Out Commitment relating to such Mortgage Note; and
(e) a true and complete photocopy of the closing instructions
executed by Borrower and the title company closing the transaction (which
shall not be an Affiliate of Borrower) evidenced by such Mortgage Note,
along with a copy of the title commitment, borrower's closing statement
showing among other items payment of the title insurance policy premium and
evidence of compliance with the Federal Truth in Lending Act and the Real
Estate Settlement Procedures Act;
provided, however, that if the requested Borrowing is a Wet Advance, the items
specified in Sections 3.02(a) through 3.02(e) shall be delivered by Borrower to
-----------------------
the Bank at the time specified in Section 2.03 (b). Borrower shall hold in
----------------
trust for the Bank, with respect to each Mortgage Note, a mortgagee policy of
title insurance insuring Borrower's perfected, first-priority Lien (and in the
case of a Second Lien Mortgage Loan, a second-priority lien) created by the
Mortgage securing such Mortgage Note, the original insurance policies referred
to in Section 6.06 hereof, if required by Appraisal Laws and Regulations, an
------------
Appraisal complying with the Appraisal Laws and Regulations and all other
original documents executed in connection with such Mortgage Note and not
delivered to the Bank, and shall specifically identify such items in the Credit
Request and upon request of the Bank shall immediately deliver such items to the
Bank. The Bank in its reasonable discretion may reject as unsatisfactory any
items so delivered and in such event such Mortgage Loans shall have a Collateral
Value of zero.
-18-
<PAGE>
Section 3.03 Power of Attorney. Borrower hereby irrevocably appoints the
-----------------
Bank its attorney in fact, with full power of substitution, for and on behalf
and in the name of Borrower, to (i) endorse and deliver to any Person any check,
instrument or other paper coming into the Bank's possession and representing
payment made in respect of any Mortgage Note delivered hereunder as Mortgage
Collateral or in respect of any other collateral or Take-Out Commitment; (ii)
prepare, complete, execute, deliver and record any assignment of any Mortgage to
the Bank or to any other Person; (iii) endorse and deliver any Mortgage Note
delivered hereunder as Mortgage Collateral, and to do every other thing
necessary or desirable to effect transfer of all or any part of the Mortgage
Collateral to the Bank or to any other Person; (iv) take all necessary and
appropriate action with respect to all Obligations and the Mortgage Collateral
to be delivered to the Bank or held by Borrower in trust for the Bank; (v)
commence, prosecute, settle, discontinue, defend, or otherwise dispose of any
claim relating to any Take-Out Commitment or any part of the Mortgage
Collateral; and (vi) sign Borrower's name wherever appropriate to effect the
performance of this Agreement. This section shall be liberally, not
restrictively, construed so as to give the greatest latitude to Bank's power, as
attorney-in-fact, to collect, sell, and deliver any of the Mortgage Collateral
and all other documents relating thereto. The powers and authorities herein
conferred on the Bank may be exercised by the Bank through any Person who, at
the time of the execution of a particular instrument, is an officer of the Bank.
The power of attorney conferred by this Section 3.03 shall be effective upon the
------------
occurrence of an Event of Default and is grounds for a valuable consideration
and is coupled with an interest and irrevocable so long as the Obligations, or
any part thereof, shall remain unpaid or the Commitment is outstanding. All
Persons dealing with the Bank, or any officer thereof acting pursuant hereto, or
any substitute, shall be fully protected in treating the powers and authorities
conferred by this Section 3.03 as existing and continuing in full force and
------------
effect until advised by the Bank that the Obligations have been fully and
finally paid and satisfied and the Commitment has been terminated.
Section 3.04 Redemption of Mortgage Collateral.
---------------------------------
(a) Generally. So long as no Default or Event of Default shall be in
---------
existence, the Borrower may obtain the release of Bank's security interest
in all or any part of the Mortgage Collateral at any time, and from time to
time, by paying to the Bank as a repayment hereunder, the Collateral Value
of the Mortgage Collateral to be so released and curing any Net Collateral
Deficit which may be occasioned thereby in accordance with Section 2.05.
------------
Any such release shall be evidenced by the return to Borrower of the
Mortgage Note and all other Mortgage Loan documents relating to such
Mortgage Note in the possession of Bank evidencing the Mortgage Collateral
to be released with Bank's accompanying written acknowledgment that such
Mortgage Collateral is released from the Bank's security interest.
(b) Net Collateral Surplus. In the event of the existence of a Net
----------------------
Collateral Surplus and so long as no Default or Event of Default shall be
in existence, Borrower may from time to time request and obtain from the
Bank the release of the Bank's security interest in such of the Mortgage
Collateral as constitutes a Net Collateral Surplus. Any such release shall
be evidenced by the return to Borrower of the Mortgage Note and all other
Mortgage Loan documents relating to such Mortgage Note in the possession of
Bank evidencing the Mortgage Collateral to be released with the Bank's
accompanying written acknowledgment that such Mortgage Collateral is
released from the Bank's security interest.
(c) Redemption Pursuant to Sale. Borrower may from time to time sell
---------------------------
Mortgage Collateral pursuant to a Take-Out Commitment or otherwise. Upon
the receipt by the Bank of a request from Borrower, and so long as no
Default or Event of Default shall be in existence:
(i) The Bank shall deliver to the Investor (under Bank's
Bailee Letter in the form attached hereto as Exhibit "E") the items of
-----------
Mortgage Collateral being sold which are held by Bank pursuant to
Section 3.02 hereof, with the release of Bank's security interest in
------------
such items being conditioned upon timely payment to Bank of the amount
described in Subsection 3.04(c)(iii);
-----------------------
-19-
<PAGE>
(ii) Borrower shall, as agent for the Bank, deliver to such
Investor the items held by Borrower pursuant to Section 3.02 hereof;
------------
and
(iii) Within a period of time acceptable to Bank, but in no
event more than ten (10) days after the delivery by Bank to such
Investor of the items of Mortgage Collateral described in Subsection
----------
3.04(c)(i), Borrower shall cause the Investor to pay directly to the
----------
Bank, as a repayment hereunder an amount equal to the Collateral Value
of such Mortgage Collateral (such Collateral Value being determined as
of the date such Mortgage Collateral was first delivered by Borrower
to the Bank).
Notwithstanding the foregoing, prior to the delivery to an Investor of
Mortgage Collateral as provided in Section 3.04(c)(i) Bank in its sole
------------------
discretion may require (i) receipt of an amount equal to the Collateral Value of
such Mortgage Collateral, or (ii) a written agreement executed by the applicable
Investor as to such matters as Bank may require relating to (A) Bank's
continuing security interest in the Mortgage Collateral to be delivered, and (B)
payment of the Collateral Value of such Mortgage Collateral upon delivery.
(d) Continuation of Lien. The security interest granted to the Bank
--------------------
in all Mortgage Collateral transmitted pursuant to Subsection 3.04(c)
------------------
shall continue in effect until such time as the Bank shall have received
the payment described in Subsection 3.04(c)(iii).
-----------------------
(e) Application of Proceeds; No Duty. Subject to the next sentence
--------------------------------
of this subsection 3.04(e), the Bank shall be under no duty at any time to
------------------
credit Borrower for any amounts due from any Investor in respect of any
purchase of any Mortgage Collateral contemplated under Section 3.04(c)
---------------
above, until the Bank has actually received immediately available funds for
such Mortgage Collateral in the amount required pursuant to Subsection
----------
3.04(c)(iii). Any funds so received will be treated as payments under and
------------
processed and applied in accordance with Section 2.06. The Bank shall be
------------
under no duty at any time to collect any amounts or otherwise enforce any
obligations due from any Investor in respect of any such purchase.
(f) Mandatory Redemption of Mortgage Collateral. Borrower shall,
-------------------------------------------
within three (3) Business Days after an event requiring mandatory
redemption of Mortgage Collateral and the reasonable request of the Bank at
any time during the term hereof, (i) pay to the Bank in immediately
available funds the Collateral Value of any Mortgage Collateral designated
by the Bank (except to the extent of any Net Collateral Surplus), or (ii)
deliver to the Bank other Mortgage Collateral in substitution for such
designated Mortgage Collateral, the Collateral Value of which substituted
Mortgage Collateral is equal to or greater than the Collateral Value of the
Mortgage Collateral being replaced.
Events requiring mandatory redemption of Mortgage Collateral are as
follows:
(1) Within the earlier to occur of (A) the date in which the
time limit provided in the applicable Take-Out Commitment with respect
to any Mortgage Loan expires or (B) the date that is (I) sixty (60)
days following the date of delivery to the Bank for any type of
Mortgage Loan such Mortgage Loan shall not have been sold or exchanged
for other Mortgage Collateral; or the issuer of such Take-Out
Commitment shall decline to purchase such Mortgage Loan for any
reason, including without limitation, for the reason that such
Mortgage Loan was not made in compliance with applicable federal
and/or state laws or regulations; or
(2) Any obligor of a Mortgage Loan shall have contested the
validity of the Mortgage Loan pursuant to the Federal Truth in Lending
Act, the Real Estate Settlement Procedures Act, the Equal Credit
Opportunity Act, or any other federal or state law or regulation,
-20-
<PAGE>
or any such Mortgage Loan shall have been rescinded, or the Bank, in
its sole judgment, determines that such Mortgage Loan is not in
compliance with applicable federal and/or state laws or regulations;
or
(3) The obligor of any Mortgage Loan shall have failed to
perform any obligation required to be performed thereunder or under
the related Mortgage or any other related document, which failure
shall have continued for a period of more than forty-five (45) days,
or foreclosure or similar proceedings shall have been commenced and
are continuing with respect to any such Mortgage Loan; or
(4) Any of the Mortgage Collateral or the property covered
thereby shall become subject to any Lien (other than a Lien for taxes
which are not delinquent) which is not inferior to the Lien of the
Loan Documents, and such Lien shall not be discharged, or provision
for such discharge satisfactory to the Bank shall not have been made,
within five (5) days after written notice is sent by the Bank to
Borrower, or after Borrower otherwise obtains knowledge of such Lien;
or
(5) Any Mortgage deposited as Mortgage Collateral shall not
continue to be (A) a valid and enforceable first Lien (or second Lien
in the case of Second Lien Mortgage Loans, Conventional Equity
Recovery Loan, Conventional Home Improvement Loan, or Conventional
Purchase Money Second Lien Loan) on the mortgaged property covered
thereby, and in compliance with all laws applicable thereto, (B)
insured in favor of Borrower and its assignees by a reputable, duly
licensed title insurance company acceptable to the Bank under a policy
of title insurance in the full amount of the loan related thereto, (C)
in full force and effect, and (D) fully serviced by or for Borrower
(including the collection of all amounts due thereon); or
(6) Any issuer of a Take-Out Commitment covering a Mortgage Loan
held by or for the Bank as Mortgage Collateral hereunder shall have
bankruptcy, insolvency, reorganization, liquidation, receivership, or
similar proceedings or actions, including a general assignment for the
benefit of creditors, instituted by or against such issuer; or
(7) Any Mortgage Loan ceases to be subject to the related Take-
Out Commitment; or
(8) Any Mortgage Loan ceases to conform to the eligibility
requirements published and established from time to time by FNMA, GNMA
or FHLMC, as applicable, or ceases to conform to the requirements of a
Take-Out Commitment acceptable to the Bank; or
(9) Any Documents required relating to any Mortgage Loan
described in any Delivery Commitment Certificate shall not have been
received by the Bank on or before the fifth (5th) Business Day
following the date such Mortgage Loan was first counted as Mortgage
Collateral hereunder.
(g) Subsequent to an Event of Default, references made to Sections 8.02
--------------------------------- -------------
hereof and Section 5 of the Security Agreement (collectively, the "Other
--------- -----
Provisions") for certain rights of the Bank to dispose of the Collateral
----------
upon the occurrence of an Event of Default. In the event of any conflict
between the Other Provisions and the provisions of this Section 3.04, the
------------
Other Provisions shall be controlling.
Section 3.05 Correction of Mortgage Notes. Borrower may from time to time
----------------------------
request that the Bank transfer a Mortgage Note (the "Correction Note") that
---------------
constitutes Mortgage Collateral so that such Mortgage Note
-21-
<PAGE>
may be corrected by the maker of such Mortgage Note. Upon receipt by the Bank of
such a request from Borrower, and so long as no Default or Event of Default
shall be in existence, the Bank shall deliver to the Borrower in trust, with
Borrower acting as the agent and bailee of Bank, pursuant to the Borrower's
"Trust Receipt and Bailee Letter" in the form attached hereto as Exhibit "F",
------------------------------- -----------
the Correction Note with the temporary transfer of the Note being conditioned
upon the prompt return (but in no event later than fourteen (14) days from the
date of delivery from Bank to Borrower) to the Bank of the Correction Note in
form and content acceptable to Bank; provided, that (i) at no time shall there
--------
be more than $200,000.00 of Correction Notes (such value being determined by the
Collateral Value assigned to such Mortgage Notes when they were delivered to the
Bank by Borrower hereunder) in the possession of Borrower and (ii) in the event
any Correction Note is not returned to Bank within fourteen (14) days, Borrower
shall pay to Bank no later than the fourteenth (14th) day the Collateral Value
attributed to such Correction Note.
Section 3.06 Concerning the Funding Account, the Settlement Account and
----------------------------------------------------------
the Operating Account. The Borrower hereby expressly acknowledges that the
- ---------------------
Funding Account, the Settlement Account and the Operating Account are subject in
all respects to the right of offset in favor of the Bank granted under Section
-------
11.12. Further, it is expressly agreed that:
- -----
(a) the Funding Account shall be subject to the sole dominion and control
of the Bank who shall disburse amounts from time to time on deposit therein in
accordance with the terms of Section 6.11 of this Agreement;
------------
(b) the Settlement Account shall be subject to the sole dominion and
control of the Bank who shall disburse amounts from time to time on deposit
therein in accordance with the terms of this Agreement;
(c) subject to the right of offset in favor of the Bank, the Operating
Account shall be subject to the sole dominion and control of the Borrower;
(d) nothing other than proceeds of Borrowings shall be deposited in the
Funding Account;
(e) the Settlement Account shall only be used for (i) proceeds from the
sale or other disposition of Collateral and (ii) the payment of the Obligations;
(f) proceeds of Advances, other than in respect of Wet Advances, shall be
disbursed by the Bank from the Funding Account to the Operating Account for use
by the Borrower in accordance with the terms of Section 6.10 of this Agreement;
------------
(g) proceeds of Borrowings in respect of Wet Advances shall either be
wired directly from the Funding Account to such title company as the Borrower
may identify or be disbursed pursuant to checks drawn on the Funding Account;
and
(h) proceeds from the redemption of Mortgage Collateral shall be deposited
in the Settlement Account.
Section 3.07 Representations and Warranties Regarding Mortgage Notes.
---------------------------------------- --------------
Effective with the delivery of the Credit Request on which such Mortgage Note is
identified, the Borrower represents and warrants to Bank with respect to each
Mortgage Note that:
(a) The Borrower (and, if the Borrower did not originate the loan
evidenced by such Mortgage Note, the originator of such loan) complied, and the
Mortgage Collateral comply, in all material respects with all applicable
Requirements of Law, including, without limitation, (i) any usury laws, (ii) the
Real Estate Settlement Procedures Act of 1974, as amended, (iii) the Equal
Credit Opportunity Act, as amended, (iv) the Federal Truth
-22-
<PAGE>
in Lending Act, as amended, (v) Regulation Z of the Board of Governors of the
Federal Reserve System, as amended, and (vi) any consumer protection laws;
(b) the full Face Amount of such Mortgage Note (less any discount points
paid by or on behalf of the borrower under such Mortgage Note) was funded to the
borrower thereunder and any such discount points paid were normal and customary;
(c) such Mortgage Note is "covered," within the meaning of Section 6.19,
------------
by a Take-Out Commitment and was underwritten in compliance with the
requirements of the Investor under such Take-Out Commitment;
(d) the Mortgage related to such Mortgage Note creates a perfected first-
priority Lien (or second-priority Lien in the case of Second Lien Mortgage Loan,
Conventional Equity Recovery Loan, Conventional Home Improvement Loan, or
Conventional Purchase Money Second Lien Loan) on residential real property
consisting of land and a one-to-four family dwelling thereon which is completed
and ready for occupancy and such Mortgage, the title policy relevant thereto and
the other Mortgage documents relevant thereto comply in all respects with the
requirements of the Investor under the Take-Out Commitment by which such
Mortgage Note is "covered;
(e) the Mortgage Loan qualifies under the definition of Mortgage Loan; and
(f) the Borrower has all requisite power and authority to grant the Bank a
security interest in such Mortgage Loan.
In the event that any of the representations and warranties contained in
Sections 3.07(a), (c) and (d) is at any time incorrect, with respect to such
- --------------------- --
Mortgage Note(s) which causes such representation and warranty to be incorrect,
Borrower shall within three (3) Business Days after the request of the Bank pay
to the Bank in immediately available funds the Collateral Value of such Mortgage
Collateral designated by the Bank at which time such Mortgage Collateral will be
returned by Bank to Borrower and shall be considered redeemed Collateral. After
the expiration of such three (3) day period without the required payment by
Borrower, such failure by Borrower to make such payment shall result in an Event
of Default under Section 8.01(b) hereof. With respect to a misrepresentation
---------------
and breach of warranty under Section 3.07(b), such misrepresentation shall be an
---------------
Event of Default under Section 8.01(b) hereof without any notice and opportunity
---------------
to cure period.
Section 3.08 Borrower Appointed Agent. The Bank hereby appoints the
------------------------
Borrower (and, in the case of any loan evidenced by a Mortgage Note originated
by a Person other than the Borrower, also appoints such other Person) as its
agent for purposes of (a) obtaining Appraisals with respect to the property
covered by the Mortgages which relate to the Mortgage Notes and (b) complying
with Appraisal Laws and Regulations.
ARTICLE IV
----------
CONDITIONS PRECEDENT
--------------------
The obligation of the Bank to make Advances hereunder is subject to
fulfillment of the conditions precedent stated in this Article IV.
----------
Section 4.01 Initial Advance. The obligation of Bank to make the initial
---------------
Advance hereunder shall be subject to, in addition to the conditions precedent
specified in Section 4.02 hereof, delivery to the Bank of the following (each of
------------
the following documents being duly executed and delivered and in form and
substance satisfactory to the Bank):
-23-
<PAGE>
(a) executed counterparts of this Agreement and of all instruments,
certificates and opinions referred to in this Article IV not theretofore
----------
delivered;
(b) the Note;
(c) a Security Agreement and Financing Statement, in form and
substance acceptable to the Bank, granting to the Bank a perfected, first
priority security interest in all Collateral required to be pledged to the
Bank;
(d) an Omnibus Certificate (herein so called) of the Secretary or
Assistant Secretary of Borrower containing (i) resolutions of Borrower's
board of directors authorizing the execution and performance of the Note,
this Agreement and any Loan Documents provided herein and identifying the
officers of Borrower authorized to sign such instruments, (ii) specimen
signatures of the officers so authorized and (iii) a copy, certified as
true by the Secretary or Assistant Secretary of Borrower, of the articles
or certificate of incorporation and the bylaws of Borrower, together with
all amendments thereto;
(e) [INTENTIONALLY DELETED.];
(f) such other documents and submissions as Bank may reasonably
request at any time at or prior to the date of the initial Advance
hereunder;
(g) the Commitment Fees referred to in Section 11.02; and
-------------
(h) the Custodian Fees referred to in Section 11.03."
-------------
Section 4.02 All Borrowings. The obligation of the Bank to make any
--------------
Advance and to fund any Borrowing pursuant to this Agreement is subject to the
following further conditions precedent:
(a) (i) prior to 9:00 p.m. (Dallas, Texas time) on the Business Day
prior to the Borrowing Date, Borrower shall give to the Bank telephonic or
telecopy notice of the amount of such Borrowing and (ii) prior to 10:30
a.m. (Dallas, Texas time) on each Borrowing Date, Bank shall have received
from the Borrower via telecopy or Federal Express an executed Credit
Request;
(b) along with each Credit Request, Borrower shall telecopy or
Federal Express for receipt prior to the deadline stated in Section
-------
4.02(a)(ii) to the Bank a Collateral Schedule, identifying the Mortgage
-----------
Notes offered pursuant to such Credit Request as security for the
Obligations;
(c) prior to the deadlines stated in Section 2.03(b)(i), Borrower
------------------
shall deliver to the possession of the Bank (i) all of the items required
to be delivered to the Bank by Section 2.03(b)(i) if the Credit Request is
------------------
for a Wet Advance, or (ii) all the items required to be delivered to the
Bank by Section 3.02 if the Credit Request is for a Dry Advance;
------------
(d) the representations and warranties of Borrower contained in this
Agreement or any Loan Document (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;
(e) no Default or Event of Default shall have occurred and be
continuing as of the date of such Advance;
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<PAGE>
(f) no circumstance or event, as determined by the Bank in its
reasonable discretion, having a Material Adverse Effect shall have occurred
and be continuing;
(g) the Funding Account, the Settlement Account and the Operating
Account shall be established and in existence;
(h) if the Credit Request is with respect to a Wet Advance, the
requirements of Section 2.03(b) shall be satisfied; and
---------------
(i) no Net Collateral Deficit shall exist.
Each Credit Request shall be deemed to constitute a representation and warranty
by Borrower on the date of the requested Advance as to the facts specified in
Sections 4.02(d), (e) and (f).
- ---------------- --- ---
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into this Agreement, and to make
Advances to Borrower, Borrower represents and warrants to the Bank that:
Section 5.01 Organization and Good Standing. Borrower is a corporation
------------------------------
duly incorporated and existing in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in all jurisdictions in which it conducts business and has
the corporate power and authority to own its properties and assets and to
transact the business in which it is engaged and is or will be qualified in
those states wherein it proposes to transact business in the future.
Section 5.02 Authorization and Power. Borrower has the corporate power and
-----------------------
requisite authority to execute, deliver and perform this Agreement, the Note and
the Loan Documents to be executed by it; Borrower is duly authorized to, and has
taken all corporate action necessary to authorize it to, execute, deliver and
perform this Agreement, the Note and the Loan Documents to be executed by it and
is and will continue to be duly authorized to perform this Agreement, the Note
and such Loan Documents.
Section 5.03 No Conflicts or Consents. Neither the execution and delivery
------------------------
of this Agreement, the Note or the Loan Documents, 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, statute or
regulation to which Borrower is subject or any judgment, license, order or
permit applicable to Borrower, or any indenture, mortgage, deed of trust, or
other agreement or instrument to which Borrower is a party or by which Borrower
may be bound, or to which Borrower may be subject, or violate any provision of
the Articles of Incorporation or Bylaws of Borrower.
Section 5.04 Enforceable Obligations. This Agreement, the Note and the Loan
-----------------------
Documents are the legal, valid and binding obligations of Borrower, enforceable
in accordance with their respective terms.
Section 5.05 Priority of Liens. The Bank has a valid, enforceable,
-----------------
perfected, first priority Lien and security interest in each Mortgage Note
heretofore delivered to the Bank by the Borrower and upon delivery to the Bank
of each Credit Request, the Bank shall have a valid, enforceable, perfected,
first priority Lien and Security Interest in each Mortgage Note identified
therein or delivered therewith. The Bank has a valid, enforceable,
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<PAGE>
perfected and first priority Lien and Security Interest in the Borrower's
interest in each Take-Out Commitment relating to the Mortgage Collateral except
to the extent disclosed in a written notice by Borrower to Bank.
Section 5.06 No Liens. All the Mortgage Collateral is free and clear of
--------
all Liens and other adverse claims of any nature, other than the Liens of Bank,
and Borrower has good and indefeasible title to such Mortgage Collateral.
Section 5.07 Financial Condition. Borrower has delivered to the Bank
-------------------
copies of the balance sheets of Borrower dated March 31, 1996 and the related
statements of income, stockholders' equity and changes in financial position for
the year ended such date; such financial statements fairly present the financial
condition of Borrower as of such date and have been prepared in accordance with
GAAP, subject to normal year-end adjustments; as of the date thereof, there were
no obligations, liabilities or Indebtedness (including material contingent and
indirect liabilities and obligations or unusual forward or long-term
commitments) of Borrower which are not reflected in such financial statements;
no change having a Material Adverse Effect has occurred since the date of such
financial statements.
Section 5.08 Full Disclosure. There is no material fact that Borrower have
---------------
not disclosed to the Bank which could adversely affect the properties, business,
prospects or condition (financial or otherwise) of Borrower or could adversely
affect the Mortgage Collateral. Neither the financial statements referred to in
Section 5.07 hereof, nor any certificate or statement delivered herewith or
- ------------
heretofore by Borrower to the Bank in connection with negotiation of this
Agreement, contains any untrue statement of material fact.
Section 5.09 Material Agreements. Borrower is not in default (and no event
-------------------
exists which with notice or the passage of time could become a default) under
any loan agreement, mortgage, security agreement or other material agreement or
obligation to which it is a party or by which any of its properties is bound
including but not limited to the Loan Documents.
Section 5.10 No Litigation. There are no actions, suits or legal,
-------------
equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower threatened, against Borrower, which either individually or
in the aggregate would have a Material Adverse Effect.
Section 5.11 Taxes. All tax returns required to be filed by the Borrower
-----
in any jurisdiction have been filed and all taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its 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 and with
respect to which reserves in conformity with GAAP have been established on the
books of Borrower. The Borrower has no knowledge of any proposed tax assessment
against Borrower.
Section 5.12 Principal Office, etc., Taxpayer Identification Number. The
------------------------------------------------------
principal office, chief executive office and principal place of business of
Borrower is at 6836 Austin Center Blvd., Suite 280, Austin, Texas 78731.
Borrower's mailing address is 6836 Austin Center Blvd., Suite 280, Austin, Texas
78731. Borrower's taxpayer identification number is 74-2674353.
Section 5.13 Employee Benefit Plans.
----------------------
(a) Neither Borrower nor any Subsidiary of Borrower, nor any of their
respective ERISA Affiliates, nor any Plan, is in material violation of any
provision of ERISA or any other applicable state or federal law, including
the Code.
(b) No Prohibited Transaction or Reportable Event has occurred with
respect to any Plan.
-26-
<PAGE>
(c) No notice of intent to terminate a Plan has been filed within the
24-month period preceding the date hereof, nor has any Plan been terminated
under Section 4041(c) of ERISA.
(d) The PBGC has not instituted proceedings to terminate, or appoint
a trustee to administer, any Plan and no event or condition has occurred or
exists which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
(e) Neither Borrower nor any Subsidiary of Borrower, nor any of their
respective ERISA Affiliates has incurred or expects to incur any withdrawal
liability to any multiemployer plan within the meaning of Section
4001(a)(3) of ERISA.
(f) Each Plan meets the minimum funding requirements of Section 412
of the Code and no waiver from such minimum funding requirements has been
applied for or approved pursuant to Section 412(d) of the Code.
(g) No fact exists that could result in any material liability other
than as disclosed on Borrower's financial statements) to Borrower relating
to any former Plan.
(h) No amendment to any Plan has been adopted such that security is
required to be given pursuant to Section 401(a)(29) of the Code, and no
lien exists under Section 412(n) of the Code with respect to any Plan.
(i) With respect to each Plan, the value of unfunded benefit
liabilities (within the meaning of Section 4001(a)(18) of ERISA) does not
exceed $50,000.
(j) Neither the Borrower nor any Subsidiary of Borrower maintains any
plan, arrangement, or commitment which provides medical or dental benefits
to an employee or the employee's dependents after the employee terminates
employment, other than as provided in the continuation coverage provisions
of the Code and ERISA.
Section 5.14 Ownership. HomeCapital Investment Corporation owns,
---------
beneficially and of record, 100% of the issued and outstanding shares of each
class of the stock of Borrower.
Section 5.15 Subsidiaries. As of the date hereof, Borrower has no
------------
subsidiaries. As of the date hereof, Borrower does not own, directly or
indirectly, any interest in any Person.
Section 5.16 Indebtedness. As of the date hereof, Borrower has no
------------
Indebtedness outstanding other than the Note and the Indebtedness listed on
Exhibit "G".
- -----------
Section 5.17 Permits, Patents, Trademarks, etc.
---------------------------------
(a) Borrower has all permits and licenses necessary for the operation of
its business, except where the failure to have such permits or licenses does not
have a Material Adverse Effect upon the operation of its business.
(b) Borrower owns or possesses (or is licensed or otherwise has the
necessary right to use) all patents, trademarks, service marks, trade names and
copyrights, technology, know-how and processes, and all rights with respect to
the foregoing, which are necessary for the operation of its business, without
any known material conflict with the rights of others. The consummation of the
transactions contemplated hereby will not alter or impair in any material
respect any of such rights of Borrower.
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<PAGE>
Section 5.18 Status Under Certain Federal Statutes. Borrower is not (a) a
-------------------------------------
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility", as such term is defined in the Federal
Power Act, as amended, (c) an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1949, as amended, or (d) a "rail carrier", or a "person controlled by or
affiliated with a rail carrier", within the meaning of Title 49, U.S.C., and
Borrower is not a "carrier" to which 49 U.S.C. (S) 11301(b)(1) is applicable.
Section 5.19 Securities Acts and Securities Credit Transaction Regulations.
------------------------------------- -----------------------
The Borrower has not issued any unregistered securities in violation of the
Securities Act of 1933, as amended, or of any other Requirement of Law, and is
not violating any rule, regulation, or requirement under the Securities Act of
1933, as amended, or the Securities and Exchange Act of 1934, as amended. The
Borrower is not required to qualify an indenture under the Trust Indenture Act
of 1939, as amended, in connection with its execution and delivery of the Note.
The Borrower is not a party, whether as a customer or a creditor, to any
transaction that is subject to the Securities Credit Transaction Regulations.
Section 5.20 No Approvals Required. Other than consents and approvals
---------------------
previously obtained and actions previously taken, neither the execution and
delivery of this Agreement, the Note and the Loan Documents, nor the
consummation of any of the transactions contemplated hereby or thereby requires
the consent or approval of, the giving of notice to, or the registration,
recording or filing by Borrower of any document with, or the taking of any other
action in respect of, any Person.
Section 5.21 No Insider. Neither the Borrower nor any Person having
----------
"control" (as defined in 12 U.S.C. (S)375(b)(9) and the regulations promulgated
pursuant thereto) of the Borrower is, an "executive officer," "director," or
"principal shareholder" (as such terms are defined in 12 U.S.C. (S)375(b)(9) and
the regulations promulgated pursuant thereto) of any Bank, of any bank holding
company of which any Bank is a Subsidiary, or of any Subsidiary of any bank
holding company of which any Bank is a Subsidiary.
Section 5.22 Governmental Requirements. Borrower is in compliance with all
-------------------------
Governmental Requirements, the non-compliance of which would have a Material
Adverse Effect.
Section 5.23 Eligibility. Borrower is an eligible FHA mortgagee, FNMA
-----------
seller/servicer, GNMA servicer, FHLMC servicer, is approved by GNMA as an issuer
of GNMA Securities, by FNMA to be a lender with regard to FNMA Securities, by
FHLMC to be a seller with regard to FHLMC Securities, and is eligible as a
lender under the VA loan guaranty program.
Section 5.24 Solvency. Borrower is not "insolvent" on the date hereof
--------
(that is, the sum of Borrower's absolute and contingent liabilities, including
Borrower's obligations to the Bank, does not exceed the fair market value of
Borrower's assets). Borrower's capital is adequate for the businesses in which
Borrower is engaged and intends to be engaged. Borrower has not hereby
incurred, nor does Borrower intend to incur or believe that it will incur, debts
which will be beyond its ability to pay as such debts mature.
Section 5.25 Environmental Laws. (i) the Related Persons are conducting
------------------
their businesses in material compliance with all applicable federal, state or
local laws, including without limitation those pertaining to environmental
matters; (ii) none of the operations of any Related Person is the subject of
federal, state or local investigation evaluating whether any material remedial
action is needed to respond to a release of any hazardous or toxic waste,
substance or constituent into the environment; (iii) no Related Person (and to
the best knowledge of Borrower, no other Person) has filed any notice under any
federal, state or local law indicating that any Related Person is responsible
for the release into the environment, or the improper storage, of any material
amount of any hazardous or toxic waste, substance or constituent or that any
such waste, substance or constituent has been
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<PAGE>
released, or is improperly stored, upon any property of any Related Person; (iv)
no Related Person otherwise has any known material contingent liability in
connection with the release into the environment, or the improper storage, of
any such waste, substance or constituent; and (v) to Borrower's knowledge, no
Property securing a Mortgage Loan contains any hazardous material and complies
with all applicable environmental laws.
Section 5.26. Use of Proceeds, Margin Stock. Borrower is in compliance
-----------------------------
with Section 6.10.
------------
Section 5.27. Take-Out Commitments. Borrower represents and warrants to
--------------------
Bank that all Mortgage Loans submitted to Bank as Collateral are and shall be
covered by Take-Out Commitments and Borrower has sufficient Take-Out Commitments
to cover each and every Mortgage Loan serving as Collateral hereunder.
Section 5.28 Assumed Names. Since the date which is five (5) years prior
-------------
to the date hereof, the Borrower has not engaged in any business under any name,
assumed name or trade name other than HomeOwners Mortgage & Equity, Inc., a
Delaware corporation d/b/a Home, Inc.
Section 5.30. Survival of Representations. All representations and
---------------------------
warranties by Borrower herein (other than representations and warranties which
by their terms are limited to the time initially made) shall survive delivery of
the Note and the making of the Advances, and any investigation at any time made
by the Bank shall not diminish the right of the Bank to rely thereon.
ARTICLE VI
----------
AFFIRMATIVE COVENANTS
---------------------
Borrower shall at all times comply with the covenants contained in this
Article VI from the date hereof and for so long as any part of the Obligations
- ----------
or the Commitment of the Bank is outstanding.
Section 6.01 Financial Statements and Reports. Borrower shall furnish to
--------------------------------
Bank the following, all in form and detail reasonably satisfactory to Bank,
prepared in accordance with GAAP and with a Certificate Accompanying Financial
Statements in the form of Exhibit "H" attached;
-----------
(a) As soon as available and in any event within one hundred twenty
(120) days after the close of each fiscal year of Borrower, copies of the
consolidated and consolidating balance sheet of Borrower as of the close of
such fiscal year and consolidated statements of income and retained
earnings, cash flow statements and changes in stockholders' equity for such
fiscal year, each setting forth in comparative form the corresponding
figures for the preceding fiscal year, all in reasonable detail together
with all notes thereto and accompanied by an opinion thereon (which shall
not be qualified by reason of any limitation imposed by Borrower) by
Coopers & Lybrand LLP or by independent certified public accountants
selected by Borrower and satisfactory to Bank, to the effect that such
financial statements have been prepared in accordance with GAAP and such
other professional practices as may then conform to the usual and customary
professional standards, practices and disclosures then in existence in
connection with the preparation and publication of financial statements by
independent certified public accountants and that the examination of such
accounts in connection with such financial statements has been made in
accordance with GAAP and, accordingly, includes such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(b) As soon as available, and in any event within thirty (30) days
after the end of each month of each fiscal year of Borrower, copies of the
consolidated and consolidating balance sheet of Borrower as of the end of
such month and consolidated and consolidating statements of income and
retained earnings and cash flow statement and of changes in stockholders'
equity for such month, each setting forth in
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<PAGE>
comparative form the corresponding figures for the preceding fiscal year of
Borrower for such month and for the portion of the fiscal year ending with
such month, all in reasonable detail, and certified by the chief financial
officer of Borrower as being true and correct and as having been prepared
in accordance with GAAP;
(c) Promptly upon receipt thereof, a copy of each other report
submitted to Borrower by independent accountants in connection with any
annual, interim or special audit of the books of Borrower;
(d) As soon as available and in any event within thirty (30) days
after the end of each month in form and detail acceptable to Bank, prepared
as of the end of such month, a report setting forth (i) a commitment
position/contingent liability report indicating investor, type, original
principal amount, amounts funded and unfunded, rate, price and yield,
expiration dates, futures contracts, hedged positions, profit and loss and
repurchase agreements; (ii) a pipeline position report indicating the rate,
amount and price of Mortgage Loans in Borrower's "pipeline" and profit,
loss and exposure; (iii) a servicing delinquency report indicating, by
investor, the amount of Mortgage Loans serviced by Borrower which are
delinquent or in foreclosure with a breakdown (30, 60, 90, 120 days) for
all past-due loans including total principal balance, number of loans,
which loans Borrower is required to repurchase by an Agency or Investor,
foreclosure experience, investor type, geographic mix, weighted average
coupon, weighted average maturity and cost of servicing and (iv) a
production report;
(e) As soon as available and in any event within thirty (30) days
after delivery of such reports to any Agency, HUD, FHA or VA, Borrower
shall provide to Bank all audits, evidence, auditors certifications and
other financial information supplied to such governmental or quasi-
governmental agencies, including but not limited to, any audits or self-
compliance reviews prepared in connection with Borrower's continuing agency
certifications;
(f) Promptly and in any event within twenty (20) days after the
request of Bank at any time and from time to time, a certificate, executed
by the president or chief financial officer of Borrower, setting forth all
of Borrower's borrowings other than under this Loan;
(g) As soon as available and in any event within thirty (30) days of
filing and no later than two hundred twenty-five (225) days from the end of
each fiscal year of Borrower, copies of all tax returns filed by Borrower;
(h) Within thirty (30) days after the end of each month, a Compliance
Certificate executed by the President or Chief Executive Officer of
Borrower;
(i) As soon as available and in any event within fifteen (15) days of
their respective Securities and Exchange Commission filing due dates, the
10(K) and 10(Q) reports for HomeCapital Investment Corporation, the parent
corporation of Borrower;
(j) Promptly and in any event within five (5) days of such event,
notification of the departure of any of the following officers: President
or Executive Vice President; and
(k) Such other information, reports and loan package supporting
documentation concerning the Mortgage Loans, business, properties or
financial condition of Borrower or any Investor (in the possession or under
the control of Borrower and Borrower shall make such requests for
additional information as reasonably required by Bank), or originals or
copies of Take-Out Commitments as Bank may reasonably request. Upon two
Business Days notice to Borrower, Bank shall have the right to inspect the
books, records and procedures of Borrower at any reasonable time at any of
the Properties of Borrower, take copies and extracts from, and inspect and
discuss the procedures, affairs, finances and accounts of
-30-
<PAGE>
Borrower with Borrower's officers, accountants and auditors, all at such
reasonable times and as often as the Bank may desire. Borrower shall
furnish such reports and Mortgage Loan package supporting documentation as
the Bank shall reasonably request. Borrower shall permit and shall use all
reasonable efforts to cause each Person from whom it purchases Mortgage
Loans to permit any officer, employee or agent of Bank to visit and inspect
the properties of Borrower and such Person relevant to such compliance, to
take copies and extracts therefrom, and to discuss Appraisals relevant to
the Mortgage Loans from time to time pledged to the Bank with the
responsible officers, employees and agents (including any third party
appraisers) of the Borrower and such Person, all at such reasonable times
and as often as the Bank may desire.
Section 6.02 Taxes and Other Liens. Borrower shall pay and discharge
---------------------
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or upon any of its Property as well as all claims of any
kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien upon any or all of its Property; provided, however,
Borrower shall not be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings diligently conducted by or on
behalf of Borrower and if Borrower shall have established reserves therefor
adequate under GAAP.
Section 6.03 Maintenance. Borrower shall (i) maintain its corporate
-----------
existence, rights and franchises, (ii) observe and comply in all material
respects with all Governmental Requirements, and (iii) maintain its Properties
(and any Properties leased by or consigned to it or held under title retention
or conditional sales contracts) in good and workable condition at all times and
make all repairs, replacements, additions, betterments and improvements to its
Properties as are reasonable and proper so that the business carried on in
conjunction therewith may be conducted properly and efficiently at all times.
Section 6.04 Further Assurances. Borrower shall, within three (3) Business
------------------
Days of Bank's request, cure any defects in the execution and delivery of the
Note, this Agreement and the Loan Documents and Borrower shall, at its expense,
promptly execute and deliver to Bank upon request all such other and further
documents, agreements and instruments in compliance with or accomplishment of
the covenants and agreements of Borrower in this Agreement and in the Loan
Documents or to further evidence and more fully describe the collateral intended
as security for the Note, or to correct any omissions in the Loan Documents, or
more fully to state the security obligations set out herein or in any of the
Loan Documents, or to perfect, protect or preserve any Liens created (or
intended to be created) pursuant to any of the Loan Documents, or to make any
recordings, to file any notices, or obtain any consents.
Section 6.05 Reimbursement of Expenses. Borrower shall pay (i) all
-------------------------
reasonable legal fees incurred by the Bank in connection with the preparation,
negotiation or execution of this Agreement, the Note and the Loan Documents and
any amendments, modifications, renewals, extensions, consents or waivers
executed in connection therewith, (ii) all fees, charges or taxes for the
recording or filing of the Loan Documents, (iii) all out-of-pocket expenses of
the Bank incurred in connection with the administration of this Agreement, the
Note and the Loan Documents, including courier expenses incurred in connection
with the Mortgage Collateral, and (iv) all reasonable amounts expended, advanced
or incurred by the Bank to satisfy any obligation of Borrower under this
Agreement or any Loan Document or to collect the Note, or to enforce the rights
of the Bank under this Agreement or any Loan Document, which amounts shall
include all court costs, attorneys' fees and expenses (including, without
limitation, legal fees and expenses for trial, appeal or other proceedings),
fees of auditors and accountants, and investigation expenses reasonably incurred
by the Bank in connection with any such matters, together with interest at the
post-maturity rate specified in the Note on each such amount from ten (10) days
after the date of written demand or request for reimbursement until the date of
reimbursement.
Section 6.06 Insurance. Borrower 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
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<PAGE>
types and amounts as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated, including, without limitation, a
fidelity bond or bonds in form and with coverage and with a company satisfactory
to the Agencies and with respect to such individuals or groups of individuals as
the Agencies may designate, and in no event shall such insurance coverage (with
respect to types of insurance coverage and levels of insurance coverage) be less
than those required by any Agency, Investor or governmental or quasi-
governmental authority for financial institutions engaging in the origination
and servicing of Mortgages. Upon request of the Bank, Borrower shall furnish or
cause to be furnished to the Bank from time to time a summary of the insurance
coverage of Borrower and if requested shall furnish the Bank copies of the
applicable policies.
Section 6.07 Accounts and Records. Borrower 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. Borrower shall maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate all records
pertaining to the performance of Borrower's obligations under the Servicing
Agreements in the event of the destruction of the originals of such records) and
keep and maintain all documents, books, records, computer tapes and other
information reasonably necessary or advisable for the performance by Borrower of
its obligations under the Servicing Agreements.
Section 6.08 Notice of Certain Events. Borrower shall promptly notify the
------------------------
Bank upon (i) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture or other evidence of
Indebtedness of Borrower with respect to a claimed default, together with a
detailed statement by a responsible officer of Borrower specifying the notice
given or other action taken by such holder and the nature of the claimed default
and what action Borrower is taking or proposes to take with respect thereto;
(ii) the commencement of, or any determination in, any legal, judicial or
regulatory proceedings to which Borrower is a party or relating to or affecting
the Collateral or any part thereof or the security interests granted herein or
in the Security Agreement; (iii) any dispute between Borrower and any
governmental or regulatory body; (iv) any material adverse change in the
business, operations, prospects or financial condition of Borrower or any
Affiliate of Borrower, provided that in the case of an Affiliate of Borrower,
Borrower shall be required to give such notice to Bank only if Borrower has
knowledge of such material adverse change; or (v) any event or condition which
could result in a Material Adverse Effect.
Section 6.09 Performance of Certain Obligations. Borrower shall perform
----------------------------------
and observe in all respects each of the provisions of each Take-Out Commitment
and will cause all things to be done which are necessary to have each Mortgage
Loan which constitutes Mortgage Collateral covered by a Take-Out Commitment
comply with the requirements of such Take-Out Commitment.
Section 6.10 Use of Proceeds; Margin Stock. The proceeds of the Advances
-----------------------------
shall be used by Borrower solely for the funding of Mortgage Notes in the
ordinary course of business, for the payment of costs incurred by Borrower
directly relating to the funding of such Mortgage Notes including commissions
paid to non-Affiliates and for general working capital purposes. In no event
shall the funds from any Advance be used directly or indirectly by any Person
for personal, family, household or agricultural purposes or 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 or of Regulation G of the Board of Governors of the Federal Reserve
System (12 C.F.R. 207, as amended) or otherwise take or permit to be taken any
action which would involve a violation of such Regulation G or Regulation U or
Regulation T (12 C.F.R. 220, as amended) or Regulation Z (12 C.F.R. 224, as
amended) or any other regulation of such board. Neither Borrower nor any Person
acting on behalf of Borrower shall take any action in violation of Regulation U
or Regulation X or shall violate Section 7 of the Securities Exchange Act of
1933 or any rule or regulation thereunder, in each case as now in effect or as
the same may hereinafter be in effect or engage in any transaction which is
subject to the Securities Credit Transaction Regulations.
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<PAGE>
Section 6.11 Notice of Default. Borrower shall furnish to the Bank
-----------------
immediately upon becoming aware of the existence of any Default or Event of
Default, a written notice specifying the nature and period of existence thereof
and the action which Borrower is taking or proposes to take with respect
thereto.
Section 6.12 Compliance with Loan Documents. Borrower shall promptly
------------------------------
comply with any and all covenants and provisions of this Agreement, the Note and
the Loan Documents. All representations and warranties, except those which by
their terms are limited to the time initially made, contained in the Loan
Documents shall continue to be true and correct in all respects.
Section 6.13 Compliance with Material Agreements. Borrower shall comply in
-----------------------------------
all material respects with all material agreements, indentures, mortgages or
documents binding on it or affecting its properties or business.
Section 6.14 Operations and Properties. Borrower shall act prudently and
-------------------------
in accordance with customary industry standards in managing and operating its
Property.
Section 6.15 ERISA and Plans. Borrower shall promptly furnish to the Bank:
---------------
(a) Within ten (10) Business Days after the occurrence of a
Reportable Event with respect to any Plan, a copy of any materials required
to be filed with the PBGC with respect to such Reportable Event;
(b) A copy of any notice of intent to terminate a Plan, no later than
the date such notice is required to be provided to participants of such
Plan under Section 4041(a)(2) of ERISA, and copies of any notices of
noncompliance received from the PBGC under Section 4041(b)(2)(C) of ERISA,
within ten (10) Business Days after the receipt by Borrower or its
Subsidiary of such notice;
(c) Not later than ten (10) Business Days after the receipt thereof
by Borrower, any Subsidiary of Borrower, any ERISA Affiliate of Borrower or
such Subsidiary, or the administrator of any Plan, a copy of any notice to
Borrower or such Subsidiary that the PBGC has instituted proceedings to
terminate such Plan or to appoint a trustee to administer such Plan;
(d) A statement from the chief financial officer of Borrower
describing any event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of any Plan or for the
appointment of a trustee to administer any Plan, within ten (10) Business
Days after Borrower knows or has reason to know such event or condition
exists; and
(e) Within ten (10) Business Days after receipt thereof by Borrower
or any ERISA Affiliate of Borrower, a copy of any notice concerning the
imposition of any withdrawal liability under Section 4202 of ERISA.
Section 6.16 Maintenance of Collateral. Borrower will keep and maintain
-------------------------
at all times each Mortgage securing the Mortgage Notes constituting Mortgage
Collateral or other instruments or documents evidencing Mortgage Collateral held
by or for Bank (i) as a valid and enforceable lien on the mortgaged property
covered thereby, enforceable and in compliance with all laws applicable thereto;
(ii) insured in favor of Borrower and its assignees by a reputable, duly
licensed title insurance company (which is not an Affiliate of Borrower), under
a mortgagee policy of title insurance in the full amount of the loan related
thereto; and (iii) in full force and effect, without any default. The
improvements on the land covered by each Mortgage relating to a Mortgage Note
constituting Mortgage Collateral shall be kept continuously insured at all times
by reasonable insurance companies against fire and extended coverage hazards
under policies, binders, letters, or certificates of insurance, with a standard
mortgagee clause in favor of Borrower and its assigns. Borrower shall, and does
hereby, assign all such insurance to the Bank only so long as the related
Mortgage Note shall constitute Mortgage Collateral. Each such
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policy must be in an amount equal to the lesser of the maximum insurable value
of the improvements or the original principal amount of the Mortgage, without
reduction by reason of any co-insurance, reduced rate contribution, or similar
clause of the policies or binders.
Section 6.17 Servicing of Collateral. Borrower shall (i) service or cause
-----------------------
to be serviced for Bank all Mortgage Loans constituting Mortgage Collateral
hereunder and use its best efforts to effect collection of all amounts payable
thereunder as they become due; (ii) comply in all material respects with all
provisions of contracts relating to the servicing of such Mortgage Loans or
other mortgage servicing contracts to which Borrower is a party; and (iii) upon
the occurrence of an Event of Default and pursuant to the request of the Bank,
notify each obligor of such Mortgage Loan of the assignment thereof to the Bank
pursuant hereto, including in the notice instructions that such obligor shall
thereafter make all payments to Borrower as trustee for the Bank until further
notice, or directly to the Bank if the Bank shall request the same.
Section 6.18. Take-Out Commitments. The Borrower shall enter into and
--------------------
maintain Agency Commitments and Take-Out Commitments sufficient at all times to
cover each Mortgage Loan constituting Mortgage Collateral hereunder. Upon the
request of the Bank, Borrower will provide evidence satisfactory to the Bank
that (i) Borrower is in compliance with the requirements of each Take-Out
Commitment and will adhere to the procedures provided in such Take-Out
Commitment; (ii) Borrower will give notice of Bank's security interest in each
Mortgage Loan to the Investor under the Take-Out Commitment therefor and that
such notice will be given in compliance with the requirements hereof and of such
Take-Out Commitment; (iii) each Mortgage Loan can and will be assigned to the
purchaser under the Take-Out Commitment therefor; and (iv) the Bank, in the
event of such assignment, will receive the full purchase price for the Mortgage
Loans.
Section 6.19 Compliance with Agreements and Law. Each Related Person will
----------------------------------
perform all material obligations it is required to perform under the terms of
each indenture, mortgage, deed of trust, security agreement, lease, franchise,
agreement, contract or other instrument or obligation to which it is a party or
by which it or any of its properties is bound. Each Related Person will conduct
its business and affairs in compliance with all laws, regulations, and orders
applicable thereto (including those relating to pollution and other
environmental matters), including, but not limited to, all applicable HUD, FHA,
VA, FNMA, FHLMC and GNMA regulatory requirements.
Section 6.20 Maintenance of Qualifications. Borrower will not commit or
-----------------------------
suffer to be committed any act which would adversely affect its eligibility to
participate as an FHA approved mortgagee or as an approved lender under the VA
guaranty program.
Section 6.21 Servicing Portfolio. Borrower will not commit or suffer to
-------------------
be committed any act which would constitute a breach of any contract to which
Borrower now is or hereafter becomes a party under which Borrower is obligated
to service Mortgage Loans for another Person which breach would materially
impair Borrower's mortgage loan servicing portfolio.
Section 6.22 Evidence of Compliance with Article V. Upon request by the
-------------------------------------
Bank, Borrower shall provide to the Bank evidence of its continued compliance
with the representations and warranties under Article V, including but not
---------
limited to, such certificates and documents as the Bank may require in its sole
discretion.
Section 6.23 Appraisals. The Borrower shall obtain and maintain a copy of
----------
an Appraisal with respect to the underlying property covered by each Mortgage
included as Mortgage Collateral, shall require that all Appraisals delivered to
Borrower in connection with the Mortgage Loans constituting Mortgage Collateral
(whether originated by the Borrower or purchased by Borrower) comply in all
respects with the Appraisal Laws and Regulations, shall implement and maintain
administrative and operating procedures which permit the Borrower, the Bank to
verify such compliance.
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ARTICLE VII
-----------
NEGATIVE COVENANTS
------------------
Borrower shall at all times comply with the covenants contained in
this Article VII, from the date hereof and for so long as any part of the
-----------
Obligations or the Commitment of the Bank is outstanding:
Section 7.01 No Merger. Borrower shall not 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 unless approved
fifteen (15) days in advance by the Bank in writing.
Section 7.02 Limitation on Indebtedness. Borrower shall not, without
--------------------------
the prior written consent of the Bank, 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) Existing Indebtedness listed on
Exhibit "G" attached hereto and incorporated herein by this reference, (iv)
- -----------
current amounts payable or accrued (other than for borrowed funds or purchase
money obligations) which have been incurred in the ordinary course of business
and (v) Indebtedness incurred in the ordinary course of business not to exceed
on a cumulative basis $100,000.00 at any time; provided that all such
liabilities, accounts and claims permitted under clauses (i) through (v) 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 Borrower.
Section 7.03 Fiscal Year, Method of Accounting. Borrower shall not
----------------------------------------------
change its fiscal year or method of accounting.
Section 7.04 Lines of Business. Borrower shall not directly or
-----------------
indirectly engage in any business other than that currently engaged in by
Borrower and any business incidental thereto.
Section 7.05 Liquidations, Consolidations and Dispositions of
------------------------------------------------
Substantial Assets. Borrower shall not dissolve or liquidate or sell, transfer,
- ------------------
pledge, lease or otherwise dispose of any portion of its property or assets or
business (other than Mortgage Loans sold in compliance with the provisions of
the Loan Documents in the ordinary course of business); provided, however, that
nothing herein shall be construed to prohibit Borrower from selling Mortgage
Notes to Investors in the ordinary course of its business subject to the terms
of this Agreement.
Section 7.06 Loans, Advances, and Investments. Borrower shall not
--------------------------------
make any loan (other than loans made in the ordinary course of its business as a
mortgage company), advance, or capital contribution to, or investment in, or
purchase or otherwise acquire any of the capital stock, securities, or evidences
of indebtedness of, any Person (collectively, "Investment"), or otherwise
----------
acquire any interest in, or control of, another Person, except for the
following:
(a) Cash Equivalents;
(b) Any acquisition of securities or evidences of indebtedness
of others when acquired by Borrower in settlement of accounts
receivable or other debts arising in the ordinary course of business,
so long as the aggregate amount of any such securities or evidences of
indebtedness is not material to the business or condition (financial
or otherwise) of Borrower;
(c) Mortgage Backed Securities acquired in the ordinary course
of Borrower's business; and
(d) Owned real estate and Mortgage Loans, required to be
repurchased by Investors, not to exceed at any one time $75,000.00 on
an annual basis.
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<PAGE>
Section 7.07 Use of Proceeds. Borrower shall not permit the proceeds
---------------
of the Advances to be used for any purpose other than those permitted by Section
-------
6.10 hereof.
- ----
Section 7.08 Actions with Respect to Mortgage Collateral. Borrower
-------------------------------------------
shall not without the consent of Bank:
(a) Compromise, modify, extend, release, or adjust payments on
any Mortgage Collateral, accept a conveyance of mortgaged property in
full or partial satisfaction of any Mortgage Collateral, or release
any Mortgage securing or underlying any Mortgage Collateral;
(b) Agree to the amendment or termination of any Take-Out
Commitment in which the Bank has a security interest or to any
substitution of a Take-Out Commitment for a Take-Out Commitment in
which the Bank has a security interest hereunder; or
(c) Transfer, sell, assign, or deliver any Mortgage Collateral
pledged to the Bank to any Person other than the Bank, except pursuant
to a Take-Out Commitment and subject to the terms of the Loan
Documents.
Section 7.09 Operational Changes. Borrower shall not (a) change the
-------------------
location of any Collateral for the Loan, (b) change its taxpayer identification
number, (c) change its address for its chief executive office or its mailing
address or change its name, identity or corporate structure in any manner which
might make any financing or continuation statement filed in connection with the
Security Agreement seriously misleading within the meaning of Section 9.402 of
the UCC (or any other then applicable provision of the UCC) unless Borrower
shall have given the Bank at least sixty (60) days' prior written notice thereof
and shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Bank to amend such
financing statement or continuation statement so that it is not seriously
misleading, or (d) change its principal place of business or remove the records
concerning the Collateral unless it has given the Bank at least thirty (30)
days' prior written notice of its intent to do so and has taken such action as
is necessary or advisable in the opinion of the Bank to cause the security
interest of the Bank in the Collateral to continue to be a first priority
perfected security interest.
Section 7.10 Compliance with ERISA. Borrower shall not, and shall
---------------------
not permit any ERISA Affiliate to:
(a) (i) engage in any transaction in connection with which
Borrower or any ERISA Affiliate could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed
by Section 4975 of the Code, (ii) fail to make full payment when due
of all amounts which, under the provisions of any Plan, applicable law
or applicable collective bargaining agreement, Borrower or any ERISA
Affiliate is required to pay as contributions thereto, or (iii) permit
to exist any accumulated funding deficiency, whether or not waived,
with respect to any Plan if, in the case of any of subdivision (i),
(ii) or (iii) above, such penalty or tax, or the failure to make such
payment, or the existence of such deficiency, as the case may be, will
likely have a Material Adverse Effect on the financial position of
Borrower;
(b) permit the amount of unfunded benefit liabilities (within the
meaning of Section 4001 (a) (18) of ERISA) under each Plan maintained
at such time by Borrower or any of its Related Persons (other than
Multiemployer Plans or "multiple employer Plans") to exceed $50,000; or
(c) permit the aggregate complete or partial withdrawal liability
under Title IV of ERISA with respect to all Plans which are 'multiple
employer Plans" and all Multiemployer Plans incurred by Borrower or any
Related Person to exceed $50,000.
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<PAGE>
Section 7.11 Net Worth. Borrower's Net Worth shall not be less than the
---------
sum of (a) $500,000.00, (b) 80% of Borrower's Net Income for the preceding
calendar quarter, plus (c) 100% of all contributions to stockholders' equity of
Borrower after the date hereof, less all fees and costs directly incurred in
connection with such contribution.
Section 7.12 Tangible Net Worth. Borrower's Tangible Net Worth will never
------------------
be less than the minimum required by the respective purchasers of the Mortgages,
including HUD, FNMA, GNMA and FHLMC requirements in existence at any time.
Section 7.13 Adjusted Tangible Net Worth. Borrower's Adjusted Tangible Net
---------------------------
Worth shall not be less than the sum of (a) $500,000.00, (b) 80% of Borrower's
Net Income for the preceding calendar quarter, plus (c) 100% of all
contributions to stockholders' equity of Borrower after the date hereof, less
all fees and costs directly incurred in connection with such contribution.
Section 7.14 Total Liabilities to Adjusted Tangible Net Worth Ratio. The
------------------------------------------------------
ratio of Borrower's Total Liabilities to Borrower's Adjusted Tangible Net Worth
shall not at any time be more than 10.0 to 1.0.
Section 7.15 Management. The President of Borrower shall not be changed
----------
without the prior written consent of the Bank.
Section 7.16 Interested Transactions. Except with respect to any
-----------------------
transaction not exceeding $50,000.00 in value, Borrower shall not engage in any
transaction with any of its Affiliates (a) except on an arm's-length basis and
on terms no less favorable to Borrower than those obtainable from persons who
have no such relationship to Borrower and (b) provided that Borrower shall have
given the Bank prior written notice of such transaction with any director,
officer or managerial personnel.
Section 7.17 Transfer of Stock. Individually and on a cumulative no more
-----------------
than 35% of the stock in Borrower shall be sold, transferred or conveyed to or
by any party without the prior written consent of the Bank.
Section 7.18 Investors. Borrower shall furnish to the Bank upon demand
---------
financial information on all Investors to the extent that such information is
not confidential.
Section 7.19 Subsidiaries. Borrower shall not create any Subsidiaries
------------
without the prior written consent of the Bank.
ARTICLE VIII
------------
EVENTS OF DEFAULT
Section 8.01 Nature of Event. A Default shall exist if any one or more of
---------------
the following occurs:
(a) Borrower fails to make any payment of principal of or interest on
any Note, or payment of any fee, expense or other amount due hereunder,
under any Note or under any Loan Document, on or before the date such
payment is due;
(b) Default is made in the due observance or performance by Borrower
of any of the other covenants or agreements of Borrower contained in this
Agreement or in any Loan Document; provided, however, with respect to such
defaults other those specified in Sections 8.01(a), 8.01(c) through
---------------------------------
8.01(k), 8.01(p), 8.01(q) and 8.01(s) through 8.01(y) (for which no notice
------- ---------------- ------- -------
and opportunity to cure shall be available unless such opportunity is
specifically provided in such individual sections), Borrower shall have
thirty (30) days after notice of default from Bank within which to cure
such default;
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<PAGE>
(c) Any statement, warranty or representation by or on behalf of
Borrower contained in this Agreement or any Loan Document or any
certificate furnished in connection with this Agreement, proves to have
been incorrect or misleading as of the date made or deemed made and
constitutes a Material Adverse Effect;
(d) Borrower fails to make when due any payment on any other
Indebtedness, including but not limited to the Existing Indebtedness as
shown on Exhibit "G", which failure constitutes a Material Adverse Effect;
-----------
(e) Borrower shall generally not pay its debts as they become due or
shall admit in writing its inability to pay its debts, or shall make a
general assignment for the benefit of creditors;
(f) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of Borrower or of
all or a substantial part of Borrower's assets, (ii) file a voluntary
petition in bankruptcy, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations of,
or consent to, or default in answering, a petition filed against Borrower
in any bankruptcy, reorganization or insolvency proceeding, (vi) allow any
of its assets to be attached or seized, or (vi) take corporate action for
the purpose of effecting any of the foregoing;
(g) An involuntary petition or complaint shall be filed against
Borrower seeking bankruptcy or reorganization of Borrower or the
appointment of a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of Borrower's assets, and such
petition or complaint shall not have been dismissed within sixty (60) days
of the filing thereof; or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of
borrower or appointing a receiver, custodian, trustee, intervenor or
liquidator of Borrower, or of all or substantially all of Borrower's
assets;
(h) Any default or event of default shall occur under any other
Indebtedness of Borrower to the Bank;
(i) The failure of Borrower to pay any money judgment against
Borrower;
(j) The failure to have discharged any levy on, seizure, attachment,
sequestration, or similar proceedings against any of Borrower's assets;
(k) Bank's security interests in any of the Mortgage Collateral should
become unenforceable, or cease to be first priority security interests;
(l) A Reportable Event or Prohibited Transaction shall have occurred
with respect to a Plan which could have a Material Adverse Effect;
(m) A notice of intent to terminate a Plan under a "distress
termination" as described in Section 4041(c) of ERISA shall be filed which
could, in the opinion of the Bank, have a Material Adverse Effect;
(n) The Plan administrator or Borrower shall receive a notice that
the PBGC has instituted proceedings to terminate a Plan or appoint a
trustee to administer a Plan;
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<PAGE>
(o) Borrower or any ERISA Affiliate of Borrower shall withdraw from a
multiemployer Plan and the Bank shall determine that such withdrawal could
have a Material Adverse Effect;
(p) Any provision of any Loan Document shall for any reason cease to
be in full force and effect or be declared null and void or unenforceable
in whole or in part, or the validity or enforceability of any such document
shall be challenged or denied;
(q) Any change of the office of president of Borrower shall occur
without the prior written consent of the Bank;
(r) The occurrence of a Material Adverse Effect;
(s) The disqualification of Borrower to act as an approved FHA, FNMA
or GNMA (if Borrower has been approved by GNMA as a servicer) mortgagee, or
a lender under the VA loan guaranty program;
(t) If Borrower has been approved by GNMA as a servicer, GNMA shall
revoke or terminate any servicing of Borrower, or GNMA shall issue a letter
of extinguishment under any GNMA guaranty agreement, or GNMA shall seek any
judicial relief;
(u) Borrower shall cease to be an eligible seller or servicer under
any FNMA guide, or FNMA shall impose any sanctions upon or terminate or
revoke any servicing of Borrower, or FNMA shall initiate any transfer of
servicing from Borrower to another Person, or FNMA shall seek any judicial
relief;
(v) If Borrower has been approved by GNMA as a servicer, GNMA shall
send any notice to the Borrower that GNMA intends to or will revoke or
terminate any servicing of the Borrower or issue a letter of extinguishment
and such notification is not withdrawn within thirty (30) days of receipt
by Borrower;
(w) Borrower shall receive notice that FNMA intends to or will
terminate or transfer any servicing and such notice is not withdrawn by
FNMA within thirty (30) days of receipt by Borrower;
(x) If any property of Borrower is seized or attached; and
(y) If more than 35% of the stock (on an individual or cumulative
basis) in Borrower is sold, transferred or conveyed to or by any party
without the prior written consent of the Bank.
Upon the occurrence of an Event of Default described in Section 8.01(f) or (g),
----------------------
all of the Obligations shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower and each Related
Person. Upon the occurrence of any other Event of Default, Bank, at any time
and from time to time may without notice to Borrower or any other person declare
any or all of the Obligations immediately due and payable, and all such
Obligations shall thereupon be immediately due and payable, without presentment,
demand, protest, notice of protest, notice of acceleration or of intention to
accelerate, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person. After any such
acceleration Bank shall have no obligation to make any further Advances or loans
of any kind under any agreement with any Related Person.
Section 8.02 Remedies. If any Event of Default shall occur and be
--------
continuing, Bank may protect and enforce the Bank's rights under the Loan
Documents by any appropriate proceedings, including proceedings for
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<PAGE>
specific performance of any covenant or agreement contained in any Loan
Document, and Bank may enforce the payment of any Obligations due or enforce any
other legal or equitable right. All rights, remedies and powers conferred upon
Bank under the Loan Documents shall be deemed cumulative and not exclusive of
any other rights, remedies or powers available under the Loan Documents or at
law or in equity.
Upon the occurrence of an Event of Default, Bank may:
(a) Termination. Terminate Bank's Commitment to lend hereunder and
-----------
stop all advances hereunder.
(b) Acceleration. Declare all unpaid amounts under the Note and any
------------
other portion of the Obligations immediately due and payable, without
further notice, presentment, protest, demand or action of any nature
whatsoever (each of which is hereby expressly waived by Borrower) whereupon
the same shall become immediately due and payable.
(c) Judgment. Reduce to Judgment any claim arising under this
--------
Agreement that Bank have standing to assert.
(d) Foreclosure. Take such steps as are appropriate to foreclose or
-----------
otherwise enforce all Liens granted to Bank to secure payment and
performance of the Obligations, and to exercise any and all rights afforded
secured parties by the UCC, the Loan Documents, at law, in equity or
otherwise.
In addition to, and without limiting or restricting in any way the
foregoing, Bank or its designee may take possession of any Collateral and
related documents securing the obligations or any portion thereof not already in
the possession of Bank or its designee, and of any documents or instruments held
by Borrower for the benefit of Bank and may direct Borrower to, and Borrower
will, gather or assemble all of such Collateral and documents or any portion
thereof at the principal offices of Bank or its designee as Bank shall determine
or any other place reasonably convenient to Borrower and Bank as such parties
shall agree, may notify any party obligated on any Collateral securing the
Obligations or a portion thereof to make all payments due or to become due with
respect thereto directly to Bank or its designee, with the amounts of such
payments to be held for the benefit of Bank, and Bank or its designee may
collect such payments; enforce collection of any Collateral securing the
obligations or a portion thereof by suit or otherwise in its own name or in the
name of Borrower; assign, negotiate or transfer any such Collateral for purposes
of collection; surrender, release, substitute or exchange all or any part of
such Collateral or any collateral, security or guaranty therefor; or compromise
or extend or renew for any period (whether or not longer than the original
period) any indebtedness thereunder or evidenced thereby. Upon the request of
Bank or its designee, Borrower will, at its own expense, notify any person
obligated upon any Collateral securing the obligations or a portion thereof to
make payment to Bank or its designee of any amounts due or to become due
thereunder.
Section 8.03 Performance by Bank. Should any covenant, duty or agreement
-------------------
of Borrower fail to be performed in accordance with the terms and conditions of
any of the Loan Documents to which it is party, Bank may, at its option,
perform, or attempt to perform, such covenant, duty or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Bank, promptly pay
any amount expended by Bank in such performance or attempted performance to Bank
at the office of Bank listed on the signature pages hereof, together with
interest thereon at the Maximum Rate from the date of such expenditure by Bank
until paid. Notwithstanding the foregoing, it is expressly understood that Bank
does not assume and shall never have, except by express written consent, any
liability or responsibility for the performance of any duties of Borrower
hereunder, or under or in connection with all or any part of the Collateral.
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<PAGE>
ARTICLE IX
----------
[INTENTIONALLY DELETED]
ARTICLE X
---------
INDEMNIFICATION
---------------
SECTION 10.01 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENT OF BANK,
---------------
BORROWER AGREES TO INDEMNIFY AND DEFEND THE BANK AND ANY PERSON DEEMED TO
CONTROL THE BANK AND THEIR RESPECTIVE DIRECTORS, OFFICERS, ATTORNEYS,
AFFILIATES, AND EMPLOYEES (ANY AND ALL OF WHOM ARE REFERRED TO AS THE
"INDEMNIFIED PARTY") FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
-----------------
LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, DEFICIENCIES, INTEREST,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING BUT NOT LIMITED TO
ATTORNEYS' FEES) INCURRED BY THEM OR ANY OF THEM DIRECTLY OR INDIRECTLY ARISING
OUT OF OR BY REASON OF (I) ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING
BROUGHT OR THREATENED, ARISING OUT OF OR BY REASON OF THE BANK'S EXECUTION OF
THIS AGREEMENT OR ANY LOAN DOCUMENT AND THE TRANSACTION CONTEMPLATED THEREBY,
INCLUDING, BUT NOT LIMITED TO, ANY USE EFFECTED OR PROPOSED TO BE EFFECTED BY
BORROWER OF THE PROCEEDS OF THE ADVANCES, (II) ANY IMPOUNDMENT, ATTACHMENT OR
RETENTION OF ANY OF THE MORTGAGE COLLATERAL OR ANYTHING WHICH RESULTS IN THE
FAILURE OF ANY INVESTOR TO PAY THE ENTIRE PURCHASE PRICE OF ANY OF THE MORTGAGE
COLLATERAL PURSUANT TO ANY TAKE-OUT COMMITMENT, (III) ANY ALLEGED VIOLATION OF
ANY FEDERAL OR STATE LAW RELATING TO USURY OR TRUTH IN LENDING IN CONNECTION
WITH ANY MORTGAGE COLLATERAL, AND (IV) ANY REPRESENTATION MADE BY BORROWER
HEREUNDER OR UNDER ANY OF THE LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT NOTHING
CONTAINED HEREIN SHALL BE CONSTRUED AS AN AGREEMENT BY BORROWER TO INDEMNIFY AND
HOLD THE BANK, ANY PERSON DEEMED TO CONTROL THE BANK, OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS OR EMPLOYEES HARMLESS FROM OR AGAINST ANY LOSSES, CLAIMS,
DAMAGES, LIABILITIES, COSTS OR EXPENSES ARISING OUT OF THE GROSS NEGLIGENCE,
WILLFUL MISCONDUCT OR FRAUD OF THE BANK, OR ANY OF ITS OFFICERS, DIRECTORS OR
EMPLOYEES. WITHOUT LIMITING ANY PROVISION OF THIS PARAGRAPH, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH PERSON OR ENTITY TO BE INDEMNIFIED
HEREUNDER SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, DEFICIENCIES, INTEREST,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING BUT NOT LIMITED TO
ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON OR ENTITY. THE BANK SHALL NOT BE RESPONSIBLE OR
LIABLE TO BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY CONSEQUENTIAL DAMAGES
THAT MAY BE ALLEGED AS A RESULT OF OR IN CONNECTION WITH (I), (II), (III) AND
(IV) LISTED IN THIS PARAGRAPH. BORROWER'S OBLIGATIONS UNDER THIS PARAGRAPH
SHALL SURVIVE THE COMMITMENT TERMINATION DATE, NOTWITHSTANDING ANYTHING TO THE
CONTRARY. BORROWER SHALL PROVIDE SUCH INDEMNIFICATION AND DEFENSE UPON WRITTEN
NOTICE FROM THE BANK.
-41-
<PAGE>
ARTICLE XI
----------
MISCELLANEOUS
-------------
Section 11.01 Notices. Any notice or request required or permitted to be
-------
given under or in connection with this Agreement, the Loan Documents (except as
may otherwise be expressly required therein) or the Note shall be in writing and
shall be mailed by first class mail, postage prepaid, or sent by telex,
telegram, telecopy or other similar form of rapid transmission confirmed by
mailing (by first class mail, postage prepaid) written confirmation at
substantially the same time as such rapid transmission, or personally delivered
to an officer of the receiving party. All such communications shall be mailed,
sent or delivered to the parties hereto at their respective addresses as
follows:
Borrower: Home, Inc.
--------
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
Attention: Mr. John Ballard
President
Bank: Guaranty Federal Bank, F.S.B.
----
8333 Douglas Avenue
10th Floor
Dallas, Texas 75225
Attention: Mortgage Finance Division
Mr. W. James Meintjes
or at such other addresses or to such individual's or department's attention as
either party may have furnished the other party in writing. Any communication
so addressed and mailed shall be deemed to be given when so mailed, except that
notices and requests given pursuant to Section 3.04(f) hereof, Credit Requests
---------------
and communications related to Credit Requests shall not be effective until
actually received by the Bank, as the case may be; and any notice so sent by
rapid transmission shall be deemed to be given when receipt of such transmission
is acknowledged, and any communication so delivered in person shall be deemed to
be given when receipted for by, or actually received by, an authorized officer
of Borrower or Bank, as the case may be.
Section 11.02. Commitment Fees. Borrower shall pay to the Bank a
---------------
Commitment Fee (herein so called), calculated based upon the actual number of
days elapsed when Bank has an outstanding Commitment hereunder, equal to the per
annum rate (based upon a 360 day year) of one eighth of one percent (0.125%) of
the Commitment of Bank payable in advance in quarterly installments (each equal
to one-fourth of the annual Commitment Fee) on the date hereof and on the first
day of each calendar quarter (January, April, July and October).
Section 11.03. Custodian Fees. Borrower shall pay to Bank Custodian Fees
--------------
(herein so called) of $20.00 per Mortgage Loan.
Section 11.04 Amendments and Waivers. Any provision of this Agreement, any
----------------------
Loan Document or the Note may be amended or waived if, and only if, such
amendment or waiver is in writing and is signed by the Borrower and the Bank.
Section 11.05 Invalidity. In the event that any one or more of the
----------
provisions contained in the Note, this Agreement or any Loan Document shall, for
any reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of such document.
-42-
<PAGE>
Section 11.06 Survival of Agreements. All covenants and agreements herein
----------------------
and in the Loan Documents not fully performed before the date hereof or the date
of the Loan Documents, and all representations and warranties of Borrower herein
or in the Loan Documents, shall survive until payment in full of the Obligations
and termination of the Commitment.
Section 11.07 Regulatory Requirements. This Agreement is subject to all
-----------------------
governmental regulations to which the Bank is subject. Notwithstanding anything
to the contrary, in no event shall the Bank be obligated to advance to Borrower
hereunder or under the Loan Documents any amounts which would cause the Bank to
exceed applicable governmental lending limit regulations.
Section 11.08 Waiver. No course of dealing on the part of any Bank, its
------
officers, employees, consultants or agents, nor any failure or delay by the Bank
with respect to exercising any right, power or privilege of the Bank under the
Note, this Agreement or any Loan Document shall operate as a waiver thereof.
Section 11.09 Cumulative Rights. Rights and remedies of Bank under the
-----------------
Note, this Agreement and each Loan Document 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 11.10 CHOICE OF LAW. THIS AGREEMENT, THE NOTE AND EACH LOAN
-------------
DOCUMENT IS A CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF TEXAS,
EXCEPT AS OTHERWISE SPECIFIED HEREIN OR THEREIN, AND, WITH RESPECT TO USURY
LAWS, IF ANY, APPLICABLE TO THE BANK AND TO THE EXTENT ALLOWED THEREBY, AS SUCH
LAWS MAY HEREAFTER BE IN EFFECT WHICH ALLOW A HIGHER MAXIMUM NONUSURIOUS
INTEREST RATE THAN SUCH LAWS NOW ALLOW. TEX. REV. CIV. STAT. ANN. ART. 5069,
CH. 15 (WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND REVOLVING TRI-PARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTE.
Section 11.11 Interest. Notwithstanding anything contained herein or in
--------
the Note to the contrary, the Bank shall never be deemed to have contracted for
or be entitled to receive, collect or apply as interest on any Note, any amount
in excess of the amount permitted and calculated at the maximum rate permitted
by applicable law (the "Maximum Rate"), and, in the event Bank ever receives,
-------------
collects or applies as interest any amount in excess of the amount permitted and
calculated at the Maximum Rate, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance of Note, and,
if the principal balance of Note is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds the Maximum Rate, Borrower and
Bank shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment (other than payments which are expressly
designated as interest payments hereunder) as an expense, fee, or premium,
rather than as interest, (ii) exclude voluntary prepayments and the effect
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of such Note.
To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is
relevant to the Bank for the purpose of determining the Maximum Rate, the Bank
hereby elects to determine the applicable rate ceiling under such Article by the
"indicated rate ceiling" from time to time in effect, subject to the Bank's
right subsequently to change such method in accordance with applicable law.
Section 11.12 Right of Offset. Borrower hereby grants to the Bank and to
---------------
any assignee or participant of Bank a right of offset, to secure the repayment
of the Obligations, upon any and all monies, securities or other property of
Borrower, and the proceeds therefrom now or hereafter held or received by or in
transit to such Person, from or for the account of Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and also
upon any and all deposits (general or special, time or demand, provisional or
final) and credits of Borrower, and any and all claims of Borrower against such
Person at any time existing. Upon the occurrence
-43-
<PAGE>
of any Event of Default, such Person is hereby authorized at any time and from
time to time, without notice to Borrower, to offset, appropriate, and apply any
and all items hereinabove referred to against the Obligations. The Bank's
contractual right of offset granted by Borrower hereunder is separate and
independent of the Bank's common law right of offset and is not governed by any
restrictions existing under the common law right of offset. Notwithstanding
anything in this Section 11.12 or elsewhere in this Agreement to the contrary,
-------------
the Bank and any assignee or participant of the Bank shall not have any right to
offset, appropriate or apply any accounts of Borrower which consist of escrowed
funds (except and to the extent of any beneficial interest of Borrower in such
escrowed funds) which have been so identified by Borrower in writing at the time
of deposit thereof.
Section 11.13 Assignments, etc.
----------------
(a) Assignments and Participations. All covenants and agreements by or on
------------------------------
behalf of Borrower in the Note, this Agreement, or any other Loan Document shall
bind Borrower's successors and assigns and shall inure to the benefit of the
Bank and its successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest herein, without
the prior written consent of the Bank. The Bank may assign to one or more
Persons all or any part of, and may grant participations to one or more Persons
in all or any part of, its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and the Note held by it). In the event that Bank sells
participations in the Note or other Obligations of Borrower incurred or to be
incurred pursuant to this Agreement, to other lenders, each of such other
lenders shall have the rights of set off against such Obligations and similar
rights or Liens to the same extent as may be available to the Bank.
(b) Additional Bank. From time to time additional Bank may be added hereto
---------------
upon execution by the Borrower, the Bank and such additional Bank of
documentation in form and substance satisfactory to each of such parties.
Section 11.14 Exhibits. The exhibits attached to this Agreement are
--------
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
Section 11.15 Titles of Articles, Sections and Subsections. All titles or
--------------------------------------------
headings to articles, sections, subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 11.16 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and it shall not be necessary that the signatures of both parties
hereto be contained on any one counterpart hereof; each counterpart shall be
deemed an original, but all counterparts together shall constitute one and the
same instrument.
SECTION 11.17. WAIVER OF TRIAL BY JURY. AS A SPECIFICALLY BARGAINED
-----------------------
INDUCEMENT FOR THE BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO
BORROWER, BORROWER AND THE BANK EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY
ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE
BANK AND BORROWER.
Section 11.18. CONSENT TO JURISDICTION. THE BORROWER HEREBY AGREES THAT
-----------------------
THE OBLIGATIONS CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL
PARTIES HERETO AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION MAY BE
FILED IN DALLAS COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY OF THE
OBLIGATIONS CONTAINED IN THE LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS,
-44-
<PAGE>
(III) PERSONAL JURISDICTION SHALL BE IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR
PROCEEDING UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE COMMENCED
AGAINST BORROWER IN DALLAS COUNTY, (V) SUCH ACTION MAY BE INSTITUTED IN THE
COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS OR IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS LOCATED IN DALLAS
COUNTY, TEXAS, AT THE OPTION OF THE BANK AND (VI) THE BORROWER HEREBY WAIVES ANY
OBJECTION TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND ADDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO BE SUED ELSEWHERE. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF THE BANK TO ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
Section 11.19. Confidentiality. Except as provided herein to the contrary,
---------------
all correspondence from the Bank to Borrower and all of the Loan Documents are
confidential and may not be shown by Borrower to or discussed by Borrower with
any third party (other than on a confidential basis with Borrower's legal
counsel and independent public accountants) without Bank's prior written
consent.
SECTION 11.20. ENTIRE AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
----------------
LOAN DOCUMENTS REPRESENTED 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.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER:
--------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By: /s/ John Ballard
--------------------
John Ballard, President
BANK:
----
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By:______________________________________
W. James Meintjes,
Assistant Vice President
-45-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 14th day of June, 1996, by
John Ballard, President of HOMEOWNERS MORTGAGE & EQUITY, INC. d/b/a Home, Inc.,
a Delaware corporation, on behalf of said corporation.
/s/ AMY ANDREWS
----------------------------------------
Notary Public - State of Texas
My Commission expires: /s/ AMY ANDREWS
02.14.98 ----------------------------------------
Printed Name of Notary
STATE OF TEXAS (S)
(S) (Notary Public Seal here)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of ______, 1996, by
W. James Meintjes, Assistant Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said bank.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
-46-
<PAGE>
Exhibits:
- --------
"A" -- Mortgage Warehouse Credit Request
"B" -- Form of Delivery Commitment Certificate
"C" -- Form of Promissory Note
"D" -- [Intentionally Deleted]
"E" -- Bailee Letter
"F" -- Trust Receipt and Bailee Letter
"G" -- Existing Indebtedness
"H" -- Certificate Accompanying Financial Statements
"I" -- [Intentionally Deleted]
"J" -- [Intentionally Deleted]
"K" -- [Intentionally Deleted]
"L" -- Compliance Certificate
"M" -- Interest Rate Election Notice
-47-
<PAGE>
EXHIBIT "A"
-----------
MORTGAGE WAREHOUSE CREDIT REQUEST
From: HomeOwners Mortgage & Equity, Inc. d/b/a Home, Inc.
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
Phone (512) 343-8911
Fax (512) 343-1837
TO: Guaranty Federal Bank, F.S.B.
1. HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC. requests an Advance in
the amount and on the date specified from the Bank (cumulatively, a
"Borrowing") in the cumulative amount and on the date herein specified,
----------
pursuant to the Warehouse Loan Agreement among Borrower, GUARANTY FEDERAL
BANK, F.S.B. ("Bank"), dated as of June 1, 1996, as amended to date (the
----
"Agreement"), and hereby grants to Bank, in accordance with the provisions
----------
of that certain Security Agreement, dated as of even date with the
Agreement, between Borrower and the Bank, as amended to date, a security
interest and Lien in the Mortgage Collateral described on the attached
schedule. Capitalized terms used herein and defined in the Agreement shall
be used herein as so defined.
2. (a) Borrowings requested (Borrowings other than Wet Advances):
----------------------------------
(i) Borrower hereby requests a Borrowing in the principal amount of
$__________.
(ii) Requested Borrowing Date: _______________, 199__.
(iii) Borrower hereby grants to the Bank a security interest in each
Mortgage Note described on Schedule I attached hereto.
----------
(b) Borrowing Requested (Wet Advances):
------------
(i) Borrower hereby requests a Wet Advance in the principal amount
of $_______________.
(ii) Borrower hereby grants to the Bank a security interest in each
Mortgage Note described on Schedule I attached hereto, and
----------
covenants to deliver to the Bank, not later than five (5) days
after the borrowing date set forth in subparagraph 2(b)(iii)
----------------------
below, the items specified in Subsection 2.03(b) of the
------------------
Agreement which relate thereto.
(iii) Requested Borrowing Date: _______________, 199__.
<PAGE>
(iv) Aggregate outstanding principal amount of Wet Advances (after
giving effect to any Wet Advance requested hereby) with respect
to which the items of Mortgage Collateral described in Section
-------
3.02 of the Agreement have not yet been delivered to the Bank:
----
$____________________.
(v) Requirement of Agreement: Maximum of $500,000.00.
Requirement satisfied _______.
Requirement not satisfied _______.
(c) Requirement of Agreement: Maximum of $1,000,000.00 comprised of Second
Lien Mortgage Loans other than Conventional Equity Recovery Loans,
Conventional Purchase Money Second Lien Loans and Conventional Home
Improvements Loans.
Requirement satisfied _______.
Requirement not satisfied _______.
3. The undersigned officer of Borrower represents and warrants to the Bank:
(a) Borrower is entitled to receive the requested Borrowing under the terms
and conditions of the Agreement;
(b) all items which Borrower is required to furnish to the Bank pursuant to
the Agreement accompany this Credit Request (or, in the case of a Wet
Advance, shall be delivered to the Bank in accordance with Subsection
----------
2.03(b) of the Agreement);
-------
(c) all Mortgage Collateral offered hereby conforms in all respects with
the applicable requirements set forth in the Agreement and the Security
Agreement;
(d) no Default has occurred and is continuing under the Agreement; and
(e) no change or event which constitutes a Material Adverse Effect has
occurred.
4. Borrower represents and warrants that, except as permitted under Section
-------
3.02 of the Agreement, Borrower holds with respect to each of the Mortgage
----
Notes hereby offered the following:
(a) unless delivered herewith, the original filed copy of the Mortgage
relating to such Mortgage Note;
(b) mortgagee policies of title insurance conforming to the requirements of
the Bank or binding commitments for the issuance of same;
(c) insurance policies insuring the mortgaged premises as required by the
Bank; and
(d) unless delivered herewith, an original executed Take-Out Commitment
relating to such Mortgage Note.
Borrower agrees that it holds the above items in trust for the Bank, and
will at any time deliver the same to the Bank upon request or, upon written
instructions from the Bank, to any Person designated by the Bank. Borrower
further agrees that it will not deliver any of the above items, nor give,
transfer, or assign
-2-
<PAGE>
any interest in same, to any Person other than the Bank (or the Person or
Persons designated by the Bank) without the prior written consent of the
Bank.
5. The representations and warranties of Borrower contained in the Agreement
and those contained in each other Loan Document to which Borrower is a
party are true and correct in all respects on and as of the date hereof.
HomeOwners Mortgage & Equity, Inc.
d/b/a Home, Inc.,
a Delaware corporation
Date:____________, 199___ By:__________________________________________
Name:
Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199___, by ____________________, __________________ of HOMEOWNERS MORTGAGE &
EQUITY, INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said
corporation.
_________________________________________
Notary Public - State of Texas
My Commission expires:
_________________________________________
Printed Name of Notary
-3-
<PAGE>
SCHEDULE I
MORTGAGE NOTES
<TABLE>
<CAPTION>
Original
Principal Collateral Interest Maturity Loan Check Wiring
Date Amount Value Maker Payee Rate Date Number Number or Instructions
- ----- --------- ---------- ----- ------ -------- -------- ------ ------ -- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
-4-
<PAGE>
EXHIBIT B
---------
FORM OF DELIVERY COMMITMENT CERTIFICATE
---------------------------------------
HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC. ("Borrower")
--------
hereby notifies GUARANTY FEDERAL BANK, F.S.B. ("Bank") under that certain Loan
----
Agreement dated as of June 1, 1996 (as amended, extended and replaced from time
to time, the "Agreement"), between Borrower and the Bank (as defined therein)
---------
that with respect to the Mortgage Loan referred to below:
( ) Such Mortgage Loan was funded and closed on____________ _____: or
( ) Such Mortgage Loan will close and fund no later than ________ ()
Business Day(s) from the date hereof.
Borrower hereby acknowledges, agrees and confirms with respect to such
Mortgage Loan as follows:
1. Such Mortgage Loan has been, or will be, closed and funded with
advance(s) (an "Advance") made by the Bank pursuant to the Agreement, such
-------
Advance constituting "new value" as that term is used in Section 9.304(d) of the
----------------
Texas Business and Commerce Code (or the corresponding provision of the Code of
any other applicable jurisdiction).
2. Bank has a first perfected security interest in and first lien upon
said Mortgage Loan, including, without limitation, in the promissory note
evidencing such Mortgage Loan (the "Mortgage Note").
-------------
3. The Mortgage Note and all other documents, instruments and agreements
required to be delivered to Bank pursuant to Section 2.03 of the Agreement with
------------
respect to such Mortgage Loan (the "Required Documents"), either have been
------------------
delivered to Bank or are being transmitted to Bank and will be in the possession
of Bank on or before the fifth (5th) Business Day after the date hereof.
4. Until the required documents for such Mortgage Loan are delivered to
Bank, they will be held in trust for Bank, segregated and conspicuously marked
to show the interest of Bank therein. Borrower assumes all responsibility for
loss, damage or deterioration of such Mortgage Loan and the Required Documents
relating thereto until the same are in the possession of Bank and will make no
disposition of such Mortgage Loan and Required Documents other than to Bank.
5. In the event the required documents for such Mortgage Loan are not
received by Bank by the date required under Paragraph 3 above, Borrower shall
-----------
immediately (a) prepay the full amount of any Advance relating to such Mortgage
Loan (and Bank may debit the Borrower's Funding Account for the full amount
thereof) or (b) deliver additional Mortgage Collateral, the Collateral Value of
which is equal to or greater than the amount of such Advance, all as set forth
in Section 2.04 of the Agreement. Borrower hereby acknowledges and agrees that
------------
any Advance relating to the Mortgage Loan described below is secured by all
Collateral in which Bank has a security interest under the Agreement and Loan
Documents.
6. Capitalized terms not otherwise defined herein shall have the meanings
assigned such terms in the Agreement.
<PAGE>
7. Identifying Information:
Loan Number: Note Date: Note Amount:
- ------------------------ ------------------ --------------------
Mortgagor: Note Rate:
- ------------------------ ------------------
Property Address: Loan Type: Program Type:
- ------------------------ ---- FHA ----- ARMS
- ------------------------ ____ VA ----- GPM
---- Conv. Conforming ----Other
Escrow or Title Company: ---- Conv. Non-Conforming
- ------------------------
- ------------------------
DATE:______________ 19__
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC.,
a Delaware corporation
By:_________________________________
Name:__________________________
Title:_________________________
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199___, by ___________________, _________________ of HOMEOWNERS MORTGAGE &
EQUITY, INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said
corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- ---------------------- Printed Name of Notary
<PAGE>
Exhibit "C"
-----------
WAREHOUSE PROMISSORY NOTE
-------------------------
$2,000,000.00 Dallas, Texas June 1, 1996
FOR VALUE RECEIVED, the undersigned, HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation (herein called "Borrower"), hereby
--------
promises to pay to the order of GUARANTY FEDERAL BANK, F.S.B., a federal savings
bank (herein called "Bank"), the principal sum of TWO MILLION AND NO/100 DOLLARS
----
($2,000,000.00) or, if less, the aggregate unpaid principal amount of the Loan
made under this Note by Bank to Borrower pursuant to the terms of the Loan
Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America, for
the account of Bank, at the offices of Guaranty Federal Bank, F.S.B. at 8333
Douglas Avenue, Dallas, Texas or at such other place within Dallas County, Texas
or such other address as may be given to Borrower by the Bank.
This Note (a) is executed and delivered pursuant to that certain Warehouse
Loan Agreement dated as of June 1, 1996 between Borrower and the Bank (herein,
as from time to time supplemented, amended or restated, called the "Loan
----
Agreement"), and is the Warehouse Promissory Note and the Note as defined
- ---------
therein, (b) is subject to the terms and provisions of the Loan Agreement, which
contains provisions for payments and prepayments hereunder, acceleration of the
maturity hereof upon the happening of certain stated events and the obligation
of Bank to advance funds hereunder, and (c) is secured by and entitled to the
benefits of certain Loan Documents (as identified and defined in the Loan
Agreement). Payments on this Note shall be made and applied as provided herein
and in the Loan Agreement. Interest shall be due and payable on each Interest
Payment Date. Reference is hereby made to the Loan Agreement for a description
of certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Loan Documents for a description of the nature and extent of the security
thereby provided and the rights of the parties thereto. All capitalized terms
used herein and not otherwise defined herein shall have the meanings given
thereto in the Loan Agreement. The holder of this Note shall be entitled to the
benefits provided for in the Loan Agreement.
Interest shall be due and payable on the tenth day of each month, beginning
July 10, 1996, and on any other Interest Payment Date. Interest shall accrue on
the outstanding principal balance of this Note at the rates specified in the
Loan Agreement.
The principal amount of this Note, together with all unpaid interest
accrued hereon, shall be due and payable in full on January 31, 1997. All
payments of principal of and interest upon this Note shall be made by Borrower
to the Bank in federal or other immediately available funds. All payments made
hereon shall be due and payable and applied in accordance with the Loan
Agreement.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Loan Agreement which more fully set out the limitations on how
interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Maximum Rate and for all other purposes. The term "applicable
law" as used in this Note shall mean the laws of the State of Texas or the laws
of the United States,
-------------
Initialed for
Identification
-1-
<PAGE>
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court of in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, diligence in
collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
Borrower reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Loan Agreement.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
---------------------------------------------------------------------------
BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY
- --------------------------------------------------------------------------------
APPLICABLE FEDERAL LAW.
- -----------------------
THIS NOTE AND THE OTHER LOAN DOCUMENTS 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.
HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A
HOME, INC., a Delaware corporation
By:___________________________
John Ballard,
President
-------------
Initialed for
Identification
-2-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of June, 1996, by
John Ballard, President of HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC.,
a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public -State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
-3-
<PAGE>
(Guaranty Federal Bank Letterhead) EXHIBIT "E"
-----------
Investor Address AIR BILL #___________
- ----------------
______________________
______________________
DATE ________________
BAILEE LETTER
-------------
Ladies and Gentlemen:
Enclosed are ____ original promissory notes in the original principal
amount of $________ ("Notes") evidencing the mortgage loans described on the
-----
attached Schedule "A" along with other related documents (collectively,
------------
"Collateral"), for inspection by ___________________________ ("Investor") prior
- ----------- --------
to purchase pursuant to a commitment to purchase such mortgage loans from
HomeOwners Mortgage & Equity, Inc. d/b/a Home, Inc. ("Seller"). A security
------
interest in the Collateral and proceeds has been granted to GUARANTY FEDERAL
BANK, F.S.B. ("Bank"), in accordance with Seller's warehouse loan agreement (the
----
"Loan Agreement") with Bank.
--------------
All Collateral now or hereafter delivered to Investor is to be held by
Investor in trust as a custodian, bailee and agent for the benefit of Bank and
subject to only Bank's direction and control until released as provided herein.
Proceeds of all Collateral accepted for purchase must be remitted immediately,
by wire transfer, upon settlement by Investor, in immediately available funds,
to: GUARANTY FEDERAL BANK, F.S.B., ABA #________________ for benefit of
HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC., Account #________________,
Attn:___________________. Investor shall be responsible for making certain that
all of the proceeds from the sale of the Collateral are received in accordance
with the wire transfer instructions set forth above.
Bank has no obligation to release its security interest in the collateral
unless Bank receives the minimum amount of proceeds for each Note as set forth
on the attached Schedule "A". Upon Bank's receipt of such proceeds, its
------------
security interest in the Collateral shall terminate without further action. The
Collateral has not been assigned or transferred by Bank to any other party.
Collateral which is not purchased must be returned within ten (10) days
after the date of this Bailee Letter to the undersigned at the address listed
above. The Bank reserves the right at any time, until the Collateral has been
purchased, to demand the return of the Collateral to Bank, and Investor agrees
to return to Bank any Collateral not purchased by Investor immediately upon such
demand by Bank.
The persons listed on the attached Schedule "B" are the authorized
------------
representatives ("Authorized Representatives") of Bank. Investor shall not
--------------------------
honor any communication from Seller relating to any Collateral, which is not
confirmed by the written or telephonic consent of an Authorized Representative
of Bank, or until Bank has received the minimum amount of proceeds of the sale
of such Notes set forth on the attached Schedule "A". Investor shall not deliver
------------
any Collateral to any third party without the prior written consent of Bank. In
no event shall the Notes enclosed herein be returned to Seller.
<PAGE>
PAGE 2
In the event Investor is not able for any reason to comply with the terms
of this Bailee Letter, Investor shall immediately return all Collateral to Bank
at the above address.
No deviation in performance of the terms of any previous Bailee Letter
will alter any of your duties or responsibilities as provided herein. If Bank
files suit to recover the Collateral, or the proceeds from the sale of the
Collateral, the prevailing party shall recover all attorneys' fees, expenses and
costs as a result of such action.
By accepting the Collateral, Investor shall be bound by the terms of this
Bailee Letter, Bank requests that Investor acknowledge receipt of the Collateral
and this Bailee Letter by signing and returning the enclosed copy of this
Bailee Letter in the enclosed self-addressed envelope; provided, however, that
Investor's failure to do so does not nullify Investor's acceptance of the terms
of this Bailee Letter.
Sincerely,
GUARANTY FEDERAL BANK, F.S.B.
By: ________________________________
Name:___________________________
Title:__________________________
ACKNOWLEDGEMENT OF RECEIPT
INVESTOR:
- --------
___________________________________ [COMPANY]
By:________________________________
Name:______________________________
Title:_____________________________
Dated:_____________________________
<PAGE>
PAGE 3
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by ___________________, _________________ of ___________________________,
a _______________ __________________, on behalf of said __________________.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
The undersigned Seller agrees to and acknowledges the terms of this Bailee
Letter and, notwithstanding any contrary understanding with or instructions to
Investor, Seller instructs Investor to act according to the instructions set
forth in this Bailee Letter. These instructions cannot be altered except by
written instructions executed by Bank.
SELLER:
- ------
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
PAGE 4
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by ___________________, _________________ of ___________________________,
a _______________ __________________, on behalf of said __________________.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
<PAGE>
SCHEDULE "A"
------------
Minimum Amount Necessary to
Mortgagor Name Release Security Interest
- -------------- --------------------------
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
Total: $___________________________
<PAGE>
SCHEDULE "B"
------------
The following list of persons are authorized representatives of Bank. In
accordance with the terms of this Bailee Letter, you are instructed that until
Bank has received the minimum amount of proceeds noted above from the sale of
the Collateral, you are not to honor any communication from Seller relating to
any Collateral which is not confirmed by the written or telephonic consent of
one of the authorized signers listed below:
Typed Name: Title: Signature:
- ----------- ------ ----------
- ---------------- ----------------- -----------------
- ---------------- ----------------- -----------------
- ---------------- ----------------- -----------------
- ---------------- ----------------- -----------------
- ---------------- ----------------- -----------------
- ---------------- ----------------- -----------------
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by ___________________, _________________ of HOMEOWNERS MORTGAGE &
EQUITY, INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said
corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
<PAGE>
EXHIBIT "F"
-----------
TRUST RECEIPT
AND BAILEE LETTER
DATE:______________________
GUARANTY FEDERAL BANK, F.S.B.
8333 Douglas Avenue
Tenth Floor
Dallas, Texas 75225
Attn: W. James Meintjes
Pursuant to Section 3.06 of Loan Agreement by and between Guaranty Federal Bank,
------------
F.S.B., as "Bank", Bomar Mortgage Acceptance Corporation, as "Borrower" (as
---- --------
defined therein) ("Loan Agreement"), Borrower requests the temporary transfer of
--------------
the original Mortgage Note(s) as listed below to allow Borrower to make
corrections to such Mortgage Notes. We acknowledge that these Mortgage Notes
are being used as Mortgage Collateral for the warehouse line of credit
established by the Loan Agreement.
Borrower Loan Amount Collateral Value
- -------- ----------- ----------------
_______________ _______________ _____________________
_______________ _______________ _____________________
_______________ _______________ _____________________
Borrower agrees to hold the Mortgage Notes in trust for Bank, as a
custodian, bailee and agent for the benefit of Bank. Borrower agrees to do the
following within fourteen (14) days of this date:
(a) Return the Mortgage Notes to Bank, or
(b) Pay to Bank the Collateral Value of the Mortgage Notes.
In the event Borrower is unable for any reason to comply with the terms of
this Trust Receipt, Borrower shall immediately return the Mortgage Notes to
Bank.
By accepting the Mortgage Notes, Borrower shall be bound by the terms of
this Trust Receipt and Bailee Letter. Bank requests that Borrower acknowledge
the receipt of the Mortgage Notes and this Trust Receipt and Bailee Letter by
signing below. Capitalized terms not defined herein are used as defined in the
Loan Agreement.
REQUESTED BY:
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC.
By:____________________________
Name:________________________
Title:______________________
<PAGE>
EXHIBIT "G"
-----------
EXISTING INDEBTEDNESS
<PAGE>
EXHIBIT H
---------
CERTIFICATE ACCOMPANYING
------------------------
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Loan Agreement dated as of June 1, 1996
(as from time to time amended, the "Agreement"), by and between HOMEOWNERS
---------
MORTGAGE & EQUITY, INC. D/B/A HOME, INC. ("Borrower") and GUARANTY FEDERAL BANK,
--------
F.S.B. ("Bank"), which Agreement is in full force and effect on the date hereof.
----
Terms which are defined in the Agreement are used herein with the meanings given
them in the Agreement.
This Certificate is furnished pursuant to Sections 6.01(a) or 6.01(b) of
---------------------------
the Agreement. Together herewith Borrower is furnishing to Bank Borrower's
audited annual financial statements or monthly financial statement (the
"Financial Statements") dated ______________ (the "Reporting Date"). Borrower
- --------------------- --------------
hereby represents, warrants, and acknowledges to Bank that:
(a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting___________________________________
of Borrower and as such is Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c) attached hereto is Schedule H-1 showing Borrower's compliance as
------------
of the Reporting Date with the requirements of Sections 7.02,
-----
7.06, 7.09, 7.10, 7.12, 7.13, 7.14, 7.15 and 7.16 of the
--------------------------------------------------
Agreement and Borrower's non-compliance as of such date with the
requirements of Section(s) ____________________ of the Agreement;
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements
of Section 6.01 of the Agreement, and no Default otherwise
------------
existed on the Reporting Date or otherwise exists on the date of
this instrument [except for Default(s) under Section(s)
____________________ of the Agreement, which (is/are] more fully
described on a schedule attached hereto).
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________________,
19______.
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By:_________________________________
John Ballard,
President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, of HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC., a Delaware
corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
Printed Name of Notary
_____________________
<PAGE>
EXHIBIT H
---------
Schedule H-1
------------
Financial Covenants Required Actual or
- ------------------- -------- ---------
[IN COMPLIANCE]*
---------------
1) No Merger [7.01]: [YES] or [NO]
2 Limitation on Indebtedness
of Borrower [7.02]: [YES] or [NO] *
3) Negative Pledge [7.05]: [YES] or [NO] *
4) Loans, Advances and
Investments of Borrower
and Affiliates [7.06]: [YES] or [NO] *
5) Operational Changes [7.09]: [YES] or [NO] *
6) Compliance with ERISA
[7.10]: [YES] or [NO] *
7) Net Worth of Borrower Not less than $500,000
[7.11]: plus 7.11(a) & (b) _______
8) Adjusted Tangible Net
Worth of Borrower Not less than $500,000
[7.13]: HUD, FNMA, GNMA,
FHLMC minimum _______
9) Adjusted Tangible Net
Worth of Borrower Not less than $5000,000
[7.13]: Plus 7.13(a) & (b) _______
10) Total Liabilities to
Adjusted Tangible Net Not less than
Worth [7.14]: 10.0 to 1.0 _______
11) Management [7.15]: [YES] or [NO]*
12) Interested Transactions [7.16]: [YES] or [NO] *
13) Transfer of Stock [7.17]
[YES] or [NO] *
<PAGE>
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By: _______________________________
__________________, ___________
_______________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by _________________, _________________ of HOMEOWNERS MORTGAGE & EQUITY,
INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
<PAGE>
EXHIBIT "L"
-----------
COMPLIANCE CERTIFICATE
----------------------
Reference is made to that certain Loan Agreement dated as of June 1, 1996
(the "Loan Agreement"), between HomeOwners Mortgage & Equity, Inc. d/b/a Home,
--------------
Inc., a Delaware corporation ("Borrower") and Guaranty Federal Bank, F.S.B.
--------
("Bank"). Terms which are defined in the Loan Agreement and which are used but
- ------
not defined herein shall have the meanings given them in the Loan Agreement.
The undersigned, ______________________________ does hereby certify that he/she
has made a thorough inquiry into all matters certified herein and, based upon
such inquiry, experience, and the advice of counsel, does hereby further certify
that:
1. He/she is the duly elected, qualified, and acting President or Chief
Financial Officer of Borrower.
2. All representations and warranties made by Borrower in any Loan
Document delivered on or before the date hereof are true on and as of the date
hereof as if such representations and warranties had been made as of the date
hereof.
3. No Default or Event of Default exists on the date hereof.
4. Borrower has performed and complied with all agreements and conditions
required in the Loan Documents to be performed or complied with by it on or
prior to the date hereof.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
__________________, 199__.
________________________________
________________, ______________
Name Title
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of
_________________, 199__, by _________________, in his/her capacity as
______________ of HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC., a
Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
<PAGE>
EXHIBIT "M"
-----------
INTEREST RATE ELECTION NOTICE
-----------------------------
Reference is made to that certain Loan Agreement dated as of _____________,
1996 (the "Loan Agreement"), between HomeOwners Mortgage & Equity, Inc. d/b/a
--------------
Home, Inc., a Delaware corporation ("Borrower") and Guaranty Federal Bank,
--------
F.S.B. ("Bank"). Terms which are defined in the Loan Agreement and which are
----
used but not defined herein shall have the meanings given them in the Loan
Agreement. The undersigned is the duly elected qualified and acting officer of
Borrower. Pursuant to Paragraph 2.04(a) Borrower hereby elects to treat the
----------------
month of ____________, 199__, as a:
[_] Base Rate Month
or
[_] Federal Funds Rate Month.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
the ______________________, 199___.
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By: ________________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT 10.16(A)
FIRST AMENDMENT TO THE LOAN AGREEMENT
-------------------------------------
This FIRST AMENDMENT TO THE LOAN AGREEMENT ("Agreement") is made
---------
effective as of, although not necessarily on, the 9th day of July, 1996, by and
between GUARANTY FEDERAL BANK, F.S.B., a federal savings bank ("Bank") and
----
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME, INC.
("Borrower")
- ----------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on June 1, 1996, Borrower and Bank entered into that certain
Warehouse Loan Agreement (together with all amendments, modifications and
restatements thereof, the "Loan Agreement") dated of even date therewith
--------------
providing for a $2,000,000.00 credit facility (together with all increases,
collectively, the "Loan").
----
WHEREAS, in connection with the execution of the Loan Agreement,
Borrower executed that certain Promissory Note dated of even date (the "Note"),
----
that certain Security Agreement ("Security Agreement") was executed by Borrower
------------------
and Bank and a Financing Statement filed with the Secretary of State of Texas
(the "Financing Statement");
-------------------
WHEREAS, Bank and Borrower desire to amend the Loan Documents to
reflect certain changes to the Loan Agreement. All terms not defined herein are
used as defined in the Loan Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:
1. Loan Agreement. The following modifications are hereby made to
--------------
the Loan Agreement effective as of the date hereof:
(a) The first Whereas clause on page 1 of the Loan Agreement is
hereby modified to read in its entirety:
"WHEREAS, Borrower has requested that Bank make a loan (the
"Loan") to Borrower in the amount of $10,000,000.00 to enable
Borrower to originate and/or purchase conventional home
improvement, second lien mortgage loans and Title I Loans;"
(b) The definition of "Collateral Value" appearing on page 3 is
----------------
hereby modified to read in its entirety:
""Collateral Value" shall mean as of any date of
----------------
determination, an amount equal to (y) with respect to Title I
Loans which are Covered Mortgage Loans by virtue of a FNMA Take-
Out Commitment, ninety-eight percent (98%) and (z) with respect to
Title I Loans sold to the Investors other than FNMA and with
respect to Non-Title I Loans, ninety-seven percent (97%), of the
least of: (i) the actual out of pocket costs to Borrower of such
Mortgage Collateral (or in the case of any Mortgage Note funded by
Borrower, the original principal amount of such Mortgage Note
minus any discount points paid to Borrower upon the closing of the
loan evidenced by such Mortgage Note), or (ii) the Take-Out Value
of such item of Mortgage Collateral, or (iii) at the option of
Bank, the Market Value of such Mortgage Note; provided, however,
that (a) in no event shall the calculation above cause Bank to
fund an amount in excess of par for any Mortgage Loan, (b) any
Mortgage Note which evidences a Title I Loan shall be utilized in
the computation of Collateral Value for a maximum period of one
hundred twenty (120) days, (c) any Mortgage Note which evidences a
loan which is a Non-Title I Loan shall be utilized in the
computation of
<PAGE>
Collateral Value for a maximum period of ninety (90) days, (d) any
Mortgage Note which is in default, shall be excluded from the
computation of Collateral Value, (e) the cumulative Collateral
Value attributable to Second Lien Mortgage Loans which are
Conventional Loans shall be limited to $2,000,000.00, and (f) the
cumulative Collateral Value at any time attributable to Second
Lien Mortgage Loans which are Conventional Loans other than (i)
Conventional Home Improvement Loans, (ii) Conventional Purchase
Money Second Lien Loans and (iii) Conventional Equity Recovery
Loans, shall be limited to $1,000,000.00."
(c) The definition of "Commitment" is hereby modified to read in
its entirety:
""Commitment" as to Bank shall mean the obligation of Bank to
----------
make Advances to Borrower pursuant to Section 2.01 hereof in an
------------
aggregate amount not to exceed at any one time outstanding the
amount of $10,000,000.00."
(d) The definition of "Covered Mortgage Loan" is hereby modified
---------------------
to read as follows in its entirety:
""Covered Mortgage Loan" means a Title I Loan, a Conventional
---------------------
Loan, a Conventional Home Improvement Loan, a Conventional
Purchase Money Second Lien Loan, or Conventional Equity Recovery
Loan, with respect to which Borrower has a Take-Out Commitment
(excluding Take-out Commitments issued by an Affiliate of
Borrower)."
(e) The definition of "Delivery Commitment Certificate" is hereby
-------------------------------
deleted.
(f) The definition of "Dry Advance" is hereby deleted.
-----------
(g) The definition of "Fixed Rate" is hereby modified to read as
----------
follows in its entirety:
""Fixed Rate" shall mean a fixed rate of interest equal to
----------
three and one half percent (3.5%) per annum."
(h) The definition of "Investor" is hereby modified to read as
--------
follows in its entirety:
""Investor" shall mean any Person (other than an Affiliate of
--------
Borrower), which may include GFB, approved by Bank in writing in
its sole discretion, including but not limited to those Investors
listed on Exhibit "D", who agrees to purchase Mortgage Notes
-----------
pursuant to a Take-Out Commitment."
(i) The following new definition is added in alphabetical order
to the definitions on page 8:
""Liquidity" shall mean the sum of the following: (a)
---------
Borrower's cash plus (b) Net Collateral Surplus."
(j) The following new definition is added in alphabetical order
to the definitions on page 8:
""Master Take-Out Commitment" shall mean a Take-Out
--------------------------
Commitment from an Investor agreeing to purchase a specified
dollar amount of Mortgage Loans during a specified time period
provided such Mortgage Loans comply with the eligibility
requirements of Investor's loan program."
-2-
<PAGE>
(k) The definition of "Maximum Loan Amount" is hereby modified to
-------------------
read as follows in its entirety:
""Maximum Loan Amount" means, at any time, the sum of
-------------------
$10,000,000.00."
(l) The definition of "Mortgage" is hereby modified to read as
--------
follows in its entirety:
""Mortgage" shall mean a mortgage or deed of trust, on
--------
standard forms approved by VA, FHA, FNMA or FHLMC or otherwise in
form and substance satisfactory to Bank, granting a perfected
first-priority (or second-priority in the case of a Second Lien
Mortgage Loan or junior priority in the case of a secured Title I
Loan) lien on residential real property consisting of land and a
single family (1-4 family) dwelling thereon which is completed and
ready for occupancy."
(m) The definition of "Mortgage Collateral" is hereby modified to
-------------------
read as follows in its entirety:
""Mortgage Collateral" shall mean all Mortgage Notes and
-------------------
those items described in the Credit Request, which Bank has
accepted as Mortgage Collateral hereunder supported by the
documentation specified herein, which meets continuously the
following additional conditions: (i) which at all times constitute
a Covered Mortgage Loan, (ii) which are made payable to the order
of Borrower or have been endorsed (without restriction or
limitation) payable to the order of Borrower, (iii) in which the
Bank has been granted and continues to hold a perfected first-
priority security interest, (iv) which are in form and substance
acceptable to the Bank in its reasonable discretion, (v) which are
secured by Mortgages, (vi) which, together with such Mortgages,
conform in all respects with all the requirements for purchase of
such Mortgage Notes under the Take-Out Commitments and are valid
and enforceable in accordance with their respective terms, (vii)
under which there shall be no default as to the payment of any
installment of principal or interest, or other default, and
foreclosure or other similar proceedings shall not have been
commenced with respect thereto, (viii) there shall be no pending
claim for any credits, allowance or adjustment with respect
thereto, (ix) each Mortgage Loan is delivered to Bank not more
than five (5) Business Days after the date of funding of such
Mortgage Loan, (x) if required by applicable Appraisal Laws and
Regulations, is covered by an Appraisal which complies with all
applicable Appraisal Laws and Regulations and (xi) which are one
of the following a Title I Loan (which may be unsecured if no
collateral was taken for such loan), a Conventional Equity
Recovery Loan, a Conventional Home Improvement Loan, a
Conventional Purchase Money Second Lien Loan or a Second Lien
Mortgage Loan."
(n) The definition of "Mortgage Loan" is hereby modified to read
-------------
as follows in its entirety:
""Mortgage Loan" means a loan represented by a Mortgage Note
-------------
which bears interest at either a Fixed Rate or an adjustable rate
and which is collateralized or secured by a Mortgage (except in
the case of a Title I Loan which is not secured by real property),
provided that in no event shall Mortgage Note mean a promissory
note evidencing a commercial loan."
(o) The definition of "Mortgage Note" is hereby modified to add
-------------
the following phase: "a Title I Loan" after the word "evidencing" in
the first line of the definition.
(p) The following new definition is added in alphabetical order
to the definitions on page 9:
-3-
<PAGE>
""Non-Title I Loan" shall mean a Conventional Loan which is a
----------------
Second Lien Mortgage Loan, a Conventional Equity Recovery Loan, a
Conventional Home Improvement Loan or a Conventional Purchase
Money Second Lien Loan not insured under Title I."
(q) The definition of "Operating Account" is hereby deleted.
-----------------
(r) The definition of "Take-Out Commitment" is hereby modified to
-------------------
read as follows in its entirety:
""Take-Out Commitment" for Non-Title I Loans shall mean a
-------------------
current, valid, binding and enforceable commitment to purchase
that specific Mortgage Note which constitutes Mortgage Collateral
(evidenced by the written pre-approval of that Mortgage Loan from
the Investor) within a period of not more than ninety (90) days
from the date of such Mortgage Note related thereto in an amount,
form and substance satisfactory to Bank in its reasonable
discretion, issued by an Investor and with respect to which there
shall be no condition which cannot be reasonably anticipated to be
satisfied or complied with prior to its expiration. For Title I
Loans Take-Out Commitment shall mean a current, valid, binding and
enforceable commitment to purchase that specific Mortgage Note
which constitutes Mortgage Collateral (evidenced by the written
pre-approval of that Mortgage Loan from the Investor) within a
period of not more than one hundred twenty (120) days from the
date of such Mortgage Note related thereto in an amount, form and
substance satisfactory to Bank in its reasonable discretion,
issued by an Investor and with respect to which there shall be no
condition which cannot be reasonably anticipated to be satisfied
or complied with prior to its expiration."
(s) The following new definition is added in alphabetical order
to the definitions on page 12:
""Title I" means Title I of the National Housing Act in 1934,
-------
12 U.S.C. 1703, as amended by the National Affordable Housing Act
of 1989 and the Housing and Community Development Act of 1992,"
(t) The following new definition is added in alphabetical order
to the definitions on page 12:
""Title I Loan" means a Loan reasonably satisfactory to the
------------
Bank, which conforms to the eligibility requirements established
by an Investor pursuant to the requirements of a Take-Out
Commitment acceptable to Bank and which is insured under Title I."
(u) The definition of "Wet Advance" is hereby deleted.
-----------
(v) Section 2.03 is hereby modified to read as follows in its
------------
entirety:
"Section 2.03. Notice and Manner of Obtaining Borrowings.
-----------------------------------------
Borrowings. Borrower shall give the Bank (i) prior to 9:00
----------
p.m. (Dallas, Texas time) on the Business Day prior to a Borrowing
Date, telephonic or telecopy notice of the amount of such
requested Borrowing, (ii) written notice by means of a Credit
Request sent to Bank by telecopy or Federal Express and received
by Bank prior to 10:30 a.m. (Dallas, Texas time) on the Borrowing
Date in accordance with the provisions of Section 4.02 hereof and
------------
(iii) original documents required pursuant to Section 3.02. The
------------
Bank will make such funds available to the Borrower in accordance
with Section 3.06."
------------
-4-
<PAGE>
(w) Section 2.04(c)(1)(a) is hereby modified to read "the sum of
---------------------
the Funds Rate and three and one half percent (3.5%)".
(x) Section 2.04(c)(2)(a) is hereby modified to read as follows:
---------------------
"the sum of the Base Rate and one and one half percent (1.5%)".
(y) Section 3.02(b) is hereby modified as follows to read in its
---------------
entirety:
"(b) the original filed copy, or a copy of the original filed
copy, certified by the Borrower (and if applicable the title
company that insured title to the mortgage property) as being true
and complete, of the Mortgage (or in the case of Title I Loan, if
applicable, the security agreement and financing statement as to
loans secured by personal property but not real property and
certificate of title in the case of Title I Loans secured by
manufactured homes) relating to each Mortgage Note;"
(z) Section 3.02(c) is hereby modified as follows to read in its
---------------
entirety:
"(c) an original assignment (leaving the name of the assignee
blank) executed by Borrower, for each Mortgage Note and the
Mortgage (or in the case of Title I Loans, if secured by personal
property, security agreement, financing statements and certificate
of title in the case of manufactured homes) securing such Mortgage
Note, in recordable form, and otherwise in form satisfactory to
the Bank [and if the Borrower is not the named payee on the face
of such Mortgage Note, copies (bearing evidence of recordation or
certification by the Borrower that such intervening assignment has
been sent to the appropriate Governmental Authority for
recordation) of all intervening assignments of such Mortgage Note
and the related Mortgage (or in the case of Title I Loans, if
secured by personal property, security agreement, financing
statements and certificate of title in the case of manufactured
homes)];"
(aa) Sections 3.02(d), (e) and the final paragraph of Section 3.02
--------------------- ------------
are hereby modified to read as follows in their entirety:
"(d) Evidence satisfactory to Bank that all Mortgage Loans
pledged as Collateral hereunder including those listed on the
Collateral Schedule are Covered Mortgage Loans; and
(e) if applicable, a true and complete photocopy of the
closing instructions executed by Borrower and the title company
closing the transaction (which shall not be an Affiliate of
Borrower) evidenced by such Mortgage Note, along with a copy of
the title commitment, borrower's closing statement showing among
other items payment of the title insurance policy premium and
evidence of compliance with the Federal Truth in Lending Act and
the Real Estate Settlement Procedures Act.
Borrower shall hold in trust for the Bank, with respect to each
Mortgage Note if applicable, a mortgagee policy of title insurance
insuring Borrower's perfected, first-priority Lien (and in the
case of a Second Lien Mortgage Loan, a second-priority lien and in
the case of a Title I Loan, a junior lien) created by the Mortgage
securing such Mortgage Note, if applicable, the original insurance
policies referred to in Section 6.06 hereof, if required by
Appraisal Laws and Regulations, an Appraisal complying with the
Appraisal Laws and Regulations and all other original documents
executed in connection with such Mortgage Note and not delivered
to the Bank, and shall specifically identify such items in the
Credit Request and upon request of the Bank shall immediately
deliver such items to the Bank. The Bank in its reasonable
discretion may reject
-5-
<PAGE>
as unsatisfactory any items so delivered and in such event such
Mortgage Loans shall have a Collateral Value of zero."
(bb) Section 3.04(f)(1) is hereby modified to read as follows in
------------------
its entirety:
"(1) Within the earlier to occur of (A) the date in which
the time limit provided in the applicable Take-Out Commitment with
respect to any Mortgage Loan expires or (B) the date that is (I)
ninety (90) days for Non-Title I Loans and one hundred twenty
(120) days for Title I Loans, following the date of delivery to
the Bank for any type of Mortgage Loan such Mortgage Loan shall
not have been sold or exchanged for other Mortgage Collateral; or
the issuer of such Take-Out Commitment shall decline to purchase
such Mortgage Loan for any reason, including without limitation,
for the reason that such Mortgage Loan was not made in compliance
with applicable federal and/or state laws or regulations; or"
(cc) Section 3.04(f)(5) is hereby modified to read as follows in
------------------
its entirety:
"(5) Any Mortgage deposited as Mortgage Collateral shall not
continue to be (A) a valid and enforceable first Lien (or second
Lien in the case of Second Lien Mortgage Loans, Conventional
Equity Recovery Loan, Conventional Home Improvement Loan, or
Conventional Purchase Money Second Lien Loan or a junior lien in
the case of Title I Loans) on the mortgaged property covered
thereby, and in compliance with all laws applicable thereto, (B)
if applicable, insured in favor of Borrower and its assignees by a
reputable, duly licensed title insurance company acceptable to the
Bank under a policy of title insurance in the full amount of the
loan related thereto, (C) in full force and effect, and (D) fully
serviced by or for Borrower (including the collection of all
amounts due thereon); or"
(dd) Section 3.04(f)(9) is hereby deleted and "; or" at the end of
------------------
Section 3.04(f)(8) is replaced with a period.
------------------
(ee) The references to "Operating Account" in Section 3.06 in the
------------
title and preliminary paragraph are hereby deleted.
(ff) Section 3.06(c) is hereby modified to read as follows in its
---------------
entirety:
"[INTENTIONALLY DELETED]"
(gg) Sections 3.06(f), (g) and (h) are hereby deleted and replaced
-----------------------------
with the following subparagraphs:
"(f) proceeds of Advances shall be wired directly from the
Funding Account to Borrower's operating account at Frost National
Bank, San Antonio, Texas ABA #114000093, Credit: Home, Inc.
Account #591044583; and
(g) proceeds from the redemption of Mortgage Collateral shall
be deposited in the Settlement Account."
(hh) Section 3.07(a) is hereby modified to replace the phrase "and
---------------
(vi) any consumer protection laws;" with the phrase "(vi) any consumer
protection laws, and (vii) in the case of a Title I Loan, that such
Mortgage Loan complies in all respects with the requirements of Title
I and is presently insured under Title I;"
-6-
<PAGE>
(ii) Section 3.07(d) is hereby modified to read as follows in its
---------------
entirety:
"(d) the Mortgage related to such Mortgage Note creates a
perfected first-priority Lien (or second-priority Lien in the case
of Second Lien Mortgage Loan, Conventional Equity Recovery Loan,
Conventional Home Improvement Loan, or Conventional Purchase Money
Second Lien Loan or in the case of a Title I Loan, a junior lien)
on residential real property consisting of land and a one-to-four
family dwelling thereon which is completed and ready for occupancy
and such Mortgage, the title policy relevant thereto and the other
Mortgage documents relevant thereto comply in all respects with
the requirements of the Investor under the Take-Out Commitment by
which such Mortgage Note is "covered;"
(jj) Section 3.08 is hereby modified to read as follows in its
------------
entirety:
"Section 3.08 Borrower Appointed Agent. The Bank hereby
------------------------
appoints the Borrower (and, in the case of any loan evidenced by a
Mortgage Note originated by a Person other than the Borrower, also
appoints such other Person) as its agent for purposes of (a)
obtaining Appraisals if required by Appraisal Laws and Regulations
and (b) complying with Appraisal Laws and Regulations."
(kk) Section 4.02(c) is hereby modified to read as follows in its
---------------
entirety:
"(c) along with each Credit Request, Borrower shall deliver
to the possession of the Bank originals of all the items required
to be delivered to the Bank by Section 3.02;"
------------
(ll) Section 4.02(g) is hereby modified to read as follows in its
---------------
entirety:
"(g) the Funding Account and the Settlement Account shall be
established and in existence; and"
(mm) Section 4.02(h) is hereby deleted.
---------------
(nn) Section 5.23 is hereby modified to read as follows in its
------------
entirety:
"Section 5.23 Eligibility. Borrower is an eligible FHA Title
-----------
I mortgagee and a FNMA seller/servicer for Title I Loans."
(oo) Section 6.01(a) is hereby modified to replace the deadline of
---------------
"one hundred twenty (120) days" appearing in the first line with the
deadline of "ninety (90) days".
(pp) Section 6.01(d)(iii) is hereby modified to replace the phrase
--------------------
"and cost of servicing" at the end of such subsection with the phrase
"cost of servicing, claims filed, claims paid and claims rejected".
(qq) Section 6.16 is hereby modified to read as follows in its
------------
entirety:
"Section 6.16 Maintenance of Collateral. Borrower will keep
-------------------------
and maintain at all times each Mortgage securing the Mortgage
Notes constituting Mortgage Collateral or other instruments or
documents evidencing Mortgage Collateral held by or for Bank (i)
as a valid and enforceable lien on the mortgaged property covered
thereby if a secured Mortgage Loan, enforceable and in compliance
with all laws applicable thereto; (ii) if applicable, insured in
favor of Borrower and its assignees by a reputable, duly licensed
title insurance company (which is not an Affiliate of Borrower),
under a mortgagee policy of title insurance in the full amount of
the loan related
-7-
<PAGE>
thereto; and (iii) in full force and effect, without any default.
If applicable, the improvements on the land covered by each
Mortgage relating to a Mortgage Note constituting Mortgage
Collateral shall be kept continuously insured at all times by
reasonable insurance companies against fire and extended coverage
hazards under policies, binders, letters, or certificates of
insurance, with a standard mortgagee clause in favor of Borrower
and its assigns. Borrower shall, and does hereby, assign all such
insurance, if applicable, to the Bank only so long as the related
Mortgage Note shall constitute Mortgage Collateral. Each such
policy must be in an amount equal to the lesser of the maximum
insurable value of the improvements or the original principal
amount of the Mortgage, without reduction by reason of any co-
insurance, reduced rate contribution, or similar clause of the
policies or binders."
(rr) Section 6.23 is hereby modified to read as follows in its
------------
entirety:
"Section 6.23 Appraisals. If applicable, the Borrower shall
----------
obtain and maintain a copy of an Appraisal with respect to the
underlying property covered by each Mortgage included as Mortgage
Collateral, shall require that all Appraisals delivered to
Borrower in connection with the Mortgage Loans constituting
Mortgage Collateral (whether originated by the Borrower or
purchased by Borrower) comply in all respects with the Appraisal
Laws and Regulations, shall implement and maintain administrative
and operating procedures which permit the Borrower, the Bank to
verify such compliance."
(ss) Section 7.06(d) is hereby modified to replace the figure of
---------------
"$75,000.00" with the figure of "$100,000.00".
(tt) Section 7.11 is hereby modified to replace the figure of
------------
"$500,000.00" appearing in part (a) with the figure, "$3,000,000.00".
(uu) Section 7.13 is hereby modified to replace the figure of
------------
"$500,000.00" appearing in part (a) with the figure "$3,000,000.00".
(vv) Section 7.14 is hereby modified to replace the ratio of "10.0
------------
to 1.0" with the ratio of "3.5 to 1.0".
(ww) The following new paragraph Section 7.20 Liquidity. is hereby
----------------------
added:
"Liquidity. Borrower at all times shall maintain a minimum
---------
Liquidity of no less than $500,000.00."
(xx) The listing of "Exhibits" is hereby modified to read as shown
on the page entitled "Exhibits" attached hereto and incorporated
herein by this reference.
(yy) Exhibit "A" is hereby modified to read as shown on Exhibit
----------- -------
"A" attached hereto and incorporated herein by this reference.
---
(zz) Exhibit "B" is hereby deleted.
-----------
(ab) Exhibit "C" is hereby modified to read as shown on Exhibit
----------- -------
"C" attached hereto and incorporated herein by this reference.
---
(ac) Exhibit "D" is hereby added and reads as shown on Exhibit "D"
----------- -----------
attached hereto and incorporated herein by this reference.
-8-
<PAGE>
(ad) Exhibit "G" is hereby modified to read as shown on Exhibit
----------- -------
"E" attached hereto and incorporated herein by this reference.
---
(ae) Exhibit "H" is hereby modified to read as shown on Exhibit
----------- -------
"F" attached hereto and incorporated herein by this reference.
---
2. Note. Borrower shall execute a new promissory note in the form
----
shown on Exhibit "C" and incorporated herein by this reference.
-----------
3. Security Agreement. The Security Agreement is modified as
------------------
follows:
(a) The following new definition is added in alphabetical order:
"FHA Receivables" shall mean any and all claims of Borrower
---------------
against the United States Department of Housing and Urban
Development for payment of a claim filed by Borrower relating to a
Title I Loan serving as Collateral hereunder."
(b) The following new definition is added in alphabetical order:
""Title I" means Title I of the National Housing Act in 1934,
-------
12 U.S.C. 1703, as amended by the National Affordable Housing Act
of 1989 and the Housing and Community Development Act of 1992."
(c) The following new definition is added in alphabetical order
to the definitions on page 12:
""Title I Loan" means a Loan reasonably satisfactory to the
------------
Bank, which conforms to the eligibility requirements established
by an Investor pursuant to the requirements of a Take-Out
Commitment acceptable to Bank and which is insured under Title I .
(d) Section 2(e) is hereby modified to add the phrase "FHA
------------
Receivables" after the phrase "including, without limitation,"
4. Financing Statements. Borrower shall execute an UCC-3 modifying
--------------------
the existing financing statement in the form attached hereto as Exhibit "G".
-----------
5. Commitment Fee. The Borrower shall pay on or before July 1, 1996
--------------
the commitment fee due on such date pursuant to Section 11.02 of the Loan
-------------
Agreement in the amount of $3,125.00.
6. [INTERNATIONALLY DELETED]
7. Closing Letter. Borrower shall execute a closing letter in the
--------------
form attached hereto as Exhibit "H".
-----------
8. Acknowledgement by Borrower. Except as otherwise specified herein,
---------------------------
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Borrower hereby acknowledges, agrees and represents that (i) Borrower is
indebted to the Bank pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, valid and subsisting liens, security interests and assignments of
the
-9-
<PAGE>
respective dignity and priority recited in the Loan Documents; (iii) the
representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrower, as of the date hereof and no
defaults exist under the Loan Documents; and (iv) Borrower has no set-offs,
counterclaims, defenses or other causes of action against the Bank arising out
of the Loan Documents, the modification and extension of the Loan, any documents
mentioned herein or otherwise and to the extent any such set-offs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by Borrower.
9. No Waiver of Remedies. Nothing contained in this Agreement shall
---------------------
prejudice, act as, or be deemed to be a waiver of any right or remedy available
to the Bank by reason of the occurrence or existence of any fact, circumstance
or event constituting a default under the Note or the other Loan Documents.
10. Costs and Expenses. Contemporaneously with the execution and
------------------
delivery hereof, Borrower shall pay, or cause to be paid, all costs and expenses
incident to the preparation, execution and recordation hereof and the
consummation of the transaction contemplated hereby, including, but not limited
to, recording fees and reasonable fees and expenses of legal counsel to the
Bank. The attorney's fees and expenses of the Bank's law firm, Jackson & Walker,
L.L.P., shall be paid simultaneously with the execution of this Agreement.
11. Additional Documentation. From time to time, Borrower shall
------------------------
execute or procure and deliver to Bank such other and further documents and
instruments evidencing, securing or pertaining to the Loan or the Loan Documents
as shall be reasonably requested by the Bank so as to evidence or effect the
terms and provisions hereof.
12. Effectiveness of the Loan Documents. Except as expressly
-----------------------------------
modified by the terms and provisions hereof, each of the terms and provisions of
the Loan Documents are hereby ratified and shall remain in full force and
effect; provided, however, that any reference in any of the Loan Documents to
the Loan, the amount constituting the Loan, any defined terms, or to any of the
other Loan Documents shall be deemed, from and after the date hereof, to refer
to the Loan, the amount constituting the Loan, defined terms and to such other
Loan Documents, as modified hereby.
13. GOVERNING LAW. THE BORROWER HEREBY AGREES THAT THE OBLIGATIONS
-------------
CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL PARTIES HERETO
AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION MAY BE FILED IN DALLAS
COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN
THE LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION
SHALL BE IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE COMMENCED AGAINST BORROWER IN DALLAS
COUNTY, (V) SUCH ACTION MAY BE INSTITUTED IN THE COURTS OF THE STATE OF TEXAS
LOCATED IN DALLAS COUNTY, TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS, AT THE OPTION OF THE
BANK AND (VI) THE BORROWER HEREBY WAIVES ANY OBJECTION TO THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO BE
SUED ELSEWHERE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF EACH BANK TO
ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
14. Time. Time is of the essence in the performance of the covenants
----
contained herein and in the Loan Documents.
15. Binding Agreement. This Agreement and the Loan Documents shall be
-----------------
binding upon the heirs, executors, administrators, personal representatives,
successors and assigns of the parties hereto; provided, however, the foregoing
shall not be deemed or construed to (i) permit, sanction, authorize or condone
the assignment of all or any part of the Collateral or any of Borrower's rights,
titles or interest in and to the Collateral or any rights,
-10-
<PAGE>
titles or interests in and to Borrower, except as expressly authorized in the
Loan Documents, or (ii) confer any right, title, benefit, cause of action or
remedy upon any person or entity not a party hereto, which such party would not
or did not otherwise possess.
16. Headings. The section headings hereof are inserted for
--------
convenience of reference only and shall in no way alter, amend, define or be
used in the construction or interpretation of the text of such section.
17. Construction. Whenever the context hereof so required,
------------
reference to the singular shall include the plural and likewise, the plural
shall include the singular; words denoting gender shall be construed to mean the
masculine, feminine or neuter, as appropriate; and specific enumeration shall
not exclude the general but shall be construed as cumulative of the general
recitation.
18. Counterparts. To facilitate execution, this Agreement may be
------------
executed in as many counterparts as may be convenient or required. It shall not
be necessary that the signature and acknowledgement of, or on behalf of, each
party or that the signature and acknowledgement of all persons required to bind
any party appear on each counterpart. All counterparts shall collectively
constitute a single document containing the respective signatures and
acknowledgement of, or on behalf of, each of the parties hereto. Any signature
and acknowledgement page to any counterpart may be detached from such
counterpart without impairing the legal effect of the signatures and
acknowledgements thereon and thereafter attached to another counterpart
identical thereto except having attached to it additional signature and
acknowledgement pages.
THIS AGREEMENT AND THE LOAN DOCUMENTS COLLECTIVELY 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.
EXECUTED as of the date first above written.
BANK:
----
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/W. James Meintjes
---------------------------
W. James Meintjes,
Assistant Vice President
BORROWER:
--------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By:/s/Tommy M. Parker
----------------------------
Tommy M. Parker,
Executive Vice President
-11-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 12th day of July, 1996, by
W. James Meintjes, Assistant Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said bank.
/s/Jean Turner
--------------------------------
Notary Public - State of Texas
My Commission expires:
1-13-97
- ------------------------
JEAN TURNER
---------------------------------
Printed Name of Notary
[NOTARY PUBLIC SEAL]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 9 day of July, 1996, by
Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY, INC.
d/b/a Home, Inc., a Delaware corporation, on behalf of said corporation.
/s/Glenda Houchin
------------------------------------
Notary Public - State of Texas
My Commission expires:
1-20-98
- ---------------------------
GLENDA HOUCHIN
---------------------------------
Printed Name of Notary
[NOTARY PUBLIC SEAL]
-12-
<PAGE>
Exhibits:
- --------
"A" -- Mortgage Warehouse Credit Request
"B" -- [Intentionally Deleted]
"C" -- Form of Promissory Note
"D" -- Investors
"E" -- Bailee Letter
"F" -- Trust Receipt and Bailee Letter
"G" -- Existing Indebtedness
"H" -- Certificate Accompanying Financial Statements
"I" -- [Intentionally Deleted]
"J" -- [Intentionally Deleted]
"K" -- [Intentionally Deleted]
"L" -- Compliance Certificate
"M" -- Interest Rate Election Notice
<PAGE>
EXHIBIT "A"
-----------
MORTGAGE WAREHOUSE CREDIT REQUEST
From: HomeOwners Mortgage & Equity, Inc. d/b/a Home, Inc.
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
Phone (512) 343-8911
Fax (512) 343-1837
TO: Guaranty Federal Bank, F.S.B.
1. HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC. requests an Advance in
the amount and on the date specified from the Bank (cumulatively, a
"Borrowing") in the cumulative amount and on the date herein specified,
----------
pursuant to the Warehouse Loan Agreement among Borrower, GUARANTY FEDERAL
BANK, F.S.B. ("Bank"), dated as of June 1, 1996, as amended to date (the
----
"Agreement"), and hereby grants to Bank, in accordance with the provisions
----------
of that certain Security Agreement, dated as of even date with the
Agreement, between Borrower and the Bank, as amended to date, a security
interest and Lien in the Mortgage Collateral described on the attached
schedule. Capitalized terms used herein and defined in the Agreement shall
be used herein as so defined.
2. (a) Borrowings requested:
(i) Borrower hereby requests a Borrowing in the principal amount of
$__________.
(ii) Requested Borrowing Date: _______________, 199__.
(iii) Borrower hereby grants to the Bank a security interest in each
Mortgage Note described on Schedule I attached hereto.
----------
(b) Requirement of Agreement: Maximum of $2,000,000 comprised of Second
Lien Mortgage Loans which are Conventional Loans.
Requirement satisfied _______.
Requirement not satisfied _______.
(c) Requirement of Agreement: Maximum of $1,000,000.00 [of $2,000,000.00
in (c)] comprised of Second Lien Mortgage Loans other than
Conventional Equity Recovery Loans, Conventional Purchase Money Second
Lien Loans and Conventional Home Improvements Loans.
Requirement satisfied _______.
Requirement not satisfied _______.
3. The undersigned officer of Borrower represents and warrants to the Bank:
(a) Borrower is entitled to receive the requested Borrowing under the
terms and conditions of the Agreement;
<PAGE>
(b) all items which Borrower is required to furnish to the Bank pursuant
to the Agreement accompany this Credit Request;
(c) all Mortgage Collateral offered hereby conforms in all respects with
the applicable requirements set forth in the Agreement and the
Security Agreement;
(d) no Default has occurred and is continuing under the Agreement;
(e) no change or event which constitutes a Material Adverse Effect has
occurred;
(f) each Mortgage Loan has been closed and funded with advance(s) (an
"Advance") made by the Bank pursuant to the Agreement, such Advance
--------
constituting "new value" as that term is used in Section 9.304(d) of
----------------
the Texas Business and Commerce Code (or the corresponding provision
of the Code of any other applicable jurisdiction).
(g) Bank has a first perfected security interest in and first lien upon
said Mortgage Loan, including, without limitation, in the promissory
note evidencing such Mortgage Loan (the "Mortgage Note").
-------------
(h) the Mortgage Note and all other documents, instruments and agreements
required to be delivered to Bank pursuant to Section 2.03 of the
------------
Agreement with respect to such Mortgage Loan (the "Required
--------
Documents"), have been delivered to Bank.
---------
Borrower hereby acknowledges and agrees that any Advance relating to the
Mortgage Loan described below is secured by all Collateral in which Bank has a
security interest under the Agreement and Loan Documents.
4. Borrower represents and warrants that Borrower holds with respect to each
of the Mortgage Notes hereby offered the following:
(a) unless delivered herewith, the original filed copy of the Mortgage
relating to such Mortgage Note;
(b) if applicable, mortgagee policies of title insurance conforming to the
requirements of the Bank or binding commitments for the issuance of
same;
(c) if applicable, insurance policies insuring the mortgaged premises as
required by the Bank; and
(d) unless delivered herewith, an original executed Take-Out Commitment
relating to such Mortgage Note.
Borrower agrees that it holds the above items in trust for the Bank, and
will at any time deliver the same to the Bank upon request or, upon written
instructions from the Bank, to any Person designated by the Bank. Borrower
further agrees that it will not deliver any of the above items, nor give,
transfer, or assign any interest in same, to any Person other than the Bank
(or the Person or Persons designated by the Bank) without the prior written
consent of the Bank.
-2-
<PAGE>
5. The representations and warranties of Borrower contained in the Agreement
and those contained in each other Loan Document to which Borrower is a
party are true and correct in all respects on and as of the date hereof.
HomeOwners Mortgage & Equity, Inc.
d/b/a Home, Inc.,
a Delaware corporation
Date:____________, 199___ By:__________________________________________
Tommy M. Parker,
Executive Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of ___________,
199___, by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE &
EQUITY, INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said
corporation.
_______________________________________________
Notary Public - State of Texas
My Commission expires: _______________________________________________
Printed Name of Notary
______________________
-3-
<PAGE>
SCHEDULE I
MORTGAGE NOTES
<TABLE>
<CAPTION>
Original
Type of Principal Collateral Interest Maturity Loan
Loan Date Amount Value Maker Payee Rate Date Number
---- ---- ------ ----- ---- ----- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
LEGEND:
- -------
FNMA - Title I loans eligible for sale to FNMA (98% advance
- ----
rate)
Non-FNMA - Title I loans not eligible for sale to FNMA (97%
- --------
advance rate)
Conv./HIL - Conventional Home Improvement (97% advance rate)
- ---------
Conv./ERL - Conventional Equity Recovery (97% advance rate)
- ---------
Conv./PMS - Conventional Purchase Money Seconds (97% advance rate)
- ---------
Conv./Other - Conventional loans other the Conventional Home
- -----------
Improvement, Conventional Equity Recovery and
Conventional Purchase Money Seconds (97% advance rate)
-4-
<PAGE>
Exhibit "C"
-----------
WAREHOUSE PROMISSORY NOTE
-------------------------
$10,000,000.00 Dallas, Texas July 9, 1996
FOR VALUE RECEIVED, the undersigned, HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation (herein called "Borrower"), hereby
--------
promises to pay to the order of GUARANTY FEDERAL BANK, F.S.B., a federal savings
bank (herein called "Bank"), the principal sum of TEN MILLION AND NO/100 DOLLARS
----
($10,000,000.00) or, if less, the aggregate unpaid principal amount of the Loan
made under this Note by Bank to Borrower pursuant to the terms of the Loan
Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America, for
the account of Bank, at the offices of Guaranty Federal Bank, F.S.B. at 8333
Douglas Avenue, Dallas, Texas or at such other place within Dallas County, Texas
or such other address as may be given to Borrower by the Bank.
This Note (a) is executed and delivered pursuant to that certain Warehouse
Loan Agreement dated as of June 1, 1996 between Borrower and the Bank (herein,
as from time to time supplemented, amended or restated, called the "Loan
----
Agreement"), and is the Warehouse Promissory Note and the Note as defined
- ---------
therein, (b) is subject to the terms and provisions of the Loan Agreement, which
contains provisions for payments and prepayments hereunder, acceleration of the
maturity hereof upon the happening of certain stated events and the obligation
of Bank to advance funds hereunder, and (c) is secured by and entitled to the
benefits of certain Loan Documents (as identified and defined in the Loan
Agreement). Payments on this Note shall be made and applied as provided herein
and in the Loan Agreement. Interest shall be due and payable on each Interest
Payment Date. Reference is hereby made to the Loan Agreement for a description
of certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Loan Documents for a description of the nature and extent of the security
thereby provided and the rights of the parties thereto. All capitalized terms
used herein and not otherwise defined herein shall have the meanings given
thereto in the Loan Agreement. The holder of this Note shall be entitled to the
benefits provided for in the Loan Agreement.
Interest shall be due and payable on the tenth day of each month, beginning
July 10, 1996, and on any other Interest Payment Date. Interest shall accrue on
the outstanding principal balance of this Note at the rates specified in the
Loan Agreement.
The principal amount of this Note, together with all unpaid interest
accrued hereon, shall be due and payable in full on January 31, 1997. All
payments of principal of and interest upon this Note shall be made by Borrower
to the Bank in federal or other immediately available funds. All payments made
hereon shall be due and payable and applied in accordance with the Loan
Agreement.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Loan Agreement which more fully set out the limitations on how
interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Maximum Rate and for all other purposes. The term "applicable
law" as used in this Note shall mean the laws of the State of Texas or the laws
of the United States,
-1-
<PAGE>
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court of in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, diligence in
collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
Borrower reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Loan Agreement.
This Note is executed in modification (but not in extinguishment) of that
certain Warehouse Promissory Note dated June 1, 1996 in the principal amount of
$2,000,000.00 executed by Borrower payable to the order of Bank.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
---------------------------------------------------------------------------
BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY
- --------------------------------------------------------------------------------
APPLICABLE FEDERAL LAW.
- -----------------------
THIS NOTE AND THE OTHER LOAN DOCUMENTS 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.
HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A
HOME, INC., a Delaware corporation
By: __________________________________
Tommy M. Parker,
Executive Vice President
-2-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of July, 1996, by
Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
- --------------------- Printed Name of Notary
-3-
<PAGE>
EXHIBIT "D"
-----------
INVESTORS
---------
<PAGE>
EXHIBIT "E"
-----------
EXHIBIT "G"
-----------
EXISTING INDEBTEDNESS
---------------------
[NONE]
<PAGE>
EXHIBIT "E"
-----------
EXHIBIT H
---------
CERTIFICATE ACCOMPANYING
------------------------
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Loan Agreement dated as of June 1, 1996
(as from time to time amended, the "Agreement"), by and between HOMEOWNERS
---------
MORTGAGE & EQUITY, INC. D/B/A HOME, INC. ("Borrower") and GUARANTY FEDERAL BANK,
--------
F.S.B. ("Bank"), which Agreement is in full force and effect on the date hereof.
----
Terms which are defined in the Agreement are used herein with the meanings given
them in the Agreement.
This Certificate is furnished pursuant to Sections 6.01(a) or 6.01(b) of
---------------------------
the Agreement. Together herewith Borrower is furnishing to Bank Borrower's
audited annual financial statements or monthly financial statement (the
"Financial Statements") dated ______________ (the "Reporting Date"). Borrower
- --------------------- --------------
hereby represents, warrants, and acknowledges to Bank that:
(a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting _____________________of Borrower
and as such is Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c) attached hereto is Schedule H-1 showing Borrower's compliance as
------------
of the Reporting Date with the requirements of Sections 7.01,
-----
7.02, 7.05, 7.06, 7.09, 7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 7.16,
-----------------------------------------------------------------
7.17 and 7.20 of the Agreement and Borrower's non-compliance as
--------------
of such date with the requirements of Section(s)
____________________ of the Agreement;
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements
of Section 6.01 of the Agreement, and no Default otherwise
------------
existed on the Reporting Date or otherwise exists on the date of
this instrument [except for Default(s) under Section(s)
____________________ of the Agreement, which (is/are] more fully
described on a schedule attached hereto).
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of _______________,
19______.
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By:_________________________________
Tommy M. Parker
Executive Vice President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by John Ballard, President of HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A
HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
EXHIBIT H
---------
Schedule H-1
------------
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
---------------
1) No Merger [7.01]: [YES or NO]*
2) Limitation on Indebtedness
of Borrower [7.02]: [YES or NO]*
3) Negative Pledge [7.05]: [YES or NO]*
4) Loans, Advances and
Investments of Borrower
and Affiliates [7.06]: [YES or NO]*
5) Operational Changes [7.09]:
[YES or NO]*
6) Compliance with ERISA
[7.10]: [YES or NO]*
7) Net Worth of Borrower Not less than $3,000,000
[7.11]: plus 7.11(a) & (b) ______
8) Tangible Net Worth of Not less than
Borrower [7.02]: HUD, FNMA, GNMA
FHLMC minimum ______
9) Adjusted Tangible Net
Worth of Borrower Not less than $3,000,000
[7.13]: plus 7.13(a) & (b) ______
10) Total Liabilities to
Adjusted Tangible Net Not less than
Worth [7.14]: 3.5 to 1.0 ______
11) Management [7.15]: [YES or NO]*
12) Interested Transactions [7.16]: [YES or NO]*
13) Transfer of Stock [7.17]: [YES or NO]*
14) Liquidity [7.20]: Not less than
500,000.00 ______
<PAGE>
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., A Delaware corporation
By: _______________________________
_______________________________
_________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of _________. 199_, by
_________________, ________________ of HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A
HOME, INC., a Delaware corporation, on behalf of said corporation.
_______________________________
Notary Public - State of Texas
_______________________________
My Commission expires: Printed Name of Notary
_____________________
<PAGE>
EXHIBIT "G"
TO BE FILED IN THE OFFICE OF THE SECRETARY OF STATE OF TEXAS
FINANCING STATEMENT CHANGE - UCC-3
----------------------------------
This instrument is prepared as, and is intended to be, a Financing Statement,
complying with the formal requisites therefor, as set forth in the Texas
Business and Commerce Code, Article 9 (also known as the Texas Uniform
Commercial Code - Secured Transactions) (the "Code"), and, in particular,
----
Section 9.402 thereof.
1. The name and address of the debtor ("Debtor") is:
------
HomeOwners Mortgage & Equity, Inc. d/b/a Home, Inc.
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
Attention: Mr. Tommy M. Parker
Executive Vice President
2. The name and address of the secured party ("Secured Party") is:
-------------
Guaranty Federal Bank
8333 Douglas Avenue
Dallas, Texas 75225
3. Original Financing Statement Number is: 96-123685
3a. Original Date Filed is: June 25, 1996
________________________________________________________________________________
4. A. [X] AMENDMENT - THE FINANCING STATEMENT IS AMENDED AS SET FORTH IN ITEM
5 BELOW.
- --------------------------------------------------------------------------------
B. [_] TOTAL ASSIGNMENT - ALL OF SECURED PARTY'S RIGHTS UNDER THE
FINANCING STATEMENT HAVE BEEN ASSIGNED TO THE ASSIGNEE WHOSE NAME
AND ADDRESS ARE SET FORTH IN ITEM 5 BELOW.
- --------------------------------------------------------------------------------
C. [_] PARTIAL ASSIGNMENT - SOME OF SECURED PARTY'S RIGHTS HAVE BEEN
ASSIGNED TO THE ASSIGNEE SHOWN IN ITEM 5 BELOW.
- --------------------------------------------------------------------------------
D. [_] CONTINUATION - THE ORIGINAL STATEMENT IS STILL EFFECTIVE.
- --------------------------------------------------------------------------------
E. [_] TOTAL RELEASE - THE SECURED PARTY RELEASES ALL OF THEIR INTEREST IN
THE COLLATERAL.
- --------------------------------------------------------------------------------
F. [_] PARTIAL RELEASE - THE SECURED PARTY RELEASES THE FOLLOWING
COLLATERAL DESCRIBED IN ITEM 5 BELOW.
- --------------------------------------------------------------------------------
G. [_] TERMINATION - THE SECURED PARTY(IES) OF RECORD NO LONGER CLAIMS A
SECURITY INTEREST AND THE FINANCING STATEMENT IS TERMINATED.
================================================================================
5. The Schedule of Collateral attached to the Original Financing Statement is
amended as follows:
(a) The following new definition is added in alphabetical order:
"FHA Receivables" shall mean any and all claims of Borrower
---------------
against the United States Department of Housing and Urban Development
for payment of a claim filed by Borrower relating to a Title I Loan
serving as Collateral hereunder."
<PAGE>
(b) The following new definition is added in alphabetical order:
""Title I" means Title I of the National Housing Act in 1934, 12
-------
U.S.C. 1703, as amended by the National Affordable Housing Act of 1989
and the Housing and Community Development Act of 1992."
(c) The following new definition is added in alphabetical order to
the definitions on page 12:
""Title I Loan" means a Loan reasonably satisfactory to the Bank,
------------
which conforms to the eligibility requirements established by an
Investor pursuant to the requirements of a Take-Out Commitment
acceptable to Bank and which is insured under Title I.
(d) Subsection (e) is hereby modified to add the phrase "FHA
--------------
Receivables" after the phrase "including, without limitation,"
Dated the 9th day of July, 1996.
SIGNATURE OF DEBTOR:
-------------------
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By:_________________________________________
Tommy M. Parker,
Executive Vice President
SIGNATURE OF SECURED PARTY:
--------------------------
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By:_________________________________________
W. James Meintjes,
Assistant Vice President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was acknowledged before me on July ___, 1996, by Tommy M.
Parker, in his capacity as Executive Vice President of HOMEOWNERS MORTGAGE &
EQUITY, INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said
corporation.
[S E A L]
_________________________________
Notary Public - State of Texas
My Commission Expires:
- ----------------------------
_________________________________
Printed Name of Notary Public
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on July ___, 1996, by W. James
Meintjes, in his capacity as Assistant Vice President of GUARANTY FEDERAL BANK,
F.S.B., a federal savings bank, on behalf of said bank.
[S E A L]
_________________________________
Notary Public - State of Texas
My Commission Expires:
- ----------------------------
_________________________________
Printed Name of Notary Public
<PAGE>
EXHIBIT "H"
-----------
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC.
July 9, 1996
Mr. W. James Meintjes
Assistant Vice President
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue, 10th Floor
Dallas, Texas 75225
Re: $10,000,000.00 Warehouse Loan from Guaranty Federal Bank, F.S.B. to
Homeowners Mortgage & Equity, Inc., a Delaware corporation, dba Home,
Inc.
Gentlemen:
HomeOwners Mortgage & Equity, Inc., a Delaware corporation, dba Home, Inc.
("Borrower") hereby certifies to Guaranty Federal Bank, F.S.B., a federal
--------
savings bank ("Bank") as follows. Capitalized terms used herein and defined in
----
the Loan Agreement dated as of June 1, 1996 by and between Borrower and Bank
shall be used herein as so defined.
1. Borrower is in full compliance with all terms and conditions contained
in the Agreement and the Loan Documents.
2. All representations and warranties of Borrower in the Agreement are
true and correct as of the date hereof.
3. No Default exists under the Loan Documents and no event has occurred
which with notice and/or the opportunity to cure would become a
Default.
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By:_____________________________________
Tommy M. Parker,
Executive Vice President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of July, 1996, by
Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY, INC.
d/b/a Home, Inc., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
EXHIBIT 10.16(B)
SECOND AMENDMENT TO THE LOAN AGREEMENT
--------------------------------------
This SECOND AMENDMENT TO THE LOAN AGREEMENT ("Agreement") is made
---------
effective as of, although not necessarily on, the 17th day of September, 1996,
by and between GUARANTY FEDERAL BANK, F.S.B., a federal savings bank ("Bank")
----
and HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME, INC.
("Borrower")
--------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on June 1, 1996, Borrower and Bank entered into that certain
Warehouse Loan Agreement (together with all amendments, modifications and
restatements thereof, the "Loan Agreement") dated of even date therewith
--------------
providing for a $2,000,000.00 credit facility (together with all increases,
collectively, the "Loan") and that certain Promissory Note dated of even date
----
(the "Note"), that certain Security Agreement ("Security Agreement") and a
---- ------------------
Financing Statement filed with the Secretary of State of Texas (the "Financing
---------
Statement", such documents and all instruments and documents representing,
- ---------
evidencing or securing the Loan are hereinafter collectively referred to as the
"Loan Documents");
--------------
WHEREAS, Bank and Borrower modified the Loan Documents on July 9, 1996
to increase the amount of the Loan to $10,000,000.00 and make certain other
changes to the Loan Agreement;
WHEREAS, Bank and Borrower desire to amend the Loan Documents to
replace the figure of "$10,000,000.00" with the figure of "$11,000,000.00" to
temporarily increase the Bank's Commitment. All terms not defined herein are
used as defined in the Loan Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:
1. Loan Agreement. The following temporary modification is hereby
--------------
made to the Loan Agreement effective as of the date hereof and expiring on
September 25, 1996:
(a) The definition of "Commitment" is hereby modified to replace
----------
the figure of "$10,000,000.00" with the figure of "$11,000,000.00".
2. Note. The following temporary modification is hereby made to the
----
stated amount of the Note; it shall increase to "$11,000,000.00" effective as of
the date hereof.
3. Acknowledgement by Borrower. Except as specified in paragraph
--------------------------- ---------
one, the terms and provisions of the Loan Documents are ratified and confirmed
- ---
and shall remain in full force and effect, enforceable in accordance with their
terms. Borrower hereby acknowledges, agrees and represents that (i) Borrower is
indebted to the Bank pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, valid and subsisting liens, security interests and assignments of
the respective dignity and priority recited in the Loan Documents; (iii) the
representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrower, as of the date hereof and no
defaults exist under the Loan Documents; and (iv) Borrower has no set-offs,
counterclaims, defenses or other causes of action against the Bank arising out
of the Loan Documents, the modification, any documents mentioned herein or
otherwise and to the extent any such set-offs, counterclaims, defenses or other
causes of action may exist, whether known or unknown, such items are hereby
waived by Borrower.
<PAGE>
4. Costs and Expenses. Contemporaneously with the execution and delivery
------------------
hereof, Borrower shall pay, or cause to be paid, all costs and expenses incident
to the preparation and the consummation of the transaction contemplated hereby,
including, but not limited to, recording fees and reasonable fees and expenses
of legal counsel to the Bank which shall be paid simultaneously with the
execution of this Agreement.
5. Time. Time is of the essence in the performance of the covenants
----
contained herein and in the Loan Documents.
6. Binding Agreement. This Agreement shall be binding upon the
-----------------
administrators, personal representatives, successors and assigns of the parties
hereto; provided, however, the foregoing shall not be deemed or construed to (i)
permit the assignment of all or any part of the Collateral or any of Borrower's
rights, titles or interest in and to the Collateral or any rights, titles or
interests in and to Borrower, or (ii) confer any right, title, benefit, cause of
action or remedy upon any person or entity not a party hereto, which such party
would not or did not otherwise possess.
THIS AGREEMENT AND THE LOAN DOCUMENTS COLLECTIVELY 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.
EXECUTED as of the date first above written.
BANK:
----
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: _____________________________________________
W. James Meintjes,
Assistant Vice President
BORROWER:
--------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By:/s/ Tommy M. Parker
-----------------------------------------------
Tommy M. Parker,
Executive Vice President
-2-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1996,
by W. James Meintjes, Assistant Vice President of GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank, on behalf of said bank.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 17th day of September, 1996,
----
by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY,
INC. d/b/a Home, Inc., a Delaware corporation, on behalf of said corporation.
Martha Malina
-------------------------------
Notary Public - State of Texas
My Commission expires: Martha Malina
1-26-98 -------------------------------
- ---------------------- Printed Name of Notary
[SEAL]
-3-
<PAGE>
EXHIBIT 10.16(C)
THIRD AMENDMENT TO THE LOAN AGREEMENT
-------------------------------------
This THIRD AMENDMENT TO THE LOAN AGREEMENT ("Agreement") is made
---------
effective as of, although not necessarily on, the 15th day of October, 1996, by
and between GUARANTY FEDERAL BANK, F.S.B., a federal savings bank ("Bank") and
----
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME, INC.
("Borrower") and HOMECAPITAL INVESTMENT CORPORATION, a Nevada corporation
- ----------
("Guarantor").
- -----------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on June 1, 1996, Borrower and Bank entered into that certain
Warehouse Loan Agreement (together with all amendments, modifications and
restatements thereof, the "Loan Agreement") dated of even date therewith
--------------
providing for a $2,000,000.00 credit facility (together with all increases,
collectively, the "Loan").
----
WHEREAS, in connection with the execution of the Loan Agreement,
Borrower executed that certain Promissory Note dated of even date (the "Note"),
----
that certain Security Agreement ("Security Agreement") was executed by Borrower
------------------
and Bank and a Financing Statement filed with the Secretary of State of Texas
(the "Financing Statement");
-------------------
WHEREAS, effective as of July 9, 1996 Bank and Borrower entered into
that one certain First Amendment to the Loan Agreement whereby the loan amount
was increased $10,000,000.00 and certain other changes were made to the loan
documents;
WHEREAS, effective as of September 17, 1996 Bank and Borrower entered into
that certain Second Amendment to Loan Agreement;
WHEREAS, Bank, Borrower and Guarantor desire to amend the Loan Documents to
reflect certain changes to the Loan Agreement. All terms not defined herein are
used as defined in the Loan Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower hereby agree as follows:
1. Loan Agreement. The following modifications are hereby made to the
--------------
Loan Agreement effective as of the date hereof:
(a) The first Whereas clause on page 1 of the Loan Agreement is
hereby modified to replace the figure of "$10,000,000.00" with the figure
of "$15,000,000.00".
(b) The definition of "Commitment" is hereby modified to read in its
----------
entirety:
""Commitment" as to Bank shall mean the obligation of Bank to
----------
make Advances to Borrower pursuant to Section 2.01 hereof in an
------------
aggregate amount not to exceed at any one time outstanding the amount
of $15,000,000.00."
(c) The following new definition is added to Section 1.01 in
------------
alphabetical order:
""Guarantor" shall mean HOMECAPITAL Investment Corp., a Nevada
---------
corporation, the parent corporation of Borrower."
<PAGE>
(d) The definition of "Material Adverse Effect" is hereby modified to
-----------------------
read as follows in its entirety:
""Material Adverse Effect" shall mean any event or set of
-----------------------
circumstances that (i) would have a material adverse effect on the
validity or enforceability of this Agreement, the Note or any Loan
Document, (ii) is, or upon the passage of time or happening of an
event will be, material and adverse to the financial condition or
business operations of Borrower or Guarantor, or (iii) would
materially impair the ability of Borrower or Guarantor to fulfill its
obligations under this Agreement, the Note or any Loan Document to
which it is a party."
(e) The definition of "Maximum Loan Amount" is hereby modified to
-------------------
read as follows in its entirety:
""Maximum Loan Amount" means, at any time, the sum of
-------------------
$15,000,000.00."
(f) The definition of "Obligations" is revised to read as follows:
-----------
""Obligations" shall mean all present and future indebtedness,
-----------
obligations, and liabilities of Borrower or Guarantor to the Bank, and
all renewals and extensions thereof, or any part thereof, arising
pursuant to this Agreement or any other Loan Document or line of
credit evidenced by the Working Capital Line of Credit and Security
Agreement (Servicing Secured) by and between Borrower and Bank, and
all interest accruing thereon, and reasonable attorneys' fees incurred
in the drafting, negotiation, enforcement or collection thereof,
regardless of whether such indebtedness, obligations, and liabilities
are direct, indirect, fixed, contingent, joint, several or joint and
several."
(g) Section 7.11 is hereby modified as follows:
------------
Section 7.11 Net Worth. Borrower's Net Worth shall not be less
---------
than the sum of (a) $3,000,000.00, (b) 80% of Borrower's Net Income
for all preceding calendar quarters beginning with the calendar
quarter beginning on June 30, 1996, plus (c) 100% of all contributions
to stockholders' equity of Borrower after the date hereof, less all
fees and costs directly incurred in connection with such contribution.
(h) Section 7.13 is hereby modified as follows:
------------
"Section 7.13 Adjusted Tangible Net Worth. Borrower's Adjusted
---------------------------
Tangible Net Worth shall not be less than the sum of (a)
$3,000,000.00, (b) 80% of Borrower's Net Income for all preceding
calendar quarters beginning in the calendar quarter beginning on June
30, 1996, plus (c) 100% of all contributions to stockholders' equity
of Borrower after the date hereof, less all fees and costs directly
incurred in connection with such contribution."
(i) Sections 8.01(b), (c), (d), (e), (f), (g), (h), (i), (j), (l),
--------------------------------------------------------------
(m), (n), (o), (x) and (y) are hereby modified to read as follows:
--------------------------
"(b) Default is made in the due observance or performance by
Borrower or Guarantor of any of the other covenants or agreements of
Borrower or Guarantor contained in this Agreement or in any Loan
Document; provided, however, with respect to such defaults other those
specified in Sections 8.01(a), 8.01(c) through 8.01(k), 8.01(p),
----------------------------------------- -------
8.01(q) and 8.01(s) through 8.01(y) (for which no notice and
------- ------- -------
opportunity to cure shall be available unless such opportunity is
-2-
<PAGE>
specifically provided in such individual sections), Borrower shall
have thirty (30) days after notice of default from Bank within which
to cure such default;
(c) Any statement, warranty or representation by or on behalf of
Borrower or Guarantor contained in this Agreement or any Loan Document
or any certificate furnished in connection with this Agreement, proves
to have been incorrect or misleading as of the date made or deemed
made and constitutes a Material Adverse Effect;
(d) Borrower or Guarantor fails to make when due any payment on
any other Indebtedness, including but not limited to the Existing
Indebtedness as shown on Exhibit "G", which failure constitutes a
-----------
Material Adverse Effect;
(e) Borrower or Guarantor shall generally not pay its debts as
they become due or shall admit in writing its inability to pay its
debts, or shall make a general assignment for the benefit of
creditors;
(f) Borrower or Guarantor shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or
liquidator of Borrower or Guarantor or of all or a substantial part of
Borrower's assets or Guarantor's assets, (ii) file a voluntary
petition in bankruptcy, (iii) make a general assignment for the
benefit of creditors, (iv) file a petition or answer seeking
reorganization or an arrangement with creditors or to take advantage
of any bankruptcy or insolvency laws, (v) file an answer admitting the
material allegations of, or consent to, or default in answering, a
petition filed against Borrower or Guarantor in any bankruptcy,
reorganization or insolvency proceeding, (vi) allow any of its assets
to be attached or seized, or (vi) take corporate action for the
purpose of effecting any of the foregoing;
(g) An involuntary petition or complaint shall be filed against
Borrower or Guarantor seeking bankruptcy or reorganization of Borrower
or Guarantor or the appointment of a receiver, custodian, trustee,
intervenor or liquidator of Borrower or Guarantor, or all or
substantially all of Borrower's assets or Guarantor's assets, and such
petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof; or an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of borrower or appointing a receiver, custodian,
trustee, intervenor or liquidator of Borrower or Guarantor, or of all
or substantially all of Borrower's assets or Guarantor's assets;
(h) Any default or event of default shall occur under any other
Indebtedness of Borrower or Guarantor to the Bank including but not
limited to the line of credit evidenced by the Working Capital Line of
Credit and Security Agreement (Servicing Secured) by and between
Borrower and Bank;
(i) The failure of Borrower or Guarantor to pay any money
judgment against Borrower or Guarantor;
(j) The failure to have discharged any levy on, seizure,
attachment, sequestration, or similar proceedings against any of
Borrower's assets or Guarantor's assets;
(l) A Reportable Event or Prohibited Transaction shall have
occurred with respect to a Plan of Borrower or Guarantor which could
have a Material Adverse Effect;
-3-
<PAGE>
(m) A notice of intent to terminate a Plan of Borrower or
Guarantor under a "distress termination" as described in Section
4041(c) of ERISA shall be filed which could, in the opinion of the
Bank, have a Material Adverse Effect;
(n) The Plan administrator of Borrower or Guarantor shall
receive a notice that the PBGC has instituted proceedings to terminate
a Plan of Borrower or Guarantor or appoint a trustee to administer a
Plan;
(o) Borrower or Guarantor or any ERISA Affiliate of Borrower or
Guarantor shall withdraw from a multiemployer Plan and the Bank shall
determine that such withdrawal could have a Material Adverse Effect;
(x) If any property of Borrower or Guarantor is seized or
attached; and
(y) If more than 35% of the stock (on an individual or
cumulative basis) in Borrower is sold, transferred or conveyed to or
by any party without the prior written consent of the Bank."
(j) Exhibit "C" to the Loan Agreement is hereby modified to read as
------------
shown on Exhibit "A" attached hereto and incorporated herein by this
-----------
reference.
(k) Schedule H-1 is hereby modified to read as shown on Exhibit "B"
------------ -----------
attached hereto and incorporated herein by this reference.
2. Note. Borrower shall execute a new promissory note in the form shown
----
on Exhibit "A" and incorporated herein by this reference.
-----------
3. Guaranty. For and in consideration of the increase in the Loan Amount
--------
and the changes stated therein to the Loan Documents, Guarantor shall execute a
Guaranty in the form shown as Exhibit "C" and incorporated herein by this
-----------
reference.
4. Acknowledgement by Borrower. Except as otherwise specified herein,
---------------------------
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Borrower hereby acknowledges, agrees and represents that (i) Borrower is
indebted to the Bank pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, valid and subsisting liens, security interests and assignments of
the respective dignity and priority recited in the Loan Documents; (iii) the
representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrower, as of the date hereof and no
defaults exist under the Loan Documents; and (iv) Borrower has no set-offs,
counterclaims, defenses or other causes of action against the Bank arising out
of the Loan Documents, the modification and extension of the Loan, any documents
mentioned herein or otherwise and to the extent any such set-offs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by Borrower.
5. Acknowledgement by Guarantor. Except as otherwise specified herein,
----------------------------
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Guarantor hereby acknowledges, agrees and represents that (i) Guarantor
is indebted to the Bank pursuant to the terms of the Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan Documents
are, respectively, valid and subsisting liens, security interests and
assignments of the
-4-
<PAGE>
respective dignity and priority recited in the Loan Documents; (iii) the
representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Guarantor, as of the date hereof and
no defaults exist under the Loan Documents; and (iv) Guarantor has no set-offs,
counterclaims, defenses or other causes of action against the Bank arising out
of the Loan Documents, the modification and extension of the Loan, any documents
mentioned herein or otherwise and to the extent any such set-offs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by Guarantor.
6. No Waiver of Remedies. Nothing contained in this Agreement shall
---------------------
prejudice, act as, or be deemed to be a waiver of any right or remedy available
to the Bank by reason of the occurrence or existence of any fact, circumstance
or event constituting a default under the Note or the other Loan Documents.
7. Costs and Expenses. Contemporaneously with the execution and delivery
------------------
hereof, Borrower shall pay, or cause to be paid, all costs and expenses incident
to the preparation, execution and recordation hereof and the consummation of the
transaction contemplated hereby, including, but not limited to, recording fees
and reasonable fees and expenses of legal counsel to the Bank. The attorney's
fees and expenses of the Bank's law firm, Jackson & Walker, L.L.P., shall be
paid simultaneously with the execution of this Agreement.
8. Additional Documentation. From time to time, Borrower shall execute
------------------------
or procure and deliver to Bank such other and further documents and instruments
evidencing, securing or pertaining to the Loan or the Loan Documents as shall be
reasonably requested by the Bank so as to evidence or effect the terms and
provisions hereof.
9. Effectiveness of the Loan Documents. Except as expressly modified by
-----------------------------------
the terms and provisions hereof, each of the terms and provisions of the Loan
Documents are hereby ratified and shall remain in full force and effect;
provided, however, that any reference in any of the Loan Documents to the Loan,
the amount constituting the Loan, any defined terms, or to any of the other Loan
Documents shall be deemed, from and after the date hereof, to refer to the Loan,
the amount constituting the Loan, defined terms and to such other Loan
Documents, as modified hereby.
10. GOVERNING LAW. THE BORROWER HEREBY AGREES THAT THE OBLIGATIONS
-------------
CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL PARTIES HERETO
AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION MAY BE FILED IN DALLAS
COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN
THE LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION
SHALL BE IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE COMMENCED AGAINST BORROWER IN DALLAS
COUNTY, (V) SUCH ACTION MAY BE INSTITUTED IN THE COURTS OF THE STATE OF TEXAS
LOCATED IN DALLAS COUNTY, TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS, AT THE OPTION OF THE
BANK AND (VI) THE BORROWER HEREBY WAIVES ANY OBJECTION TO THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO BE
SUED ELSEWHERE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF EACH BANK TO
ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
11. Time. Time is of the essence in the performance of the covenants
----
contained herein and in the Loan Documents.
12. Binding Agreement. This Agreement and the Loan Documents shall be
-----------------
binding upon the heirs, executors, administrators, personal representatives,
successors and assigns of the parties hereto; provided, however, the foregoing
shall not be deemed or construed to (i) permit, sanction, authorize or condone
the assignment of all or any part of the Collateral or any of Borrower's rights,
titles or interest in and to the Collateral or any rights,
-5-
<PAGE>
titles or interests in and to Borrower, except as expressly authorized in the
Loan Documents, or (ii) confer any right, title, benefit, cause of action or
remedy upon any person or entity not a party hereto, which such party would not
or did not otherwise possess.
13. Headings. The section headings hereof are inserted for convenience of
--------
reference only and shall in no way alter, amend, define or be used in the
construction or interpretation of the text of such section.
14. Construction. Whenever the context hereof so required, reference to
------------
the singular shall include the plural and likewise, the plural shall include the
singular; words denoting gender shall be construed to mean the masculine,
feminine or neuter, as appropriate; and specific enumeration shall not exclude
the general but shall be construed as cumulative of the general recitation.
15. Counterparts. To facilitate execution, this Agreement may be executed
------------
in as many counterparts as may be convenient or required. It shall not be
necessary that the signature and acknowledgement of, or on behalf of, each party
or that the signature and acknowledgement of all persons required to bind any
party appear on each counterpart. All counterparts shall collectively constitute
a single document containing the respective signatures and acknowledgement of,
or on behalf of, each of the parties hereto. Any signature and acknowledgement
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures and acknowledgements thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature and acknowledgement pages.
THIS AGREEMENT AND THE LOAN DOCUMENTS COLLECTIVELY 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.
EXECUTED as of the date first above written.
BANK:
----
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: ___________________________________
W. James Meintjes,
Assistant Vice President
BORROWER:
--------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By: /s/ Tommy M. Parker
------------------------------------
Tommy M. Parker,
Executive Vice President
-6-
<PAGE>
GUARANTOR:
---------
HOMECAPITAL INVESTMENT CORPORATION,
a Nevada corporation
By: /s/ John W. Ballard
------------------------------------
Name: John W. Ballard
-------------------------------
Title: President
------------------------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of October, 1996,
by W. James Meintjes, Assistant Vice President of GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank, on behalf of said bank.
________________________________
Notary Public - State of Texas
________________________________
My Commission expires: Printed Name of Notary
- ----------------------
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 15th day of October, 1996,
----
by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY,
INC. d/b/a Home, Inc., a Delaware corporation, on behalf of said corporation.
/s/ Amy Andrews
--------------------------------
Notary Public - State of Texas
AMY ANDREWS
--------------------------------
My Commission expires: Printed Name of Notary
02-14-98
- ----------------------
[STAMP APPEARS HERE]
-7-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 15th day of October, 1996,
by John W. Ballard, President of HOMECAPITAL INVESTMENT CORPORATION, a Nevada
corporation, on behalf of said corporation.
/s/ Amy Andrews
--------------------------------
Notary Public - State of Texas
/s/ AMY ANDREWS
--------------------------------
Printed Name of Notary
My Commission expires:
02-14-98
[STAMP APPEARS HERE]
-8-
<PAGE>
EXHIBIT "A"
-----------
WAREHOUSE PROMISSORY NOTE
-------------------------
$15,000,000.00 Dallas, Texas October 15, 1996
FOR VALUE RECEIVED, the undersigned, HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation (herein called "Borrower"), hereby
--------
promises to pay to the order of GUARANTY FEDERAL BANK, F.S.B., a federal savings
bank (herein called "Bank"), the principal sum of FIFTEEN MILLION AND NO/100
----
DOLLARS ($15,000,000.00) or, if less, the aggregate unpaid principal amount of
the Loan made under this Note by Bank to Borrower pursuant to the terms of the
Loan Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America, for
the account of Bank, at the offices of Guaranty Federal Bank, F.S.B. at 8333
Douglas Avenue, Dallas, Texas or at such other place within Dallas County, Texas
or such other address as may be given to Borrower by the Bank.
This Note (a) is executed and delivered pursuant to that certain Warehouse
Loan Agreement dated as of June 1, 1996 between Borrower and the Bank (herein,
as from time to time supplemented, amended or restated, called the "Loan
----
Agreement"), and is the Warehouse Promissory Note and the Note as defined
- ---------
therein, (b) is subject to the terms and provisions of the Loan Agreement, which
contains provisions for payments and prepayments hereunder, acceleration of the
maturity hereof upon the happening of certain stated events and the obligation
of Bank to advance funds hereunder, and (c) is secured by and entitled to the
benefits of certain Loan Documents (as identified and defined in the Loan
Agreement). Payments on this Note shall be made and applied as provided herein
and in the Loan Agreement. Interest shall be due and payable on each Interest
Payment Date. Reference is hereby made to the Loan Agreement for a description
of certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Loan Documents for a description of the nature and extent of the security
thereby provided and the rights of the parties thereto. All capitalized terms
used herein and not otherwise defined herein shall have the meanings given
thereto in the Loan Agreement. The holder of this Note shall be entitled to the
benefits provided for in the Loan Agreement.
Interest shall be due and payable on the tenth day of each month, beginning
November 10, 1996, and on any other Interest Payment Date. Interest shall
accrue on the outstanding principal balance of this Note at the rates specified
in the Loan Agreement.
The principal amount of this Note, together with all unpaid interest
accrued hereon, shall be due and payable in full on January 31, 1997. All
payments of principal of and interest upon this Note shall be made by Borrower
to the Bank in federal or other immediately available funds. All payments made
hereon shall be due and payable and applied in accordance with the Loan
Agreement.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Loan Agreement which more fully set out the limitations on how
interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Maximum Rate and for all other purposes. The term "applicable
law" as used in this Note shall mean the laws of the State of Texas or the laws
of the United States,
-1-
<PAGE>
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court of in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, diligence in
collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
Borrower reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Loan Agreement.
This Note is executed in modification (but not in extinguishment) of (a)
that certain Warehouse Promissory Note dated June 1, 1996 in the principal
amount of $2,000,000.00 executed by Borrower payable to the order of Bank and
(b) that certain Warehouse Promissory Note dated July 9, 1996 in the principal
amount of $10,000,000.00 executed by Borrower payable to the order of Bank.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
---------------------------------------------------------------------------
BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY
- --------------------------------------------------------------------------------
APPLICABLE FEDERAL LAW.
- -----------------------
THIS NOTE AND THE OTHER LOAN DOCUMENTS 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.
HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A
HOME, INC., a Delaware corporation
By: ______________________________
Tommy M. Parker,
Executive Vice President
-2-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of October, 1996,
by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY,
INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
________________________________
My Commission expires: Printed Name of Notary
_____________________
-3-
<PAGE>
EXHIBIT "B"
-----------
Schedule H-1
------------
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
- -----------------------------------------------------------------------------
1) No Merger [7.01]: [YES] or [NO] *
2) Limitation on Indebtedness
of Borrower [7.02]: [YES] or [NO] *
3) Negative Pledge [7.05]: [YES] or [NO] *
4) Loans, Advances and
Investments of Borrower
and Affiliates [7.06]: [YES] or [NO] *
5) Operational Changes [7.09]: [YES] or [NO] *
6) Compliance with ERISA
[7.10]: [YES] or [NO] *
7) Net Worth of Borrower Not less than $3,000,000
[7.11]: plus 7.11(b) & (c) _______
8) Tangible Net Worth of Not less than
Borrower [7.12]: HUD, FNMA, GNMA,
FHLMC minimum _______
9) Adjusted Tangible Net
Worth of Borrower Not less than $3,000,000
[7.13]: plus 7.13(b) & (c) _______
10) Total Liabilities to
Adjusted Tangible Net Not more than
Worth [7.14]: 3.5 to 1.0 _______
11) Management [7.15]: [YES] or [NO] *
12) Interested Transactions [7.16]: [YES] or [NO] *
13) Transfer of Stock [7.17]: [YES] or [NO] *
14) Liquidity [7.20]: Not less than
$500,000.00 _______
-4-
<PAGE>
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By: _______________________________
__________________, ___________
______________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by _________________, _________________ of HOMEOWNERS MORTGAGE & EQUITY,
INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
________________________________
My Commission expires: Printed Name of Notary
_____________________
-5-
<PAGE>
EXHIBIT "C"
-----------
UNCONDITIONAL GUARANTY
----------------------
WHEREAS, HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a
HOME, INC. (hereinafter called the "Borrower"), desire to borrow from GUARANTY
--------
FEDERAL BANK, F.S.B. the "Bank"), the principal sum of FIFTEEN MILLION AND
----
NO/100 DOLLARS ($15,000,000.00) (collectively, the "Loan"); and
----
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that Agreement dated June 1, 1996, between the Borrower and
the Bank together with all amendments thereof (hereinafter called the "Loan
----
Agreement") and all promissory notes executed by Borrower in connection
- ---------
therewith; and
WHEREAS, the Loan amount of $15,000,000.00 represents an increase in the
amount of the Loan and Bank would not consent to such an increase without the
execution by Guarantor of this Guaranty, Guarantor being the parent corporation
of Borrower;
WHEREAS, the undersigned desires the Bank to increase the Loan amount and
to continue to make the aforesaid Loan, and the Bank requires, as a condition
thereof, that a guaranty in the form hereof be executed and delivered by the
undersigned;
NOW, THEREFORE, in consideration of the premises and to induce the Bank to
enter into the Loan Agreement and to make the Loan contemplated thereby and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, HOMECAPITAL INVESTMENT CORPORATION, a
Delaware corporation (hereinafter called the "Guarantor"), hereby
---------
unconditionally guarantees to the Bank and to every subsequent holder or holders
of any promissory note or notes evidencing the Loan (said promissory note or
notes together with any note or notes renewing the same or any part thereof
being hereinafter collectively called the "Note") that (i) the principal of and
----
interest on, and attorneys' fees provided in, the Note will be promptly paid
when due in accordance with the provisions thereof or, in the case of extension
of time of payment in whole or in part of the Note, all sums will be promptly
paid when due in accordance with the terms of the extension; (ii) all covenants
and agreements of the Borrower contained in the Note, the Loan Agreement and/or
any other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, will be duly and
promptly observed and performed; and (iii) all additional amounts owing or which
hereafter become owing by the Borrower under the terms of the Note, the Loan
Agreement and/or any other instrument evidencing, securing or governing the
disbursement of the Loan, whether presently existing or hereinafter entered
into, will be promptly paid when due. This Guaranty directly and substantially
benefits Guarantor.
The obligations of the Guarantor shall be performable without demand of the
Bank and shall be unconditional irrespective of the genuineness, validity,
regularity or enforceability of the Loan Agreement or the Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or a guarantor; and the Guarantor hereby waives diligence, presentment,
demand of payment, protest, all notices (whether of nonpayment, intention to
accelerate, acceleration, dishonor, protest or otherwise) with respect to the
Note, notice of acceptance of this Guaranty and of the incurring by the Borrower
of any of the obligations hereinbefore mentioned, all demands whatsoever, and
all rights to require the Bank, to (a) proceed against the Borrower, (b) proceed
against or exhaust any collateral held by the Bank to secure the payment of the
indebtedness guaranteed hereby, or (c) pursue any other remedy the Bank may now
or hereafter have against the Borrower.
The Guarantor hereby agrees that, at any time or from time to time, without
notice to the Guarantor:
<PAGE>
(1) The time for payment of the principal of or interest on the Note
evidencing the Loan may be extended or the Note may be renewed in whole or
in part;
(2) The time for the Borrower's performance of or compliance with any
covenant or agreement contained in the Loan Agreement, the Note and/or any
other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, may be
extended or such performance or compliance may be waived;
(3) The maturity of the Note may be accelerated as provided therein or
in the Loan Agreement and/or any other instrument evidencing, securing or
governing the disbursement of the Loan, whether presently existing or
hereinafter entered into;
(4) The Loan Agreement, the Note and/or any other instrument
evidencing, securing or governing the disbursement of the Loan, whether
presently existing or hereinafter entered into, may be modified or amended
by the Bank and the Borrower in any respect, including, but not limited to,
an increase in the principal amount; and
(5) Any security for the Loan may be modified, exchanged, surrendered
or otherwise dealt with and/or additional security may be pledged or
mortgaged for the Loan;
all without affecting the liability of the Guarantor.
The Guarantor hereby acknowledges that the withdrawal from, or termination
of, any ownership interest in Borrower shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
If this Guaranty shall be placed in the hands of an attorney for collection
or should it be collected by legal proceedings or through any probate or
bankruptcy court, the Guarantor agrees to pay to the Bank's reasonable
attorneys' or collection fees.
The Bank may assign its rights hereunder in whole or in part; and upon any
such assignment, all the terms and provisions of this Guaranty shall inure to
the benefit of such assignee to the extent so assigned. The terms used to
designate any of the parties herein shall be deemed to include the heirs, legal
representatives, successors and assigns of such parties; and the term "Bank"
shall include, in addition to the Bank, any lawful owner, holder or pledgee of
any indebtedness guaranteed hereby.
The Bank is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly, if any provision or provisions of
this instrument should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
The Guarantor acknowledges that the Loan represents money which will be
advanced to the Borrower in a series of advances to be made from time to time
pursuant to the Loan Agreement. To induce the Bank to make the advances
thereunder, the Guarantor hereby agrees that in the event of the termination,
liquidation or dissolution of the Borrower, this Guaranty shall continue in full
force and effect.
The Guarantor hereby represents and warrants to the Bank that the financial
statements and information regarding the Guarantor heretofore delivered to the
Bank are true and correct in all material respects, having been applied on a
consistent basis throughout the period covered thereby, and fairly present the
financial position of the Guarantor as of the dates thereof, and that no
material adverse change has occurred in the financial condition of the Guarantor
reflected therein since the date thereof.
The Guarantor hereby represents and warrants to the Bank that:
-2-
<PAGE>
(a) Neither the execution and delivery of this Guaranty, 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,
statute or regulation to which Guarantor is subject or any judgment, license,
order or permit applicable to Guarantor, or any indenture, mortgage, deed of
trust or other agreement or instrument to which Guarantor is a party or by which
Guarantor may be bound, or to which Guarantor may be subject.
(b) Guarantor is not in default (and no event exists which with notice or
the passage of time could become a default) under any loan agreement, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound including but not limited to
the Loan Documents.
(c) There are no actions, suits or legal, equitable, arbitration or
administrative proceedings pending, or to the knowledge of Guarantor, threatened
against Guarantor.
(d) All tax returns required to be filed by the Guarantor in any
jurisdiction have been filed or extended and all taxes, assessments, fees and
other governmental charges upon Guarantor or upon any of its 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 and
with respect to which reserves in conformity with GAAP have been established on
the books of Guarantor. The Guarantor has no knowledge of any proposed tax
assessment against Guarantor.
(e) Guarantor shall permit any authorized officer, employee or agent of the
Bank, to visit and inspect any of the business properties of the Guarantor,
examine Guarantor's books of record and accounts, take copies and extracts
therefrom, and inspect and discuss the procedures, finances and accounts of
Guarantor with Guarantor's accountants and auditors, all at such reasonable
times and as often as Bank may desire. Guarantor shall furnish such reports as
Bank may reasonably request.
Notwithstanding any provision in this Guaranty to the contrary, Guarantor
hereby waives and releases (i) any and all rights of subrogation, reimbursement,
indemnification or contribution which it may have, against others liable on all
or any part of the Loan, (ii) any and all rights to be subrogated to the rights
of the Bank in any collateral or security for all or any part of the Loan, and
(iii) any and all other rights and claims of such Guarantor against Borrower or
any third party as a result of such Guarantor's payment of all or any part of
the Loan.
Capitalized terms not defined herein are used as defined in the Loan
Agreement.
The obligations of the Guarantor and any other guarantor of the Note
evidencing the Loan shall be joint and several. The Guarantor agrees that the
Bank, in its sole discretion, may (i) bring suit against the Guarantor and any
other guarantor of the Note evidencing the Loan jointly and severally or against
any one or more of them, (ii) compound or settle with any one or more of the
guarantors of the Note evidencing the Loan for such consideration as the Bank
may deem proper, (iii) release one or more of the guarantors of the Note
evidencing the Loan from liability thereunder, and (iv) otherwise deal with the
Guarantor and any other guarantors of the Note, or any one or more of them, in
any manner whatsoever; and that no such action shall impair the rights of the
Bank to collect the indebtedness hereby guaranteed from the Guarantor. Nothing
contained in this paragraph shall in any way affect or impair the rights or
obligations of the Guarantor with respect to any other guarantor of the Note
evidencing the Loan.
Any indebtedness of the Borrower to the Guarantor now or hereafter existing
(including, but not limited to, any rights to subrogation the Guarantor may have
as a result of any payment by the Guarantor under this Guaranty), together with
any interest thereon, shall be, and such indebtedness is hereby subordinated
until payment in full of the indebtedness of the Borrower to the Bank under the
Loan Documents and all other obligations hereunder. Until payment in full with
interest of the indebtedness of the Borrower to the Bank (and including interest
accruing on the Note after any petition under the Bankruptcy Reform Act of 1978,
as amended (the
-3-
<PAGE>
"Bankruptcy Code"), which post-petition interest the parties agree shall remain
---------------
a claim that is prior and superior to any claim of the Guarantor notwithstanding
any contrary practice, custom or ruling in proceedings under the Bankruptcy Code
generally), the Guarantor agrees not to accept any payment or satisfaction of
any kind of any indebtedness of the Borrower to the Guarantor. Further, the
Guarantor agrees that until such payment in full: (i) no Guarantor shall accept
payment from any other Guarantor by way of contribution on account of any
payment made hereunder by such party to the Bank; (ii) no one of them will take
any action to exercise or enforce any rights to such contribution; and (iii) if
any individual or entity comprising the Guarantor should receive any payment,
satisfaction or security for any indebtedness of the Borrower to any individual
or entity comprising the Guarantor or for any contribution by any other
individual or entity comprising the Guarantor for payment made hereunder by the
recipient to the Bank at any time the Borrower is in default under the Loan
Documents, the same shall be delivered to the Bank in the form received,
endorsed or assigned as may be appropriate for application on account of, or as
security for the indebtedness of the Borrower to the Bank. This provision shall
not restrict or impair Guarantor's right to receive compensation from Borrower
for his service to Borrower as an employee. Any lien or charge on the Collateral
(as defined in the Loan Agreement), all rights therein and thereto, and on the
profits, losses, income and distributions to be realized therefrom, which the
Guarantor may have or obtain as security for any loans or advances to Borrower
shall be, and such Lien or charge hereby is, waived. Guarantor waives any rights
Guarantor has under, or any requirements imposed by Chapter 34 of the Texas
Business & Commerce Code, as in effect on the date of this Guaranty or as it may
be amended from time to time. Guarantor waives any rights of subrogation it may
have against the Borrower.
In the event the Borrower is a corporation, joint stock association or
partnership, or is hereafter incorporated, if the indebtedness at any time
hereafter exceeds the amount permitted by law, or the Borrower is not liable
because the act of creating the obligation is ultra vires, or the officers or
persons creating same acted in excess of their authority, and for these reasons
the indebtedness to the Bank which the Guarantor agrees to pay cannot be
enforced against the corporation, joint stock association or partnership, such
fact shall in no manner affect the Guarantor's liability hereunder; but the
Guarantor shall be liable hereunder, notwithstanding any finding that said
corporation, joint stock association or partnership is not liable for such
indebtedness, and to same extend as the Guarantor would have been if the
indebtedness of the Borrower had been enforceable against the Borrower.
THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING HEREUNDER
SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA.
THIS GUARANTY SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY,
TEXAS. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL
DISPUTES BETWEEN GUARANTOR AND BANK, WHETHER IN LAW OR EQUITY, INCLUDING, BUT
NOT LIMITED TO, ANY AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT; AND VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS. GUARANTOR HEREBY CONSENTS TO
PERSONAL JURISDICTION IN DALLAS COUNTY, TEXAS AND WAIVES ANY RIGHTS HE OR SHE
MAY HAVE TO BE SUED ELSEWHERE.
THIS GUARANTY AND THE LOAN DOCUMENTS 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.
-4-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 15th day of
October, 1996.
Address of Guarantor:
- --------------------
HOMECAPITAL INVESTMENT CORPORATION,
6836 Austin Center, Blvd. a Delaware corporation
Suite 280
Austin, Texas 78731
By:
Name:___________________________
Title:__________________________
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of October, 1996,
by ______________________, _______________________ of HOMECAPITAL INVESTMENT
CORPORATION, a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
-5-
<PAGE>
EXHIBIT 10.17
-------------
UNCONDITIONAL GUARANTY
----------------------
WHEREAS, HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a
HOME, INC. (hereinafter called the "Borrower"), desire to borrow from GUARANTY
--------
FEDERAL BANK, F.S.B. the "Bank"), the principal sum of FIFTEEN MILLION AND
----
NO/100 DOLLARS ($15,000,000.00) (collectively, the "Loan"); and
----
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that Agreement dated June 1, 1996, between the Borrower and
the Bank together with all amendments thereof (hereinafter called the "Loan
----
Agreement") and all promissory notes executed by Borrower in connection
- ---------
therewith; and
WHEREAS, the Loan amount of $15,000,000.00 represents an increase in the
amount of the Loan and Bank would not consent to such an increase without the
execution by Guarantor of this Guaranty, Guarantor being the parent corporation
of Borrower;
WHEREAS, the undersigned desires the Bank to increase the Loan amount and
to continue to make the aforesaid Loan, and the Bank requires, as a condition
thereof, that a guaranty in the form hereof be executed and delivered by the
undersigned;
NOW, THEREFORE, in consideration of the premises and to induce the Bank to
enter into the Loan Agreement and to make the Loan contemplated thereby and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, HOMECAPITAL INVESTMENT CORPORATION, a
Nevada corporation (hereinafter called the "Guarantor"), hereby
---------
unconditionally guarantees to the Bank and to every subsequent holder or holders
of any promissory note or notes evidencing the Loan (said promissory note or
notes together with any note or notes renewing the same or any part thereof
being hereinafter collectively called the "Note") that (i) the principal of and
----
interest on, and attorneys' fees provided in, the Note will be promptly paid
when due in accordance with the provisions thereof or, in the case of extension
of time of payment in whole or in part of the Note, all sums will be promptly
paid when due in accordance with the terms of the extension; (ii) all covenants
and agreements of the Borrower contained in the Note, the Loan Agreement and/or
any other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, will be duly and
promptly observed and performed; and (iii) all additional amounts owing or which
hereafter become owing by the Borrower under the terms of the Note, the Loan
Agreement and/or any other instrument evidencing, securing or governing the
disbursement of the Loan, whether presently existing or hereinafter entered
into, will be promptly paid when due. This Guaranty directly and substantially
benefits Guarantor.
The obligations of the Guarantor shall be performable without demand of the
Bank and shall be unconditional irrespective of the genuineness, validity,
regularity or enforceability of the Loan Agreement or the Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or a guarantor; and the Guarantor hereby waives diligence, presentment,
demand of payment, protest, all notices (whether of nonpayment, intention to
accelerate, acceleration, dishonor, protest or otherwise) with respect to the
Note, notice of acceptance of this Guaranty and of the incurring by the Borrower
of any of the obligations hereinbefore mentioned, all demands whatsoever, and
all rights to require the Bank, to (a) proceed against the Borrower, (b) proceed
against or exhaust any collateral held by the Bank to secure the payment of the
indebtedness guaranteed hereby, or (c) pursue any other remedy the Bank may now
or hereafter have against the Borrower.
The Guarantor hereby agrees that, at any time or from time to time, without
notice to the Guarantor:
<PAGE>
(1) The time for payment of the principal of or interest on the Note
evidencing the Loan may be extended or the Note may be renewed in whole or
in part;
(2) The time for the Borrower's performance of or compliance with any
covenant or agreement contained in the Loan Agreement, the Note and/or any
other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, may be
extended or such performance or compliance may be waived;
(3) The maturity of the Note may be accelerated as provided therein or
in the Loan Agreement and/or any other instrument evidencing, securing or
governing the disbursement of the Loan, whether presently existing or
hereinafter entered into;
(4) The Loan Agreement, the Note and/or any other instrument
evidencing, securing or governing the disbursement of the Loan, whether
presently existing or hereinafter entered into, may be modified or amended
by the Bank and the Borrower in any respect, including, but not limited to,
an increase in the principal amount; and
(5) Any security for the Loan may be modified, exchanged, surrendered
or otherwise dealt with and/or additional security may be pledged or
mortgaged for the Loan;
all without affecting the liability of the Guarantor.
The Guarantor hereby acknowledges that the withdrawal from, or termination
of, any ownership interest in Borrower shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
If this Guaranty shall be placed in the hands of an attorney for collection
or should it be collected by legal proceedings or through any probate or
bankruptcy court, the Guarantor agrees to pay to the Bank's reasonable
attorneys' or collection fees.
The Bank may assign its rights hereunder in whole or in part; and upon any
such assignment, all the terms and provisions of this Guaranty shall inure to
the benefit of such assignee to the extent so assigned. The terms used to
designate any of the parties herein shall be deemed to include the heirs, legal
representatives, successors and assigns of such parties; and the term "Bank"
shall include, in addition to the Bank, any lawful owner, holder or pledgee of
any indebtedness guaranteed hereby.
The Bank is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly, if any provision or provisions of
this instrument should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
The Guarantor acknowledges that the Loan represents money which will be
advanced to the Borrower in a series of advances to be made from time to time
pursuant to the Loan Agreement. To induce the Bank to make the advances
thereunder, the Guarantor hereby agrees that in the event of the termination,
liquidation or dissolution of the Borrower, this Guaranty shall continue in full
force and effect.
The Guarantor hereby represents and warrants to the Bank that the financial
statements and information regarding the Guarantor heretofore delivered to the
Bank are true and correct in all material respects, having been applied on a
consistent basis throughout the period covered thereby, and fairly present the
financial position of the Guarantor as of the dates thereof, and that no
material adverse change has occurred in the financial condition of the Guarantor
reflected therein since the date thereof.
The Guarantor hereby represents and warrants to the Bank that:
-2-
<PAGE>
(a) Neither the execution and delivery of this Guaranty, 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,
statute or regulation to which Guarantor is subject or any judgment, license,
order or permit applicable to Guarantor, or any indenture, mortgage, deed of
trust or other agreement or instrument to which Guarantor is a party or by which
Guarantor may be bound, or to which Guarantor may be subject.
(b) Guarantor is not in default (and no event exists which with notice or
the passage of time could become a default) under any loan agreement, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound including but not limited to
the Loan Documents.
(c) There are no actions, suits or legal, equitable, arbitration or
administrative proceedings pending, or to the knowledge of Guarantor, threatened
against Guarantor.
(d) All tax returns required to be filed by the Guarantor in any
jurisdiction have been filed or extended and all taxes, assessments, fees and
other governmental charges upon Guarantor or upon any of its 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 and
with respect to which reserves in conformity with GAAP have been established on
the books of Guarantor. The Guarantor has no knowledge of any proposed tax
assessment against Guarantor.
(e) Guarantor shall permit any authorized officer, employee or agent of the
Bank, to visit and inspect any of the business properties of the Guarantor,
examine Guarantor's books of record and accounts, take copies and extracts
therefrom, and inspect and discuss the procedures, finances and accounts of
Guarantor with Guarantor's accountants and auditors, all at such reasonable
times and as often as Bank may desire. Guarantor shall furnish such reports as
Bank may reasonably request.
Notwithstanding any provision in this Guaranty to the contrary, Guarantor
hereby waives and releases (i) any and all rights of subrogation, reimbursement,
indemnification or contribution which it may have, against others liable on all
or any part of the Loan, (ii) any and all rights to be subrogated to the rights
of the Bank in any collateral or security for all or any part of the Loan, and
(iii) any and all other rights and claims of such Guarantor against Borrower or
any third party as a result of such Guarantor's payment of all or any part of
the Loan.
Capitalized terms not defined herein are used as defined in the Loan
Agreement.
The obligations of the Guarantor and any other guarantor of the Note
evidencing the Loan shall be joint and several. The Guarantor agrees that the
Bank, in its sole discretion, may (i) bring suit against the Guarantor and any
other guarantor of the Note evidencing the Loan jointly and severally or against
any one or more of them, (ii) compound or settle with any one or more of the
guarantors of the Note evidencing the Loan for such consideration as the Bank
may deem proper, (iii) release one or more of the guarantors of the Note
evidencing the Loan from liability thereunder, and (iv) otherwise deal with the
Guarantor and any other guarantors of the Note, or any one or more of them, in
any manner whatsoever; and that no such action shall impair the rights of the
Bank to collect the indebtedness hereby guaranteed from the Guarantor. Nothing
contained in this paragraph shall in any way affect or impair the rights or
obligations of the Guarantor with respect to any other guarantor of the Note
evidencing the Loan.
Any indebtedness of the Borrower to the Guarantor now or hereafter existing
(including, but not limited to, any rights to subrogation the Guarantor may have
as a result of any payment by the Guarantor under this Guaranty), together with
any interest thereon, shall be, and such indebtedness is hereby subordinated
until payment in full of the indebtedness of the Borrower to the Bank under the
Loan Documents and all other obligations hereunder. Until payment in full with
interest of the indebtedness of the Borrower to the Bank (and including interest
accruing on the Note after any petition under the Bankruptcy Reform Act of 1978,
as amended (the
-3-
<PAGE>
"Bankruptcy Code"), which post-petition interest the parties agree shall remain
---------------
a claim that is prior and superior to any claim of the Guarantor notwithstanding
any contrary practice, custom or ruling in proceedings under the Bankruptcy Code
generally), the Guarantor agrees not to accept any payment or satisfaction of
any kind of any indebtedness of the Borrower to the Guarantor. Further, the
Guarantor agrees that until such payment in full: (i) no Guarantor shall accept
payment from any other Guarantor by way of contribution on account of any
payment made hereunder by such party to the Bank; (ii) no one of them will take
any action to exercise or enforce any rights to such contribution; and (iii) if
any individual or entity comprising the Guarantor should receive any payment,
satisfaction or security for any indebtedness of the Borrower to any individual
or entity comprising the Guarantor or for any contribution by any other
individual or entity comprising the Guarantor for payment made hereunder by the
recipient to the Bank at any time the Borrower is in default under the Loan
Documents, the same shall be delivered to the Bank in the form received,
endorsed or assigned as may be appropriate for application on account of, or as
security for the indebtedness of the Borrower to the Bank. This provision shall
not restrict or impair Guarantor's right to receive compensation from Borrower
for his service to Borrower as an employee. Any lien or charge on the Collateral
(as defined in the Loan Agreement), all rights therein and thereto, and on the
profits, losses, income and distributions to be realized therefrom, which the
Guarantor may have or obtain as security for any loans or advances to Borrower
shall be, and such Lien or charge hereby is, waived. Guarantor waives any rights
Guarantor has under, or any requirements imposed by Chapter 34 of the Texas
Business & Commerce Code, as in effect on the date of this Guaranty or as it may
be amended from time to time. Guarantor waives any rights of subrogation it may
have against the Borrower.
In the event the Borrower is a corporation, joint stock association or
partnership, or is hereafter incorporated, if the indebtedness at any time
hereafter exceeds the amount permitted by law, or the Borrower is not liable
because the act of creating the obligation is ultra vires, or the officers or
persons creating same acted in excess of their authority, and for these reasons
the indebtedness to the Bank which the Guarantor agrees to pay cannot be
enforced against the corporation, joint stock association or partnership, such
fact shall in no manner affect the Guarantor's liability hereunder; but the
Guarantor shall be liable hereunder, notwithstanding any finding that said
corporation, joint stock association or partnership is not liable for such
indebtedness, and to same extend as the Guarantor would have been if the
indebtedness of the Borrower had been enforceable against the Borrower.
THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING HEREUNDER
SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA.
THIS GUARANTY SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY,
TEXAS. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL
DISPUTES BETWEEN GUARANTOR AND BANK, WHETHER IN LAW OR EQUITY, INCLUDING, BUT
NOT LIMITED TO, ANY AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT; AND VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS. GUARANTOR HEREBY CONSENTS TO
PERSONAL JURISDICTION IN DALLAS COUNTY, TEXAS AND WAIVES ANY RIGHTS HE OR SHE
MAY HAVE TO BE SUED ELSEWHERE.
THIS GUARANTY AND THE LOAN DOCUMENTS 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.
-4-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 15th day of
October, 1996.
Address of Guarantor:
- --------------------
HOMECAPITAL INVESTMENT CORPORATION,
6836 Austin Center, Blvd. a Nevada corporation
Suite 280
Austin, Texas 78731
By: /s/ John W. Ballard
-----------------------------------
Name: John W. Ballard
------------------------------
Title: President
-----------------------------
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 15th day of October, 1996,
by John W, Ballard, President of HOMECAPITAL INVESTMENT CORPORATION, a Nevada
corporation, on behalf of said corporation.
/s/ Amy Andrews
-------------------------------
Notary Public - State of Texas
AMY ANDREWS
My Commission expires: -------------------------------
02-14-98 Printed Name of Notary
- ---------------------
[Notary Seal Appears here]
-5-
<PAGE>
EXHIBIT 10.18
________________________________________________________________________________
WORKING CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT
[SERVICING SECURED]
BETWEEN
HOMEOWNERS MORTGAGE & EQUITY, INC.,
A DELAWARE CORPORATION, D/B/A HOME, INC.,
AS THE BORROWER
AND
GUARANTY FEDERAL BANK, F.S.B.
AS THE BANK
----------------------------------
DATED AS OF NOVEMBER 8, 1996
----------------------------------
________________________________________________________________________________
<PAGE>
WORKING CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT
THIS WORKING CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT (the
"Agreement"), dated effective as of, although not necessarily executed on,
---------
November 8, 1996 by and between HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware
corporation, d/b/a HOME, INC., having its principal office at 6836 Austin Center
Blvd., Suite 280, Austin, Texas 78731 (the "Borrower"), and GUARANTY FEDERAL
--------
BANK, F.S.B., a federal savings bank having an office at 8333 Douglas Avenue,
Dallas, Texas 75225 (the "Bank").
----
WHEREAS, the Borrower has requested the Bank, and the Bank is willing, to
extend a revolving line of credit to the Borrower to finance the working capital
requirements of Borrower, and the parties desire to set forth herein the terms
and conditions under which Advances under the line of credit shall be made and
security provided for the repayment thereof;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.
----------- -------------
Capitalized terms defined below or elsewhere in this Agreement (including
the Exhibits hereto) shall have the following meanings:
"Accounts" shall have the meaning assigned to such term in the UCC.
--------
"Adjusted Tangible Net Worth" shall mean, as of any date, the amount equal
---------------------------
to (i) the sum of (A) the Net Worth of Borrower as of such date plus (B) an
amount equal to ninety percent (90%) of the Capitalized Servicing of Borrower as
of such date plus (C) an amount equal to ninety percent (90%) of the Excess
Servicing Receivables of Borrower, minus (ii) the value of all Intangible
Assets, Capitalized Servicing, Excess Servicing Receivables and receivables from
Affiliates of Borrower on such date.
"Advance" means a disbursement by the Bank under the Commitment, including
-------
readvances of funds previously advanced to the Borrower and repaid to the Bank.
"Advance Request" has the meaning set forth in Section 2.2(a) hereof.
--------------- --------------
"Affiliate" shall mean (i) any Person (hereinafter defined) directly or
---------
indirectly (through one or more intermediaries) controlling, controlled by or
under common control, with the Person in question, which in the case of a Person
which is a partnership, shall include each of the constituent partners, whether
general or limited partners thereof, or (ii) any Person who is a director,
shareholder, officer or employee of (a) such Person or (b) any person described
in the preceding clause (i). The term "control", as used in the immediately
preceding sentence, means, with respect to a corporation, any ownership interest
which exceeds ten percent (10%) of the issued and outstanding stock in such
corporation, and, with respect to an entity that is not a corporation, the
possession, directly or indirectly, of any ownership interest which exceeds ten
percent (10%) of the ownership interests in such entity.
"Agency" or "Agencies" shall mean FHLMC, FNMA and/or GNMA.
------ --------
"Agency Servicing Accounts" means any "account," as such term is defined in
-------------------------
the UCC, now or hereafter owned by Borrower that arises from any Agency
Servicing Agreements, and shall include, to the extent not
-1-
<PAGE>
contained in such definition of "account", but shall not be limited to, all
accounts receivable, contracts, book debts, notes, drafts, instruments,
documents, acceptances and other forms of obligations now owned or hereafter
received or acquired by or belonging or owing to Borrower under the Agency
Servicing Agreements (including under any trade names, styles or divisions
thereof), all moneys due or to become due to Borrower under the Agency Servicing
Agreements for the performance of services by it, including, without limitation,
all Rights of Borrower to enforce, collect and receive payments on such Agency
Servicing Accounts arising from Agency Servicing Agreements and to bring an
action to enforce such Agency Servicing Accounts, the balance of every deposit
account, now or hereafter acquired, of Borrower arising from Agency Servicing
Agreements and any other claim of Borrower arising from Agency Servicing
Agreements, now or hereafter existing and all collateral security and guarantees
of any kind given by any Person with respect to any of the foregoing arising
from Agency Servicing Agreements.
"Agency Servicing Agreements" means all agreements pursuant to which the
---------------------------
Borrower undertakes to service Mortgage Notes and Mortgages or pools of Mortgage
Notes and Mortgages owned, insured or guaranteed by FNMA, FHLMC or GNMA.
"Agency Servicing Payments" means all amounts payable or reimbursable to
-------------------------
Borrower in connection with its Agency Servicing Rights, including but not
limited to, (i) amounts paid to Borrower directly by Agencies and (ii) amounts
recoverable by Borrower directly out of custodial payments and other amounts in
or for deposit into the Custodial Accounts, (iii) accounts recoverable by
Borrower from advances made by Borrower pursuant to the FNMA Guide, and (iv) the
servicing income and fees payable to the Borrower under such Agency Servicing
Agreement.
"Agency Servicing Records" means all contracts and other documents, books,
------------------------
records and other information (including without limitation, computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained with respect to the Agency Servicing Agreements.
"Agency Servicing Rights" means all of the Borrower's right, title and
-----------------------
interest in and under the Agency Servicing Agreements, including, without
limitation, the rights of the Borrower to income and reimbursement thereunder
including without limitation the rights to any Excess Servicing Receivable.
"Agreement" means this Working Capital Line of Credit and Security
---------
Agreement, either as originally executed or as it may from time to time be
supplemented, modified or amended.
"Appraisal" means a written statement complying with Appraisal Laws and
---------
Regulations as to the market value of the Excess Servicing Rights for Eligible
Collateral from an appraiser acceptable to Bank in its sole discretion.
"Appraisal Laws and Regulations" means laws set forth in Title XI of the
------------------------------
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the
Federal Deposit Insurance Corporation Improvement Act of 1991 and regulations
promulgated by the Office of the Comptroller of the Currency (the "OCC") or any
---
other Governmental Authority in connection therewith regarding Appraisals with
respect to loans made by Persons regulated by the OCC.
"Appraised Value" shall mean the value established by an Appraisal obtained
---------------
by Bank from an appraiser acceptable to Bank in its sole discretion.
"Bank" has the meaning set forth in the first paragraph of this Agreement.
----
"Base Rate" means the rate of interest per annum equal to the base or prime
---------
rate for commercial loans as publicly announced from time to time by Bank, as
the same may vary from time to time upward or downward with (and effective as of
the date of) each announcement, without notice to Borrower or any guarantor
(such rate being set by Bank as a general rate of reference, taking into account
such factors as Bank may deem appropriate, it being
-2-
<PAGE>
understood that many of its commercial and other loans are priced in relation to
such rate, that it is not necessarily the lowest or best rate actually charged
to any of Bank's customers and that it may make various commercial or other
loans at rates of interest having no relationship to such rate), subject,
-------
however, to the right of Bank, at any time and from time to time, to substitute
- -------
a substantially comparable reference rate of interest in lieu of the base rate
of Bank, upon giving notice to Borrower.
"Borrower" shall have the meaning assigned to such term in the preamble
--------
hereof.
"Business Day" means any day excluding Saturday, Sunday and any day which
------------
is a legal holiday under the laws of the State of Texas.
"Capitalized Servicing" shall mean the servicing owned by Borrower which is
---------------------
capitalized on the balance sheet of Borrower in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within ninety days from the date of
acquisition and (ii) time deposits and certificates of deposit, which mature
within ninety days of the date of acquisition of any domestic commercial bank
having capital and surplus in excess of $200,000,000.00, which has, or the
holding company of which has, a commercial paper rating of at least A-1 or the
equivalent thereof by Standard & Poors Corporation or P-1 or the equivalent
thereof by Moody's Investors Service, Inc.
"Certificated Securities" shall have the meaning assigned to such term in
-----------------------
the UCC.
"Chattel Paper" shall have the meaning assigned to such term in the UCC.
-------------
"Collateral" has the meaning set forth in Section 3.1 hereof.
---------- -----------
"Collateral Value" shall mean the lesser of (A) fifty percent (50%) of the
----------------
Appraised Value of the Excess Servicing Receivables relating to Eligible
Collateral pledged to Bank, as determined on the date hereof, on the date of any
Advance and on January 1, April 1, July 1 and October 1 of each year by an
appraiser acceptable to Bank in its sole discretion, which appraisal shall be
paid for by Borrower or (B) the amount of such Excess Servicing Receivables
capitalized on Borrower's balance sheet in accordance with GAAP.
"Commitment" has the meaning set forth in Section 2.1(a) hereof.
---------- --------------
"Commitment Fee" has the meaning set forth in Section 2.11 hereof.
-------------- ------------
"Compliance Certificate" shall mean the form of certificate attached hereto
----------------------
as Exhibit "F".
-----------
"Conventional Equity Recovery Loan" shall mean a Conventional Loan which is
---------------------------------
secured by a first or second lien mortgage on a non-homestead second or vacation
home and the proceeds are not used for the purchase of the home.
"Conventional Home Improvement Loan" shall mean a Conventional Loan which
----------------------------------
is secured by a second lien mortgage and the proceeds of which are utilized
solely for construction of improvements to the home encumbered by such Mortgage.
"Conventional Loan" means a Mortgage Loan (excluding FHA Loans and VA
-----------------
Loans) reasonably satisfactory to the Bank, which conforms to the eligibility
requirements established by an Investor pursuant to the requirements of a Take-
out Commitment acceptable to Bank.
-3-
<PAGE>
"Conventional Mortgage Loan" means a Mortgage Loan other than a FHA-insured
--------------------------
or VA-guaranteed Mortgage Loan.
"Conventional Purchase Money Second Lien Loan" shall mean a Conventional
--------------------------------------------
Loan which is secured by a second lien mortgage and the proceeds of which are
utilized to purchase the home encumbered by such Mortgage.
"Custodial Accounts" means all deposit accounts maintained by Borrower or a
------------------
subservicer for the benefit of any Agency pursuant to the related Agency
Servicing Agreement.
"Custodian" means the organization which holds documents relating to pooled
---------
Mortgage Loans on the Borrower's and GNMA'S, FNMA's or FHLMC's behalf.
"Debt" means, with respect to any Person, at any date (a) all indebtedness
----
or other obligations of such Person which, in accordance with GAAP, would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet of such Person at such date; (b) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services; (c) all indebtedness or other obligations of any other
Person for borrowed money or for the deferred purchase price of property or
services in respect of which such Person is liable, contingently or otherwise,
to pay or advance money or property as guarantor, endorser, or otherwise (except
as endorser of negotiable instruments for collection in the ordinary course of
business), or which such Person has agreed to purchase or otherwise acquire; and
(d) all indebtedness for borrowed money or for the deferred purchase price of
property or services secured by a Lien on any property owned or being purchased
by such Person (even though such Person has not assumed or otherwise become
liable for the payment of such indebtedness) to the extent that such
indebtedness would not be otherwise counted as a liability for purposes of
determining the Tangible Net Worth of such Person and to the extent that such
indebtedness does not exceed the net book value for such property.
"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.
"Eligible Collateral" means non-recourse FNMA Servicing Rights owned by the
-------------------
Borrower and for which Mortgage Loans serviced are no more than sixty (60) days
delinquent, are not in the process of foreclosure or bankruptcy and are
qualified as FNMA Title I Loans.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time and any successor statute.
"ERISA Affiliate" of Borrower or any Subsidiary of Borrower shall mean any
---------------
trade or business (whether or not incorporated) which, together with Borrower or
such Subsidiary, as the case may be, would be treated as a single employer under
Section 4001 of ERISA.
"Event of Default" means any of the conditions or events set forth in
----------------
Section 8.1 hereof.
- -----------
"Excess Servicing Receivables" shall mean the difference between (A) in the
----------------------------
note rate of a Mortgage Loan which is being serviced under an Agency Servicing
Agreement for FNMA and (B) the sum of (i) the rate paid with respect to such
Mortgage Loan by Borrower to FNMA under such Agency Servicing Agreement plus
(ii) the subservicing fee payable to the applicable Subservicer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time and any successor statute.
"FHA" means the Federal Housing Administration of the United States
---
Department of Housing and Urban Development and any successor thereto.
-4-
<PAGE>
"FHA Loan" shall mean a Mortgage Loan, payment of which is completely
--------
insured by the FHA under the National Housing Act or Title V 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" shall mean the Federal Home Loan Mortgage Corporation, a wholly-
-----
owned corporate instrumentality of the United States of America created pursuant
to the Emergency House Finance Act of 1970, or its successor.
"FHLMC Acknowledgment Agreement" means the form acknowledgment agreement
------------------------------
employed by FHLMC in respect of assignments of FHLMC Servicing Rights.
"FHLMC Guide" means the FHLMC Sellers' & Servicers' Guide, as amended,
-----------
modified or supplemented from time to time.
"FHLMC Securities" means participation certificates representing undivided
----------------
interests in mortgage loans purchased by FHLMC pursuant to the Emergency Home
Finance Act of 1970, as amended.
"FHLMC Servicing Rights" means Agency Servicing Rights that pertain to
----------------------
FHLMC Securities.
"FICA" means the Federal Insurance Contributions Act.
----
"FNMA" means The Federal National Mortgage Association and any successor
----
thereto.
"FNMA Acknowledgment Agreement" means the form acknowledgment agreement
-----------------------------
employed by FNMA in respect of assignments of FNMA Servicing Rights.
"FNMA Guide" means the FNMA Selling Guide and the FNMA Servicing Guide, as
----------
amended, modified or supplemented from time to time.
"FNMA Securities" means modified pass-through mortgage-backed certificates
---------------
guaranteed by FNMA pursuant to the National Housing Act, as amended.
"FNMA Servicing Rights" means Agency Servicing Rights that pertain to FNMA
---------------------
Securities.
"FNMA Title I Loan" shall mean a home improvement Mortgage Loan which FNMA
-----------------
has determined has qualified under the FNMA requirements for Title I Loans under
the FNMA Guide and is insured by FHA.
"Funding Account" shall mean the non-interest bearing demand checking
---------------
account (Account Number 3940000965) established by Borrower with the Bank to be
used for the deposit of proceeds of Advances.
"Generally Accepted Accounting Principles" or "GAAP" shall mean 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, 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.
"GAAP Net Worth" means with respect to any Person at any date, the excess
--------------
of the total assets over total liabilities of such Person on such date, each to
be determined in accordance with GAAP.
"General Intangibles" shall have the meaning assigned to such term in the
-------------------
UCC.
-5-
<PAGE>
"GNMA" shall mean the Government National Mortgage Association, a wholly-
----
owned corporate instrumentality of the United States of America within the
Department of Housing and Urban Development, or its successor.
"GNMA Guide" means the GNMA I and GNMA II Mortgage Backed Securities
----------
Guides, GNMA Handbooks 5500.1 and 5500.2, as amended, modified or supplemented
from time to time.
"GNMA Securities" shall mean modified pass-through type mortgage backed
---------------
certificates guaranteed by GNMA pursuant to Section 306(g) of the National
Housing Act, as amended.
"GNMA Servicing Rights" means Agency Servicing Rights that pertain to GNMA
---------------------
Securities.
"Guarantor" means HOMECAPITAL Investment Corporation, a Nevada corporation.
---------
"Guaranty" of any Person shall mean any contract, agreement or
--------
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "Primary Obligor")
---------------
in any manner, whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds (A) for the purchase or
payment of such Indebtedness, or (B) to maintain working capital or other
balance sheet conditions, or otherwise to advance or make available funds for
the purchase or payment of such Indebtedness; (iii) to purchase property,
securities or service primarily for the purpose of assuring the holder of such
Indebtedness of the ability of the Primary Obligor to make payment of the
Indebtedness; or (iv) otherwise to assure the holder of the Indebtedness of the
Primary Obligor against loss in respect thereof; except that "Guaranty" shall
------ ----
not include the endorsement in the ordinary course of business of negotiable
instruments or documents for deposit or collection.
"HUD" means the United States Department of Housing and Urban Development
---
or any successor thereto.
"Indebtedness" of any Person shall mean (i) all indebtedness of such
------------
Person, whether or not represented by bonds, debentures, notes or other
securities, for the repayment of money borrowed, (ii) all deferred indebtedness
of such Person for the payment of the purchase price of property or assets
purchased, (iii) all obligations of such Person under any lease which are
required to be capitalized for balance sheet purposes, (iv) all Guaranties of
such Person, (v) all indebtedness secured by any Lien existing on property owned
by such Person, whether or not the indebtedness secured thereby shall have been
assumed by such Person, (vi) all unfunded benefit liabilities (within the
meaning of 4001(a)(18) of ERISA) under each Plan maintained by such Person or
its Related Persons, (vii) any obligation of such Person (a) created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person, or (b) under letters of credit, acceptances or
similar obligations issued or created for the account of such Person.
"Indemnified Liabilities" has the meaning set forth in Section 9.3 hereof.
----------------------- -----------
"Instruments" shall have the meaning assigned to such term in the UCC.
-----------
"Insurer" means FHA, VA or a private mortgage insurer, as applicable.
-------
"Intangible Assets" of any Person shall mean those assets of such Person
-----------------
which are (i) deferred assets, (ii) contract rights to service mortgage loans,
patents, copyrights, trademarks, trade names, franchises, goodwill, experimental
expenses, and other similar assets which would be classified as intangible on a
balance sheet of such Person prepared in accordance with GAAP, (iii) unamortized
debt discount and expense and (iv) assets located, and notes and receivables due
from obligors domiciled outside the United States of America.
"Internal Revenue Code" means the Internal Revenue Code of 1986, or any
---------------------
subsequent federal income tax law or laws, as any of the foregoing have been or
may from time to time be amended.
-6-
<PAGE>
"Investor" means FNMA, FHLMC or GNMA or a financially responsible private
--------
institution (which is deemed acceptable by the Bank in its sole discretion)
purchasing Mortgage Loans from the Borrower.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"Liquidity" means the sum of (a) Borrower's lien free Cash Equivalents and
---------
(b) Borrower's availability (loan amount minus funds advanced) under the
Warehousing Credit Facility to borrow additional funds under such credit
facility.
"Loan Documents" shall mean instruments and documents representing,
--------------
evidencing or securing the Indebtedness evidenced by the Note.
"Margin Stock" has the meaning assigned to that term in Regulation U of the
------------
Board of Governors of the Federal Reserve System as in effect from time to time.
"Material Adverse Effect" shall mean any event or set of circumstances that
-----------------------
(i) would have a material adverse effect on the validity or enforceability of
this Agreement, the Note or any Loan Document, (ii) is, or upon the passage of
time or happening of an event will be, material and adverse to the financial
condition or business operations of Borrower or Guarantor, or (iii) would
materially impair the ability of Borrower or Guarantor to fulfill its
obligations under this Agreement, the Note or any Loan Document to which it is a
party.
"Maturity Date" shall mean November 7, 1997.
-------------
"Maximum Rate" means at the particular time in question the maximum rate of
------------
interest which, under applicable law, may then be charged on the Note. If such
maximum rate of interest changes after the date hereof, the Maximum Rate shall
be automatically increased or decreased, as the case may be, without notice to
Borrower from time to time as of the effective time of each change in such
maximum rate. If applicable law ceases to provide for such a maximum rate of
interest, the Maximum Rate shall be a per annum rate of interest equal to six
percent (6.0%) plus the Base Rate from time to time in effect. Notwithstanding
anything contained herein or in the Note to the contrary, Bank shall not be
deemed to have contracted for or be entitled to receive, collect or apply as
interest on the Note, any amount in excess of the amount permitted and
calculated at the Maximum Rate, and, in the event Bank ever receives, collects
or applies as interest any amount in excess of the amount permitted and
calculated at the Maximum Rate, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance of the Note,
and, if the principal balance of the Note is paid in full, any remaining excess
shall forthwith be paid to Borrower. In determining whether or not the interest
paid or payable under any specific contingency exceeds the Maximum Rate,
Borrower and Bank shall, to the maximum extent permitted under applicable law,
(i) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense, fee, or
premium, rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) spread the total amount of interest throughout the
entire contemplated term of the Note.
To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is
relevant to the Bank for the purpose of determining the Maximum Rate, the Bank
hereby elects to determine the applicable rate ceiling under such Article by the
"indicated rate ceiling" from time to time in effect, subject to the Bank's
right subsequently to change such method in accordance with applicable law.
"Mortgage" shall mean a mortgage or deed of trust, on standard forms
--------
approved by VA, FHA, FNMA or FHLMC or otherwise in form and substance
satisfactory to Bank, granting a perfected first-priority (or second-priority in
the case of a Second Lien Mortgage Loan or inferior lien in the case of a FNMA
Title I Loan) lien on
-7-
<PAGE>
residential real property consisting of land and a single family (1-4 family)
dwelling thereon which is completed and ready for occupancy.
"Mortgage Loan" means a loan evidenced by a Mortgage Note. A Mortgage Loan
-------------
shall be a Residential Mortgage Loan and may be a Conventional Loan, a
Conventional Equity Recovery Loan, Conventional Home Improvement Loan, a
Conventional Purchase Money Second Lien Loan or a FNMA Title I Loan.
"Mortgage Loan Documents" means the Mortgage, Mortgage Note, credit and
-----------------------
closing packages, disclosures, and all other records and documents necessary to
establish the eligibility of the Mortgage Loans for mortgage insurance or
guarantee by an Insurer or for purchase by an Investor.
"Mortgage Note" means a note secured by a Mortgage and evidencing a
-------------
Mortgage Loan.
"Mortgage Note Amount" means the outstanding unpaid principal amount of a
--------------------
Mortgage Note at the time such Mortgage Note is pledged to the Bank.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
------------------
4001(a)(3) of ERISA which is maintained for employees of the Borrower or a
Subsidiary of the Borrower.
"Net Collateral Deficit" means, at any time, the amount, if any, by which
----------------------
the aggregate Collateral Value of all Eligible Collateral is exceeded by the
outstanding principal balance of the Loan, as determined by Bank in its sole
discretion.
"Net Income" means, for any period of time, the net income appearing on an
----------
income statement of such Person prepared as of the end of such calendar quarter
in accordance with GAAP.
"Net Worth" of any Person shall mean, as of any date, the total
---------
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock) which would appear on a
balance sheet of such Person prepared as of such date in accordance with GAAP.
"Non-Agency Servicing Accounts" means any "account," as such term is
-----------------------------
defined in the UCC, now or hereafter owned by Borrower that arises from any Non-
Agency Servicing Agreement, and shall include, to the extent not contained in
such definition of "account", but shall not be limited to, all accounts
receivable, contracts, book debts, notes, drafts, instruments, documents,
acceptances and other forms of obligations now owned or hereafter received or
acquired by or belonging or owing to Borrower under the Non-Agency Servicing
Agreements (including under any trade names, styles or divisions thereof), all
moneys due or to become due to Borrower under the Non-Agency Servicing
Agreements for the performance of services by it, including, without limitation,
all Rights of Borrower to enforce, collect and receive payments on such Non-
Agency Servicing Accounts arising from Non-Agency Servicing Agreements and to
bring an action to enforce such Non-Agency Servicing Accounts, the balance of
every deposit account, now or hereafter acquired, of Borrower arising from Non-
Agency Servicing Agreements and any other claim of Borrower arising from Non-
Agency Servicing Agreements, now or hereafter existing and all collateral
security and guarantees of any kind given by any Person with respect to any of
the foregoing arising from Non-Agency Servicing Agreements.
"Non-Agency Servicing Agreements" means all agreements pursuant to which
-------------------------------
the Borrower undertakes to service Mortgage Notes and Mortgages or pools of
Mortgage Notes and Mortgages for any Party other than an Agency which are
acquired by Borrower.
"Non-Agency Servicing Payments" means all amounts payable or reimbursable
-----------------------------
to Borrower in connection with its Non-Agency Servicing Rights, including but
not limited to, (i) amounts paid to Borrower directly by Agencies and (ii)
amounts recoverable by Borrower directly out of custodial payments and other
amounts in or for deposit into the Custodial Accounts, (iii) accounts
recoverable by Borrower from advances made by Borrower
-8-
<PAGE>
pursuant to the Non-Agency Servicing Agreement, and (iv) the servicing income
and fees payable to the Borrower under such Non-Agency Servicing Agreement.
"Non-Agency Servicing Records" means all contracts and other documents,
----------------------------
books, records and other information (including without limitation, computer
programs, tapes, discs, punch cards, data processing software and related
property and rights) maintained with respect to the Non-Agency Servicing
Agreements.
"Non-Agency Servicing Rights" means all of the Borrower's right, title and
---------------------------
interest in and under the Non-Agency Servicing Agreements, including, without
limitation, the rights of the Borrower to income and reimbursement thereunder.
"Note" has the meaning set forth in Section 2.3 hereof.
---- -----------
"Notices" has the meaning set forth in Article 11 hereof.
------- ----------
"Operating Account" means the non-interest bearing demand deposit account
-----------------
(Account Number 3206017075) established by the Borrower with the Bank which
account, subject to the provisions of Section 11.19 (regarding the Bank's offset
-------------
rights), is subject to the sole dominion and control of the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
----
successor to any or all of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Plan" shall mean any employee benefit plan or other plan which is subject
----
to the provisions of Title IV of ERISA or to the minimum funding standards under
Section 412 of the Code and which is maintained for employees of Borrower or any
Subsidiary of Borrower or any of their respective ERISA Affiliates.
"Redemption Amount" has the meaning set forth in Section 3.3 hereof.
----------------- -----------
"Reportable Event" shall mean a reportable event described in Section 4043
----------------
of ERISA or the regulations thereunder for which the 30-day notice is not waived
by such regulations, a withdrawal from a Plan described in Section 4063 or 4064
of ERISA, or a cessation of operations described in Section 4062(e) of ERISA.
"Requirement of Law" as to any Person shall mean the articles of
------------------
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, franchise, permit, certificate, license,
authorization or other determination, 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 arbitrator, court or other governmental authority, in each case
applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject.
"Reserve Requirements" means (a) the maximum aggregate reserve requirement
--------------------
imposed on Bank (including all basic, supplemental, marginal and other reserves
and taking into account any transitional adjustments or other scheduled changes
in reserve requirements) that is imposed on non-personal time deposits of
$100,000 or more, and (b) the net assessment rate per annum payable to the
Federal Deposit Insurance Corporation (or any successor) for the insurance of
domestic deposits of Bank during the calendar year in which such assessment rate
is determined, as reasonably estimated by Bank.
-9-
<PAGE>
"Residential Mortgage Loan" means a Mortgage Loan secured by a Mortgage
-------------------------
covering improved real property containing a one- to four-family residence.
"Sales Agreements" means all commitments and sales agreements with respect
----------------
to all or any portion of any assets of Borrower relating to Agency Servicing
Agreements, Agency Servicing Records, Agency Servicing Rights, Non-Agency
Servicing Agreements, Non-Agency Servicing Records, Non-Agency Servicing Rights,
Subservicing Contracts or any other Collateral.
"Sales Proceeds" means, as to any sale of any Collateral including but not
--------------
limited to sales of Servicing Rights, the gross proceeds paid or to be paid to
or received by Borrower, whether paid or payable in cash or to be paid pursuant
to the terms of an agreement or debt instrument, less the reasonable and
necessary expenses of such sale as approved by Bank.
"Second Lien Mortgage Loan" shall mean a Mortgage Loan which qualifies
-------------------------
under the definition of Mortgage Collateral except for the fact that it is
secured by a Mortgage which grants a perfected second-priority lien on
------
residential real property consisting of land and a single family (1-4 family)
dwelling thereon which is completed and ready for occupancy. Such Mortgage Loan
shall be a Covered Mortgage Loan.
"Servicing Agreement" means the rights and obligations of the Borrower, as
-------------------
servicer, pursuant to any Agency Servicing Agreements and any Non-Agency
Servicing Agreements including but not limited to those identified on Exhibit
-------
"E" attached hereto or made part hereof, as the same may be revised from time to
- ---
time, or such other servicing contracts to which Borrower is or may be a party,
to administer, collect the payments for the reduction of principal and
application of interest, pay taxes and insurance, remit collected payments,
provide foreclosure services, provide full escrow administration and any other
obligations required by any Investor or Insurer in, of or for the Mortgage Loans
pursuant to the Servicing Agreements, together with the right to receive the
servicing fee and any ancillary fees arising from or connected to the Mortgage
Loans.
"Settlement Account" shall mean the non-interest bearing demand checking
------------------
account (Account No. 3940000973) established by Borrower with the Bank to be
used for (i) the deposit of proceeds from the sale of Collateral and (ii) the
payment of the Indebtedness evidenced by the Loan Documents.
"Statement Date" has the meaning set forth in Section 4.1(a)(7) hereof.
-------------- -----------------
"Subservicer" shall mean Compu-Link Corporation or any other Person acting
-----------
as a subservicer for Borrower with respect to Non-Agency Servicing Agreements
and/or Agency Servicing Agreements.
"Subservicing Contracts" means any agreement between Borrower and any
-----------------------
other party providing for the delegation of obligations and liabilities of
Borrower under any Servicing Agreement to such third party including but not
limited to those listed on Exhibit "L", whether now existing or hereafter
-----------
entered into.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned in any percentage by such Person.
"Tangible Net Worth" of Borrower shall mean at any time, as determined by
------------------
GAAP, an amount equal to the sum of (i) Borrower's Net Worth, minus (ii) the
value of all assets of Borrower that would be characterized as Intangible
Assets.
"UCC" shall mean the Uniform Commercial Code as adopted in the State of
---
Texas, TEX. BUS. & COM. CODE ANN. (S)1.101 ET SEQ. (Vernon 1968 and Supp. 1991),
as the same may hereafter be amended.
"Uncertificated Securities" shall have the meaning assigned to such term in
-------------------------
the UCC.
-10-
<PAGE>
"VA" means the Department of Veterans Affairs and any successor thereto.
--
"Warehousing Credit Facility" means that certain line of credit from Bank
---------------------------
to Borrower evidenced by that certain Loan Agreement by and between Borrower and
Bank dated as of June 1, 1996, together with all amendments, modifications and
extensions thereto.
Section 1.2 Other Definitional Provisions.
----------- -----------------------------
1.2(a) All meanings defined in this Agreement shall have the above-
defined meanings when used in the Note or any Loan Document, certificate,
report or other document made or delivered pursuant to this Agreement,
unless the context therein shall otherwise require.
1.2(b) Defined terms used herein in the singular shall import the
plural and vice versa.
---- -----
1.2(c) The words "hereof," "herein," "hereunder" and similar terms
when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
1.2(d) Section, schedule and exhibit references herein are
references to sections, schedules and exhibits to this Agreement unless
otherwise specified.
1.2(e) As used herein, in the Note, or in any other Loan Document,
certificate, report or other document made or delivered pursuant hereto,
accounting terms relating to any Person and not specifically defined in
this Agreement or otherwise shall have the respective meanings given to
them under GAAP.
1.2(f) Unless otherwise specified herein, all times set forth
herein are Dallas, Texas time.
ARTICLE II
THE CREDIT
Section 2.1 The Commitment
----------- --------------
2.1(a) Subject to the terms and conditions of this Agreement and
provided no Event of Default has occurred and no Default has occurred and is
continuing, the Bank agrees, from time to time during the period from the date
hereof to the Maturity Date (unless such period is earlier determined pursuant
hereto) make Advances to, or on behalf of the Borrower or its designee, provided
the total aggregate principal amount which is outstanding at any one time of all
such Advances shall not exceed Three Million and No/100 Dollars ($3,000,000.00).
The obligation of the Bank to make Advances hereunder up to such limits is
hereinafter referred to as the "Commitment". Within the Commitment, the
----------
Borrower may borrow, repay and reborrow. Notwithstanding the foregoing, the
Bank shall not be obligated to make Advances hereunder at all or up to any
specified aggregate limit unless the Borrower elects to pay the Commitment Fee
specified in Section 2.11 hereof, in which event this Agreement shall govern any
------------
Advances that the Bank from time to time elects in its sole discretion to make
to the Borrower.
2.1(b) Advances shall be used by the Borrower solely for the
purpose of funding the working capital requirements of Borrower and shall be
made at the request of the Borrower, in the manner hereinafter provided in
Section 2.2, against the pledge of Eligible Collateral.
- -----------
-11-
<PAGE>
2.1(c) No Advance shall exceed the Collateral Value of the Eligible
Collateral pledged in connection with such Advance.
2.1(d) No Net Collateral Deficit shall exist before or after such
Advance.
2.1(e) Borrower shall be in compliance with all provisions
contained in the Loan Documents including but not limited to those covenants
stated on the Compliance Schedule.
Section 2.2 Procedures for Obtaining Advances.
----------- ---------------------------------
2.2(a) The Borrower may obtain an Advance hereunder, subject to the
satisfaction of the conditions set forth in Sections 4.1 and 4.2 hereof, upon
--------------------
compliance with the procedures set forth in this Section 2.2. Requests for
-----------
Advances shall be initiated by the Borrower by delivering to the Bank a
completed and signed request for an Advance (an "Advance Request") on the then
---------------
current form therefor approved by the Bank. The current form in use by the Bank
is set forth in Exhibit "C" hereto. The Bank shall have the right to revise or
-----------
supplement approved forms of Advance Request by giving notice thereof to the
Borrower.
2.2(b) Each Advance under this Agreement shall be in the aggregate
amount of not less than $100,000.00. The obligation of the Bank to make any
Advance is subject to the following further conditions precedent:
(i) prior to 9:00 p.m. (Dallas, Texas time) on the Business Day five
(5) Business Days prior to the Borrowing Date, Borrower shall give to the
Bank telephonic or telecopy notice of the amount of such Borrowing and (ii)
prior to 10:30 a.m. (Dallas, Texas time) on the Business Day five (5)
Business Days prior to the Borrowing Date, Bank shall have received from
the Borrower via telecopy or Federal Express an executed Advance Request;
(ii) prior to the deadlines stated in Section 2.2(b)(i), Borrower
-----------------
shall deliver to the possession of the Bank all of the items required to be
delivered to the Bank by Section 2.2(c);
--------------
(iii) the representations and warranties of Borrower contained in this
Agreement or any Loan Document (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;
(iv) no Default or Event of Default shall have occurred and be
continuing as of the date of such Advance;
(v) no circumstance or event, as determined by the Bank in its
reasonable discretion, having a Material Adverse Effect shall have occurred
and be continuing;
(vi) the Funding Account, the Settlement Account and the Operating
Account shall be established and in existence; and
(vii) no Net Collateral Deficit shall exist.
2.2(c) The procedures to be followed by the Borrower in making an
Advance Request, are as follows. The Borrower shall provide to Bank at least
five (5) Business Days prior to the Borrowing Date the following:
(i) an Appraisal showing the Collateral Value for the Eligible
Collateral including the new Eligible Collateral being pledged in
connection with Advance Request;
-12-
<PAGE>
(ii) an executed Advance Request;
(iii) a true, correct and complete copy of the applicable Servicing
Agreement;
(iv) such amendments to Loan Documents as are deemed necessary by Bank
in its sole discretion to grant Bank a perfected first lien security
interest in the Collateral including Financing Statements;
(v) Acknowledgment Agreements for the applicable Servicing Agreements;
(vi) a UCC search for all applicable jurisdictions; and
(vii) a Borrowing Base Report (herein so called) in the form attached
hereto as Exhibit "D".
-----------
2.2(d) Before funding any Advance, the Bank shall have a reasonable
time to examine each Advance Request and the Collateral Documents to be
delivered prior to the Advance, and may reject any Advance Request or Collateral
Document that does not meet the requirements of this Agreement.
2.2(e) To make an Advance, the Bank shall transfer funds to the
Borrower's Funding Account in the amount of the Advance in accordance with the
procedures described herein.
2.2(f) All Advances under this Agreement shall constitute a single
indebtedness and all of the Collateral shall be security for the Note and for
the performance of all obligations of the Borrower to the Bank.
Section 2.3 Note. The Borrower's obligation to pay the principal of,
----------- ----
and interest on, all Advances made by the Bank shall be evidenced by the
promissory note (the "Note") of the Borrower dated as of the date hereof
----
substantially in the form of Exhibit "A" attached hereto. The term "Note" shall
----------- ----
include all extensions, renewals and modifications of the Note and all
substitutions therefor. All terms and provisions of the Note are incorporated
herein.
Section 2.4 Interest & Transaction Fees.
----------- ---------------------------
2.4(a) The unpaid amount of each Advance shall bear interest, from
the date of such Advance until paid in full, at the rate per annum equal to the
lesser of (a) the Maximum Rate or, (b) the rate of interest, from time to time,
which is equal to two and one quarter percent (2.25%) per annum over the Base
Rate. The interest rate shall be computed on the basis of a 360 day year
applied to the actual number of days elapsed in each interest calculation
period. The interest rate will be adjusted as of the effective date of each
change in the Base Rate.
2.4(b) All interest shall be payable to the Bank as provided in the
Note.
2.4(c) The holder of the Note is hereby authorized to record the
date and amount of each payment of principal and interest, and applicable
interest rates and other information with respect thereto, on the schedules
annexed to and constituting a part of the Note and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided, however, that the failure to make a notation or the inaccuracy of any
notation shall not limit or otherwise affect the obligations of the Borrower
hereunder or thereunder.
Section 2.5 Principal Payments.
----------- ------------------
2.5(a) The outstanding principal amount of each Advance shall be
payable in full upon the earliest to occur of (i) demand, or (ii) Maturity Date.
-13-
<PAGE>
2.5(b) The Borrower shall have the right to prepay the outstanding
Advances in whole or in part, from time to time, without premium or penalty or
advance notice.
2.5(c) The Borrower shall be obligated to pay to the Bank, without
the necessity of prior demand or notice from the Bank, and the Borrower
authorizes the Bank to charge its account for, the amount of any outstanding
Advance attributable to the Eligible Collateral or sales proceeds from
Collateral, upon the occurrence of any of the following events:
(1) Upon sale of any Collateral or the receipt of any sales
proceeds by Borrower;
(2) Any obligor of a Mortgage Loan serviced under the
Eligible Collateral shall have contested the validity of the Mortgage Loan
pursuant to the Federal Truth in Lending Act, the Real Estate Settlement
Procedures Act, the Equal Credit Opportunity Act, or any other federal or state
law or regulation, or any such Mortgage Loan shall have been rescinded, or the
Bank, in its reasonable judgment, determines that such Mortgage Loan is not in
compliance with applicable federal and/or state laws or regulations;
(3) Any Mortgage securing a Mortgage Loan serviced under the
Eligible Collateral shall not continue to be (A) a valid and enforceable Lien
(of the priority represented to Bank) on the mortgaged property covered thereby,
and in compliance with all laws applicable thereto, (C) in full force and
effect, and (C) fully serviced by Borrower (including the collection of all
amounts due thereon) or a Subservicer approved by Bank in its sole discretion;
or
(4) Any Mortgage Loan serviced under the Eligible Collateral
ceases to conform to the eligibility requirements published and established from
time to time by FNMA or a private Investor approved by Bank in its sole
discretion.
2.5(d). The Borrower shall be obligated to pay to the Bank by direct wire
transfer from its purchaser to Bank, without the necessity of prior demand or
notice from the Bank, all sales proceeds from the sale of any Collateral. All
---
contracts relating to the sale of any of the Collateral shall contain as an
exhibit the Acknowledgment attached hereto as Exhibit "J" and shall not be
-----------
executed unless Borrower delivers to Bank prior to execution of the sales
contract by Borrower, a fully executed Acknowledgment.
2.5(e). Upon the occurrence of a Net Collateral Deficit, Borrower shall
make a principal prepayment in an amount sufficient to eliminate such Net
Collateral Deficit within one (1) business day of the occurrence of the
existence of such Net Collateral Deficit.
Section 2.6 Expiration and/or Termination of Commitment
-------------------------------------------
2.6(a) Unless terminated earlier as permitted hereunder, the
Commitment shall expire of its term, and without the necessity of action by the
Bank, on the Maturity Date.
2.6(b) The Bank shall have the right, without cause, at any time to
terminate the Agreement on not less than thirty (30) days' notice to the
Borrower.
2.6(c) The Bank shall have the right to terminate this Agreement
and any line of credit extended to the Borrower pursuant to the terms of this
Agreement, upon any Material Adverse Effect in the Borrower's financial
condition as defined by the Bank in its reasonable discretion during the term of
this Agreement. Such a Material Adverse Effect of financial condition will
include, but shall not be limited to the occurrence of any one or more of the
events listed in Section 6.6 hereto.
-----------
Section 2.7 Concerning the Funding Account, the Settlement Account and
----------------------------------------------------------
the Operating Account. The Borrower hereby expressly acknowledges that the
- ---------------------
Funding Account, the Settlement Account and the Operating
-14-
<PAGE>
Account are subject in all respects to the right of offset in favor of the Bank
granted under Section 11.19. Further, it is expressly agreed that:
-------------
2.7(a) the Funding Account shall be subject to the sole dominion
and control of the Bank who shall disburse amounts from time to time on deposit
therein in accordance with the terms of this Agreement;
2.7(b) the Settlement Account shall be subject to the sole dominion
and control of the Bank who shall disburse amounts from time to time on deposit
therein in accordance with the terms of this Agreement;
2.7(c) subject to the right of offset in favor of the Bank, the
Operating Account shall be subject to the sole dominion and control of the
Borrower;
2.7(d) nothing other than proceeds of Advances shall be deposited
in the Funding Account; and
2.7(e) the Settlement Account shall only be used for (i) proceeds
from the sale or other disposition of Collateral and (ii) the payment of the
Indebtedness evidenced by the Loan Documents.
Section 2.8 Representations and Warranties Regarding Mortgage Notes.
-------------------------------------------------------
Effective with the delivery of the Advance Request, the Borrower represents and
warrants to Bank with respect to each Mortgage Note serviced pursuant to the
Collateral that:
2.8(a) The Borrower (and, if the Borrower did not originate the
loan evidenced by such Mortgage Note, to the best of Borrower's knowledge, the
originator of such loan) complied, and the Mortgage Collateral comply, in all
material respects with all applicable Requirements of Law, including, without
limitation, (i) any usury laws, (ii) the Real Estate Settlement Procedures Act
of 1974, as amended, (iii) the Equal Credit Opportunity Act, as amended, (iv)
the Federal Truth in Lending Act, as amended, (v) Regulation Z of the Board of
Governors of the Federal Reserve System, as amended, and (vi) any consumer
protection laws;
2.8(b) the full Face Amount of such Mortgage Note (less any
discount points paid by or on behalf of the borrower under such Mortgage Note)
was funded to the borrower thereunder and any such discount points paid were
normal and customary;
2.8(c) the Mortgage related to such Mortgage Note creates a
perfected first-priority Lien (or second-priority Lien in the case of Second
Lien Mortgage Loan, or inferior priority lien in the case of a FNMA Title I
Loan) on residential real property consisting of land and a one-to-four family
dwelling thereon which is completed and ready for occupancy and such Mortgage,
the title policy relevant thereto (only if required by FNMA or the Investor, if
not FNMA) and the other Mortgage documents relevant thereto comply in all
respects with the requirements of the Investor; and
2.8(d) the Mortgage Loan qualifies under the definition of Mortgage
Loan.
Section 2.9 Method of Making Payments.
-------------------------
All payments hereunder shall be received by the Bank on the date when
due and shall be made in lawful money of the United States of America in
immediately available funds at the office of the Bank, at 8333 Douglas Avenue,
Dallas, Texas 75225, to the Settlement Account or at such other place as the
Bank from time to time shall designate. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day, and, with respect to payments of principal, the interest thereon
shall be payable at the applicable rate during such extension. Funds received
by the Bank after 12:00 noon (Dallas, Texas time) on a Business Day shall be
deemed to have been paid by the Borrower on the next succeeding Business Day.
-15-
<PAGE>
Section 2.10 Late Payment Fees. In the event the Borrower fails to make
-----------------
any payment (whether of principal, interest or any other sum) on the date such
payment is due and payable hereunder or under the Note, and such failure
continues for more than five (5) days, the Borrower shall pay to the Bank, upon
demand therefor, a late payment fee equal to five percent (5%) of the amount of
such payment.
Section 2.11 Commitment Fee. As a condition to obtaining the Commitment,
--------------
the Borrower agrees to pay to the Bank in advance on the date hereof and on the
first day of each calendar quarter (January 1, April 1, July 1, October 1) the
Commitment Fee in equal payments of $3,750.00 each.
Section 2.12 Yield Protection. If at any time after the date hereof, and
----------------
from time to time, the Bank reasonably determines that the adoption or
modification of any applicable law, rule or regulation regarding taxation,
Bank's required levels of reserves, deposits, insurance or capital (including
any allocation of capital requirements or conditions), or similar requirements,
or any interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation,
administration or compliance of Bank with any of such requirements, has or would
have the effect of (a) increasing Bank's costs relating to the obligation
hereunder, or (b) reducing the yield or rate of return of Bank on the obligation
hereunder, to a level below that which Bank could have achieved but for the
adoption or modification of any such requirements, the Borrower shall, within
thirty (30) days of any request by Bank, either (i) agree in writing to pay to
Bank such additional amounts as Bank reasonably determines is necessary to
maintain the yield, rate of return and/or level of Bank's costs, which Bank
would have achieved but for the above-referenced adoption or modification of
applicable law, rule or regulation or (ii) pay in full all sums owed hereunder
including all principal, interest, expenses and fees and deliver to the Bank
notification that the Bank shall have no further obligation to make Advances
hereunder and that the Bank shall have no further obligations to Borrower
hereunder. No failure by Bank to immediately demand payment of any additional
amounts payable hereunder shall constitute a waiver of Bank's right to demand
payment of such amounts at any subsequent time. Such additional amounts shall
not be charged retroactively, that is all such additional amounts shall only be
charged for that period of time following the thirty (30) day notice period
required in this paragraph. Nothing herein contained shall be construed or so
operate as to require Borrower to pay any interest, fees, costs or charges
greater than is permitted by applicable law.
ARTICLE III
COLLATERAL
Section 3.1 Assignments and Grant of Security Interest. As security for
------------------------------------------
the payment of the Note and for the performance of all of the Borrower's
monetary and non-monetary obligations (collectively, the "Obligations")
-----------
hereunder and under the Warehousing Credit Facility, the Borrower hereby grants
to the Bank a security interest in all rights and interest of the Borrower in
and to the following described property whether now owned or hereafter acquired,
wherever located, howsoever arising or created, and whether now existing or
hereafter arising (collectively, the "Collateral"):
----------
3.1(a) all Accounts and General Intangibles, relating to the
following;
3.1(b) FNMA Servicing Rights.
3.1(c) FHLMC Servicing Rights.
3.1(d) GNMA Servicing Rights.
3.1(e) Agency Servicing Rights.
3.1(f) Agency Servicing Records.
-16-
<PAGE>
3.1(g) Borrower's rights under any Subservicing Contracts including
but not limited to Borrower's right to receive payments under any
Subservicing Contracts.
3.1(h) Agency Servicing Accounts.
3.1(i) All Agency Servicing Payments.
3.1(j) Non-Agency Servicing Accounts.
3.1(k) Non-Agency Servicing Agreements.
3.1(l) Non-Agency Servicing Payments.
3.1(m) Non-Agency Servicing Records.
3.1(n) Non-Agency Servicing Rights.
3.1(o) All rights of Borrower in and to the Custodial Accounts.
3.1(p) All Sales Agreements.
3.1(q) All Sales Proceeds.
3.1(r) the Funding Account, the Operating Account and the
Settlement Account.
3.1(s) All guaranties, indemnifications, security documents, and
other agreements, documents and instruments relating to the Agency
Servicing Agreements and the Non-Agency Servicing Agreements by which the
Persons executing the same guarantee or collateralize, among other things,
payment or performance of any, and all of the Agency Servicing Agreements
and the Non-Agency Servicing Agreements described above or protect Borrower
against loss relating to the Agency Servicing Agreements and the Non-Agency
Servicing Agreements described above.
3.1(t) All accounting information, ledger sheets, files, records,
documents, and any other media (including, without limitation, computer
programs, tapes and related electronic data and processing software) in
which or on which any of the information, knowledge, data, or records may
be recorded or stored relating to the Agency Servicing Agreements and the
Non-Agency Servicing Agreements, that evidence Borrower's interest in or
relate to any and all of the Agency Servicing Agreements and the Non-Agency
Servicing Agreements described above (including, without limitation, all
information, data, programs, tapes, disks, and cards necessary to
administer and service any Mortgage Loans with respect to which Borrower
has Agency Servicing Rights and Non-Agency Servicing Rights).
3.1(u) All personal property, contract rights, accounts receivable,
accounts and general intangibles (including, without limitation, the right
to receive payments and deposits of any kind under or in connection with
the Agency Servicing Agreements and the Non-Agency Servicing Agreements and
other Collateral) of whatsoever kind relating to the Collateral, including,
without limitation, the right to receive all hazard, private mortgage and
title insurance proceeds and condemnation awards which may be payable in
respect of the premises encumbered by any Collateral.
3.1(v) all of Borrower's property insurance maintained upon and
protecting the assets and property described above.
-17-
<PAGE>
3.1(w) all files, documents, instruments, surveys, certificates,
correspondence, appraisals, computer programs, tapes, disks, cards,
accounting records and other records, information and data of Borrower
relating to any of the foregoing.
3.1(x) all products and proceeds (including, without limitation,
insurance proceeds) of, and additions, improvements and accessions to, and
books and records describing or used in connection with, all and any of the
property described above.
Upon the request of the Bank, the Borrower shall execute any further
document or instrument requested by the Bank to further evidence or effectuate
the assignments set forth in this subparagraph.
The security interest created by this Agreement with respect to FNMA
Servicing Rights, is subject to and subordinate to all rights, powers and
prerogatives of FNMA under and in connection with (i) the terms and conditions
of that certain Acknowledgement Agreement with respect to such security
interest, by and between FNMA, Homeowners Mortgage & Equity, Inc., a Delaware
corporation, d/b/a Home, Inc. (the "Debtor") and Guaranty Federal Bank, F.S.B.
------
(the "Secured Party"), (ii) the Mortgage Selling and Servicing Contract and all
-------------
applicable pool purchase contracts between FNMA and the Debtor, and (iii) the
selling guide, servicing guide and other guides as each of such guides is
amended from time to time ((ii) and (iii) collectively, the "FNMA Contract"),
-------------
which rights, powers and prerogatives include, without limitation, the right of
FNMA to terminate the FNMA Contract with or without cause and the right to sell
or have transferred, the servicing rights as therein provided.
Bank grants to Borrower a license to receive, retain and spend for its own
account all Agency Servicing Payments and Non-Agency Servicing Payments until
the occurence of an Event of Default or an event which is continuing and which
with notice and/or the passage of time would become an Event of Default.
Section 3.2 Delivery of Additional Collateral or Mandatory Prepayment.
---------------------------------------------------------
In the event that the Bank shall determine at any time that the Collateral Value
of the Eligible Collateral then pledged hereunder is less than the aggregate
amount of the Advances then outstanding hereunder, the Borrower shall
immediately (a) deliver to the Bank for pledge hereunder Collateral satisfactory
to the Bank in its sole and absolute discretion and/or cash, in aggregate
amounts sufficient to cover the difference between the Collateral Value of the
Eligible Collateral pledged and the aggregate amount of Advances outstanding
hereunder, or (b) repay the Advances in an amount sufficient to reduce the
aggregate balance thereof outstanding to or below the Collateral Value of the
Eligible Collateral pledged hereunder.
Section 3.3 Redemption Pursuant to Sale. Provided no Event of Default
---------------------------
has occurred and no Default has occurred and is continuing, the Borrower may, in
connection with a sale (if approved by Bank) of Collateral, redeem Collateral
from pledge, by paying to the Bank, for application to prepayment of the
principal balance of the Note, an amount (the "Redemption Amount") equal to (i)
-----------------
as to Eligible Collateral, the greater of (a) the Collateral Value of the
Collateral to be released, or (b) the amount of the Advance made with respect to
such Collateral or (ii) in the case of all other Collateral, all sales proceeds
payable to the Borrower. Amounts payable to the Borrower for the purchase of
any Collateral shall be paid directly to the Bank into the "Settlement Account"
------------------
which account shall be under the sole dominion and control of Bank. In
connection with all such sales, the purchaser of Collateral as a condition
precedent to such sale shall execute the Purchaser's Acknowledgment in the form
attached hereto as Exhibit "J". A security interest granted to the Bank in such
-----------
Collateral shall continue in effect until such time as the Bank shall have
received the Redemption Amount. Any and all sales contracts shall be approved
by Bank in its reasonable discretion.
Section 3.4 Release of Collateral. The Borrower may obtain the release
---------------------
from Bank of the security interest in and lien on all of the Collateral at any
time by paying to the Bank as a repayment hereunder, all amounts owed to the
Bank hereunder and provided further that all obligations of Borrower to Bank
have been satisfied. Any such release of the security interest in and the lien
to all of the Collateral shall be evidenced by the execution and delivery by the
Bank of an appropriate document to evidence such a release and a form of UCC
financing statement
-18-
<PAGE>
release for such collateral being so released and an acknowledgement by Borrower
that the Bank has no further obligations (including the advance of funds) under
this line of credit.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Initial Advance. The obligation of the Bank to make the
---------------
initial Advance is subject to the satisfaction, in the sole discretion of the
Bank, on or before the date thereof of the following conditions precedent:
4.1(a) The Bank shall have received the following, all of which
must be satisfactory in form and content to the Bank, in its sole discretion:
(1) The Note duly executed by the Borrower in the form
attached as Exhibit "A";
-----------
(2) The Guaranty, in the form attached hereto as Exhibit
-------
"B", duly executed by the Guarantor;
- ---
(3) Certified copies of the Borrower's articles of
incorporation and bylaws, an Omnibus Certificate and certificates of existence,
good standing and qualification to do business in every jurisdiction in which
such qualification is required of Borrower dated no less recently than three (3)
months prior to the date of the initial Advance;
(4) A written opinion of counsel to the Borrower and the
Guarantor in form and content satisfactory to the Bank, dated as of, or prior
to, the date of the initial Advance, addressed to the Bank, substantially in the
form attached hereto as Exhibit "H".
-----------
(5) An original resolution of the board of directors of the
Borrower, certified as of the date of the initial Advance by its corporate
secretary, authorizing the execution, delivery and performance of this Agreement
and the Note, and all other instruments or documents to be delivered by the
Borrower pursuant to this Agreement;
(6) A certificate of the Borrower's corporate secretary as
to the incumbency and authenticity of the signatures of the officers of the
Borrower executing this Agreement and the Note and each Advance Request and all
other instruments or documents to be delivered pursuant hereto (the Bank being
entitled to rely thereon until a new such certificate has been furnished to the
Bank);
(7) A true, correct and complete copy of the original
independently audited financial statements of the Borrower (and its
Subsidiaries, on a consolidated basis) for the most recent fiscal year end
containing a balance sheet and related statements of income and retained
earnings (the "Statement Date") and changes in financial position for the period
--------------
ended on the Statement Date, all prepared in accordance with GAAP applied on a
basis consistent with prior periods and acceptable to the Bank and attached to a
"Certificate Accompanying Financial Statements" in the form attached hereto as
---------------------------------------------
Exhibit "I";
- -----------
(8) Financial statements of the Guarantor, executed by
Guarantor, dated no less recently than three (3) months prior to the date of the
initial Advance and attached to a "Certificate Accompanying Financial
Statements" in the form attached hereto as Exhibit "I";
-----------
(9) Five (5) original Acknowledgments in the form attached
hereto as Exhibit "J" endorsed in blank;
-----------
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<PAGE>
(10) Copies of the Borrower's errors and omissions insurance
policy or mortgage impairment insurance policy and blanket bond coverage policy,
all in form and content satisfactory to the Bank, showing compliance by the
Borrower as of the date of the initial Advance with the related provisions of
Section 6.9 hereof;
- -----------
(11) Acknowledgment Agreement executed by Borrower and Bank
and within thirty (30) days of the date hereof by FNMA;
(12) FNMA Power of Attorney executed by Borrower;
(13) Acknowledgment Agreement executed by Borrower and Bank
and FHLMC within thirty (30) days of Borrower's approval as a seller/servicer by
such agency ;
(14) FHLMC Power of Attorney executed by Borrower within
thirty (30) days of Borrower's approval as a seller/servicer by such agency;
(15) Acknowledgment Agreement executed by Borrower and Bank
and by GNMA within thirty (30) days of Borrower's approval as a seller/servicer
by such agency;
(16) GNMA Power of Attorney executed by Borrower within
thirty (30) days of Borrower's approval as a seller/servicer by such agency;
(17) UCC-1 Financing Statement and UCC-1 search showing no
financing statements filed of record in the State of Texas except for those
acceptable to Bank in its sole discretion;
(18) Certified copies of the most recent applicable Agency
certifications with seller/servicer numbers and FHA and VA certificates;
(19) Copies of all Servicing Agreements with all Agencies
and Investors; and
(20) Copies of the certificates, documents or other written
instruments which evidence the Borrower's eligibility described in Section 5.27
------------
hereof, all in form and substance satisfactory to the Bank.
Items 13, 14, 15 and 16 shall not be required for the Initial Advance but
shall be required for any Advance after the date of the Borrower's approval as a
seller/servicer, as applicable, by FHLMC or GNMA.
Section 4.2 Each Advance. The obligation of the Bank to make the
------------
initial and each subsequent Advance is subject to the satisfaction, in the sole
discretion of the Bank, as of the date of each such Advance, of the following
additional conditions precedent:
4.2(a) The Borrower shall have delivered to the Bank the Advance
Request, and Collateral Documents called for under, and shall have satisfied the
procedures set forth in, Section 2.2 hereof and the applicable Exhibits hereto
-----------
described in those Sections. All items delivered to the Bank must be
satisfactory to the Bank in form and content, and the Bank may reject such of
them as do not meet the requirements of this Agreement.
4.2(b) The Bank shall have received evidence satisfactory to it as
to 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 Bank in the Collateral under the Uniform Commercial Code of the
State of Texas or other applicable law.
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<PAGE>
4.2(c) The representations and warranties of the Borrower contained
in Article V hereof shall be true and correct in all material respects as if
---------
made on and as of the date of each Advance.
4.2(d) The Borrower and the Guarantor shall have performed all
agreements to be performed by them hereunder and under the Guaranty,
respectively, and after giving effect to the requested Advance, there shall
exist no Default hereunder.
4.2(e) The Borrower shall not have (i) incurred any material
liabilities, direct or contingent, other than in the ordinary course of its
business, since the dates of the Borrower's most recent financial statements
theretofore delivered to the Bank or (ii) experienced any other material adverse
change in its business or operations.
4.2(f) The Bank shall have received from counsel for the Borrower
and the Guarantor, if requested by the Bank in its sole discretion, an updated
opinion, in form and substance satisfactory to the Bank, addressed to the Bank
and dated as of the date of such Advance, covering such of the matters set forth
in Section 4.1(a)(4) hereto as the Bank may reasonably request.
-----------------
Acceptance of the proceeds of the requested Advance by the Borrower
shall be deemed a representation by the Borrower that all conditions set forth
in this Section 4.2 shall have been satisfied as of the date of such Advance.
-----------
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and make each
Advance, the Borrower hereby represents and warrants to the Bank, as of the date
of this Agreement and as of the date of each Advance Request, that:
Section 5.1 Organization: Good Standing; Subsidiaries. The Borrower and
-----------------------------------------
each Subsidiary of the Borrower and Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has the full legal power and authority to own its property and to
carry on its business as currently conducted and is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction in which
the transaction of the business in which it is engaged and is or will be
qualified in those states where it proposes to transact business in the future.
The Borrower has no Subsidiaries except as set forth on Exhibit "G" hereto.
-----------
Exhibit "G" sets forth the name of each such Subsidiary, place of incorporation,
- -----------
each state in which qualified as a foreign corporation, and the percentage
ownership of the capital stock of each such Subsidiary by the Borrower.
Section 5.2 Authorization and Enforceability. The Borrower has the
--------------------------------
power and authority to execute, deliver and perform this Agreement, the Note and
all other documents contemplated hereby or thereby. The Guarantor has the power
and capacity to execute, deliver and perform the Guaranty. The execution,
delivery and performance by the Borrower of this Agreement, the Note and all
other documents contemplated hereby or thereby and the making of the borrowing
hereunder and thereunder, have been duly and validly authorized by all necessary
corporate action on the part of the Borrower (none of which actions have been
modified or rescinded, and all of which actions are in full force and effect)
and do not and will not conflict with or violate any provision of law or of the
articles of incorporation or by-laws of the Borrower, conflict with or result in
a breach of or constitute a default or require any consent under, or result in
the creation of any Lien upon any property or assets of the Borrower, or result
in or require the acceleration of any indebtedness of the Borrower pursuant to
any agreement, instrument or indenture to which the Borrower is a party or by
which the Borrower or its property may be bound or affected. This Agreement,
the Note and all other documents contemplated hereby or thereby and the Guaranty
constitute legal, valid, and binding obligations of the Borrower or of the
Guarantor, respectively, enforceable in accordance with their respective terms.
-21-
<PAGE>
Section 5.3 Priority of Liens. The Bank has a valid, enforceable,
-----------------
perfected, first priority Lien and security interest in the Collateral
heretofore delivered to the Bank by the Borrower and upon delivery to the Bank
of each Advance Request, the Bank shall have a valid, enforceable, perfected,
first priority Lien and Security Interest in the Collateral identified therein
or delivered therewith.
Section 5.4 Approvals. The execution and delivery of this Agreement,
---------
the Note and all other documents contemplated hereby or thereby and the
performance of the Borrower's obligations hereunder and thereunder do not
require any license, consent, approval or other action of any state or federal
agency or governmental or regulatory authority.
Section 5.5 Financial Condition. Borrower has delivered to the Bank
-------------------
copies of the balance sheets of Borrower and Guarantor dated June 30, 1996 and
the related statements of income, stockholders' equity and changes in financial
position for the year ended such date; such financial statements fairly present
the financial condition of Borrower and Guarantor as of such date and have been
prepared in accordance with GAAP, subject to normal year-end adjustments; as of
the date thereof, there were no obligations, liabilities or Indebtedness
(including material contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) of Borrower or Guarantor which are not
reflected in such financial statements; no change having a Material Adverse
Effect has occurred since the date of such financial statements.
Section 5.6 Full Disclosure. There is no material fact that Borrower or
---------------
Guarantor have not disclosed to the Bank which could adversely affect the
properties, business, prospects or condition (financial or otherwise) of
Borrower or Guarantor or could adversely affect the Collateral. Neither the
financial statements nor any certificate or statement delivered herewith or
heretofore by Borrower or Guarantor to the Bank in connection with negotiation
of this Agreement, contains any untrue statement of material fact.
Section 5.7 Material Agreements. Borrower is not in default (and no
-------------------
event exists which with notice or the passage of time could become a default)
under any loan agreement, mortgage, security agreement or other material
agreement or obligation to which it is a party or by which any of its properties
is bound including but not limited to the Loan Documents.
Section 5.8 No Litigation. There are no actions, suits or legal,
-------------
equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower threatened, against Borrower, which either individually or
in the aggregate would have a Material Adverse Effect.
Section 5.9 Taxes. All tax returns required to be filed by the Borrower
-----
in any jurisdiction have been filed and all taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its 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 and with
respect to which reserves in conformity with GAAP have been established on the
books of Borrower. The Borrower has no knowledge of any proposed tax assessment
against Borrower.
Section 5.10 Principal Office, etc., Taxpayer Identification Number. The
------------------------------------------------------
principal office, chief executive office and principal place of business of
Borrower is at 6836 Austin Center Blvd., Suite 280, Austin, Texas 78731.
Borrower's mailing address is 6836 Austin Center Blvd., Suite 280, Austin, Texas
78731. Borrower's taxpayer identification number is 74-2674353.
Section 5.11 Employee Benefit Plans.
----------------------
(a) Neither Borrower nor any Subsidiary of Borrower, nor any of their
respective ERISA Affiliates, nor any Plan, is in material violation of any
provision of ERISA or any other applicable state or federal law, including
the Code.
-22-
<PAGE>
(b) No Prohibited Transaction or Reportable Event has occurred with
respect to any Plan.
(c) No notice of intent to terminate a Plan has been filed within the
24-month period preceding the date hereof, nor has any Plan been terminated
under Section 4041(c) of ERISA.
(d) The PBGC has not instituted proceedings to terminate, or appoint a
trustee to administer, any Plan and no event or condition has occurred or
exists which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
(e) Neither Borrower nor any Subsidiary of Borrower, nor any of their
respective ERISA Affiliates has incurred or expects to incur any withdrawal
liability to any multiemployer plan within the meaning of Section
4001(a)(3) of ERISA.
(f) Each Plan meets the minimum funding requirements of Section 412 of
the Code and no waiver from such minimum funding requirements has been
applied for or approved pursuant to Section 412(d) of the Code.
(g) No fact exists that could result in any material liability other
than as disclosed on Borrower's financial statements) to Borrower relating
to any former Plan.
(h) No amendment to any Plan has been adopted such that security is
required to be given pursuant to Section 401(a)(29) of the Code, and no
lien exists under Section 412(n) of the Code with respect to any Plan.
(i) With respect to each Plan, the value of unfunded benefit
liabilities (within the meaning of Section 4001(a)(18) of ERISA) does not
exceed $50,000.
(j) Neither the Borrower nor any Subsidiary of Borrower maintains any
plan, arrangement, or commitment which provides medical or dental benefits
to an employee or the employee's dependents after the employee terminates
employment, other than as provided in the continuation coverage provisions
of the Code and ERISA.
Section 5.12 Ownership. HomeCapital Investment Corporation owns,
---------
beneficially and of record, 100% of the issued and outstanding shares of each
class of the stock of Borrower.
Section 5.13 Subsidiaries. As of the date hereof, Borrower has no
------------
subsidiaries. As of the date hereof, Borrower does not own, directly or
indirectly, any interest in any Person.
Section 5.14 Indebtedness. As of the date hereof, Borrower has no
------------
Indebtedness outstanding other than the Note and the Indebtedness listed on
Exhibit "K".
- -----------
Section 5.15 Permits, Patents, Trademarks, etc.
---------------------------------
(a) Borrower has all permits and licenses necessary for the operation of
its business, except where the failure to have such permits or licenses does not
have a Material Adverse Effect upon the operation of its business.
(b) Borrower owns or possesses (or is licensed or otherwise has the
necessary right to use) all patents, trademarks, service marks, trade names and
copyrights, technology, know-how and processes, and all rights with respect to
the foregoing, which are necessary for the operation of its business, without
any known material conflict with the rights of others. The consummation of the
transactions contemplated hereby will not alter or impair in any material
respect any of such rights of Borrower.
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<PAGE>
Section 5.16 Status Under Certain Federal Statutes. Borrower is not (a)
-------------------------------------
a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility", as such term is defined in the Federal
Power Act, as amended, (c) an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1949, as amended, or (d) a "rail carrier", or a "person controlled by or
affiliated with a rail carrier", within the meaning of Title 49, U.S.C., and
Borrower is not a "carrier" to which 49 U.S.C. (S) 11301(b)(1) is applicable.
Section 5.17 Securities Acts and Securities Credit Transaction
------------------------------------- -----------
Regulations. The Borrower has not issued any unregistered securities in
- -----------
violation of the Securities Act of 1933, as amended, or of any other Requirement
of Law, and is not violating any rule, regulation, or requirement under the
Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934,
as amended. The Borrower is not required to qualify an indenture under the
Trust Indenture Act of 1939, as amended, in connection with its execution and
delivery of the Note. The Borrower is not a party, whether as a customer or a
creditor, to any transaction that is subject to the Securities Credit
Transaction Regulations.
Section 5.18 No Approvals Required. Other than consents and approvals
---------------------
previously obtained and actions previously taken, neither the execution and
delivery of this Agreement, the Note and the Loan Documents, nor the
consummation of any of the transactions contemplated hereby or thereby requires
the consent or approval of, the giving of notice to, or the registration,
recording or filing by Borrower of any document with, or the taking of any other
action in respect of, any Person.
Section 5.19 No Insider. Neither the Borrower nor any Person having
----------
"control" (as defined in 12 U.S.C. (S)375(b)(9) and the regulations promulgated
pursuant thereto) of the Borrower is, an "executive officer," "director," or
"principal shareholder" (as such terms are defined in 12 U.S.C. (S)375(b)(9) and
the regulations promulgated pursuant thereto) of any Bank, of any bank holding
company of which any Bank is a Subsidiary, or of any Subsidiary of any bank
holding company of which any Bank is a Subsidiary.
Section 5.20 Governmental Requirements. Borrower is in compliance with
-------------------------
all Requirements of Law, the non-compliance of which would have a Material
Adverse Effect.
Section 5.21 Solvency. Borrower is not "insolvent" on the date hereof
--------
(that is, the sum of Borrower's absolute and contingent liabilities, including
Borrower's obligations to the Bank, does not exceed the fair market value of
Borrower's assets). Borrower's capital is adequate for the businesses in which
Borrower is engaged and intends to be engaged. Borrower has not hereby
incurred, nor does Borrower intend to incur or believe that it will incur, debts
which will be beyond its ability to pay as such debts mature.
Section 5.22 Assumed Names. Since the date which is five (5) years prior
-------------
to the date hereof, the Borrower has not engaged in any business under any name,
assumed name or trade name other than HomeOwners Mortgage & Equity, Inc., a
Delaware corporation d/b/a Home, Inc.
Section 5.23 Compliance with Laws. Neither the Company nor any
--------------------
Subsidiary of the Borrower is in violation of any Requirement of Law, or of any
judgment, award, rule, regulation, order, decree, writ or injunction of any
court or public regulatory body or authority which might have a material adverse
effect on the business, operations, assets or financial condition of the
Borrower as a whole.
Section 5.24 Use of Proceeds; Margin Stock. The proceeds of the Advances
-----------------------------
shall be used by Borrower solely for the funding of Borrower's general working
capital purposes. In no event shall the funds from any Advance be used directly
or indirectly by any Person for personal, family, household or agricultural
purposes or 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
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<PAGE>
or of Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R. 207, as amended) or otherwise take or permit to be taken any action which
would involve a violation of such Regulation G or Regulation U or Regulation T
(12 C.F.R. 220, as amended) or Regulation Z (12 C.F.R. 224, as amended) or any
other regulation of such board. Neither Borrower nor any Person acting on behalf
of Borrower shall take any action in violation of Regulation U or Regulation X
or shall violate Section 7 of the Securities Exchange Act of 1933 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect or engage in any transaction which is subject to the
Securities Credit Transaction Regulations.
Section 5.25 Investment Company Act. The Borrower is not an "investment
----------------------
company," or a company controlled by an "investment company," within the meaning
of the Investment Company Act of 1940, as amended.
Section 5.26 Title to Properties. The Borrower and each Subsidiary of the
-------------------
Borrower has good, valid, insurable (in the case of real property) and
marketable title to all of its properties and assets (whether real or personal,
tangible or intangible) reflected on the financial statements described in
Section 5.4 hereof, and all such properties and assets are free and clear of all
- -----------
Liens except as disclosed in such financial statements.
Section 5.27 Eligibility. The Borrower has all state and local permits,
-----------
licenses, approvals, registrations and qualifications which it is required to
have in order to make, purchase, sell or service the Mortgage Loans. The
Borrower, if approved, is qualified and in good standing as a lender or
seller/servicer, as set forth below, and meets all requirements applicable to
its status as such:
5.27(a) HUD approved lender, eligible to originate, purchase, hold,
sell and service FHA-insured Mortgage Loans (and to participate in HUD's Direct
Endorsement Mortgage Insurance Program).
5.27(b) FNMA approved seller/servicer of FNMA Title I Mortgage
Loans, eligible to originate, purchase, hold, sell, and service Mortgage Loans
to be sold to FNMA.
5.27(c) Borrower in good standing under the VA loan guarantee
program eligible to originate (on an "automatic" basis), purchase, hold, sell
---------
and service VA-guaranteed Mortgage Loans.
Section 5.28 Special Representations Concerning Collateral. The Borrower
---------------------------------------------
hereby represents and warrants to the Bank, as of the date of this Agreement and
as of the date of each Advance Request, that:
5.28(a) The Borrower owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement and the qualifications stated in the final paragraph
of Section 3.1. No effective financing statement or other instrument similar in
-----------
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of Bank relating to this
Agreement. The Borrower has no trade name other than Home, Inc. Borrower shall
not execute and there shall not be on file in any public office any such
financing statement or statements and Borrower further agrees that it will not
grant, permit or suffer to exist any security interest, lien or encumbrance upon
any of the Collateral.
5.28(b) Subject to the qualifications stated in the second to last
paragraph of Section 3.1, Borrower covenants and warrants that Borrower is the
100% owner of said Collateral free and clear of claims or encumbrances by others
and that Borrower has good right, title and authority to pledge, sell, transfer
and assign the same.
5.28(c) Subject to the qualifications stated in the second to last
paragraph of Section 3.1, this Agreement, together with a duly filed financing
statement, creates a valid and perfected first priority security interest in the
Collateral, securing the payment of the Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken or shall be taken at the time of the initial Advance
hereunder.
5.28(d) Subject to the qualifications stated in the final paragraph
of Section 4.1, no authorization, approval or other action by, and no notice to
-----------
or filing with, any governmental authority or regulatory body is
-25-
<PAGE>
required (and has not been obtained, delivered or filed, as applicable) either
(i) for the grant by the Borrower of the security interest granted hereby or for
the execution, delivery or performance of this Agreement by the Borrower or (ii)
for the perfection of or the exercise by Secured Party of its rights and
remedies hereunder, other than the filing of a financing statement which has
been duly executed by the Borrower and delivered to Bank for filing .
5.28(e) The principal place of business and chief executive office
of the Borrower for purposes of Section 9-103 of the Uniform Commercial Code is
-------------
located at the address set forth herein.
5.28(f) The Borrower, all prior servicers and, if different, the
originating mortgagee, have performed all obligations required of them to be
performed under or pursuant to each of the Servicing Contracts and related
requirements of the applicable Investor and Insurer and each other document or
agreement relating to the Mortgage Loans by which the Borrower is bound, and no
event has occurred and is continuing which, under the provisions of any such
Servicing Contracts and related requirements of the applicable Investor or other
document or agreement, but for the passage of time or the giving of notice, or
both, would constitute an event of default thereunder.
5.28(g) The books, records, accounts and reports of the Borrower
with respect to the Agency Servicing Agreements and Non-Agency Servicing
Agreements have been prepared and maintained in accordance with all applicable
Investor and Insurer requirements.
5.28(h) Except for the execution by FNMA of the FNMA Acknowledgment
(with respect to FNMA Servicing Rights) and execution by FHLMC of the FHLMC
Acknowledgment (with respect to the FHLMC Servicing Rights) and execution by
GNMA of the GNMA Acknowledgment (with respect to the GNMA Servicing Rights) no
action, consent or approval by any Governmental Authority or other Person is, or
will be, necessary for Borrower to grant a security interest in any item of
Collateral.
5.28(i) Upon the execution by FNMA of the FNMA Acknowledgment, the
security interest of the Agent for the benefit of the Banks in the FNMA
Servicing Rights will be a perfected, first-priority security interest.
5.28(j) Upon the execution by FHLMC of the FHLMC Acknowledgment, the
security interest of the Agent for the benefit of the Banks in the FHLMC
Servicing Rights will be a perfected, first-priority security interest.
5.28(k) Upon the execution by GNMA of the GNMA Acknowledgment, the
security interest of the Agent for the benefit of the Banks in the GNMA
Servicing Rights will be a perfected, first-priority security interest.
5.28(l) All Agency Servicing Agreements, Non-Agency Servicing
Agreements and Subservicing Contracts are valid and binding agreements between
Borrower and/or the other parties thereto, are full and complete statements of
the terms and provisions of the transactions contemplated thereby, are
unmodified and in full force and effect and are, except as disclosed in writing
to Bank, assignable by their terms to Bank. Borrower's rights under each of the
Agency Servicing Agreements and Non-Agency Servicing Agreements are not subject
to any offset, counterclaim or defense as to enforceability. Notwithstanding
the foregoing, the representations contained in this subparagraph are subject to
the restrictions against assignment without consent, if any, contained in the
rules governing servicing of Mortgage Loans for the benefit of GNMA, FNMA and
FHLMC, as such restrictions may have been modified by such parties in accordance
with agreements executed by such parties in connection with the Loan Agreement.
5.28(m) Any Sales Agreements presented to Bank shall constitute
legally binding and enforceable obligations of Borrower and the other parties
thereto, are full and complete statements of the terms and provisions
contemplated thereby, are unmodified and in full force and effect and are
assignable by their terms to Bank.
-26-
<PAGE>
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrower agrees that so long as the Commitment is outstanding or there
remain any obligations of the Borrower to be paid or performed under this
Agreement or under the Note, the Borrower shall:
Section 6.1 Payment of Note. Pay or cause to be paid the principal and
---------------
interest on and all other amounts due and payable hereunder and under the Note
in accordance with the terms hereof and thereof on the respective date that such
sums are due and payable.
Section 6.2 Financial Statements and Other Reports. Deliver to the
--------------------------------------
Bank, attached to a Certificate Accompanying Financial Statements attached
hereto as Exhibit "I":
-----------
6.2(a) As soon as available and in any event within one hundred
twenty (120) days after the close of each fiscal year of Borrower, copies
of the consolidated and consolidating balance sheet of Borrower as of the
close of such fiscal year and consolidated statements of income and
retained earnings, cash flow statements and changes in stockholders' equity
for such fiscal year, each setting forth in comparative form the
corresponding figures for the preceding fiscal year, all in reasonable
detail together with all notes thereto and accompanied by an opinion
thereon (which shall not be qualified by reason of any limitation imposed
by Borrower) by Coopers & Lybrand LLP or by independent certified public
accountants selected by Borrower and satisfactory to Bank, to the effect
that such financial statements have been prepared in accordance with GAAP
and such other professional practices as may then conform to the usual and
customary professional standards, practices and disclosures then in
existence in connection with the preparation and publication of financial
statements by independent certified public accountants and that the
examination of such accounts in connection with such financial statements
has been made in accordance with GAAP and, accordingly, includes such tests
of the accounting records and such other auditing procedures as were
considered necessary in the circumstances;
6.2(b) As soon as available, and in any event within thirty (30)
days after the end of each month of each fiscal year of Borrower, copies of
the consolidated and consolidating balance sheet of Borrower as of the end
of such month and consolidated and consolidating statements of income and
retained earnings and cash flow statement and of changes in stockholders'
equity for such month, each setting forth in comparative form the
corresponding figures for the preceding fiscal year of Borrower for such
month and for the portion of the fiscal year ending with such month, all in
reasonable detail, and certified by the chief financial officer of Borrower
as being true and correct and as having been prepared in accordance with
GAAP;
6.2(c) Promptly upon receipt thereof, a copy of each other report
submitted to Borrower by independent accountants in connection with any
annual, interim or special audit of the books of Borrower;
6.2(d) As soon as available and in any event within thirty (30)
days after the end of each month in form and detail acceptable to Bank,
prepared as of the end of such month, a report setting forth a servicing
delinquency report indicating, by investor, the amount of Mortgage Loans
serviced by Borrower which are delinquent or in foreclosure with a
breakdown (30, 60, 90, 120 days) for all past-due loans including total
principal balance, number of loans, which loans Borrower is required to
repurchase by an Agency or Investor, foreclosure experience, investor type,
geographic mix, weighted average coupon, weighted average maturity and cost
of servicing.
6.2(e) As soon as available and in any event within thirty (30)
days after delivery of such reports to any Agency, HUD, FHA or VA, Borrower
shall provide to Bank all audits, evidence, auditors
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<PAGE>
certifications and other financial information supplied to such
governmental or quasi-governmental agencies, including but not limited to,
any audits or self-compliance reviews prepared in connection with
Borrower's continuing agency certifications;
6.2(f) Promptly and in any event within twenty (20) days after the
request of Bank at any time and from time to time, a certificate, executed
by the president or chief financial officer of Borrower, setting forth all
of Borrower's borrowings other than under this Loan;
6.2(g) As soon as available and in any event within thirty (30)
days of filing and no later than two hundred twenty-five (225) days from
the end of each fiscal year of Borrower, copies of all tax returns filed by
Borrower;
6.2(h) Within thirty (30) days after the end of each month, a
Compliance Certificate executed by the President or Chief Executive Officer
of Borrower;
6.2(i) As soon as available and in any event within fifteen (15)
days of their respective Securities and Exchange Commission filing due
dates, Form 10-KSB, Form 10-QSB, the 10(K) and 10(Q) reports for
HomeCapital Investment Corporation, the parent corporation of Borrower;
6.2(j) Promptly and in any event within five (5) days of such
event, notification of the departure of any of the following officers:
President or Executive Vice President; and
6.2(k) From time to time, with reasonable promptness, such further
information regarding the business, operations, properties or financial
condition of the Borrower as the Bank may reasonably request.
All financial statements and reports furnished to the Bank hereunder
shall be prepared in accordance with GAAP, applied on a basis consistent with
that applied in preparing the financial statements as at, and for the period
ended, the Statement Date (except to the extent otherwise required to conform to
good accounting practice).
Section 6.3 Maintenance of Existence; Conduct of Business. Preserve and
---------------------------------------------
maintain its corporate existence in good standing and all of its rights,
privileges, licenses, qualifications and franchises necessary or desirable in
the normal conduct of its business, including, without limitation, its
eligibility as an approved lender and issuer as described under Section 5.27
------------
hereof; conduct its business in an orderly and efficient manner; maintain a net
worth of acceptable assets as required by its Investors at any and all times for
maintaining the Borrower's status as a FHA approved lender; and make no change
in the nature or character of its business or engage in any business in which it
was not engaged on the date of this Agreement.
Section 6.4 Compliance with Requirements of Law. Comply with the
-----------------------------------
Requirements of Law, rules, regulations and orders of any governmental authority
and prudent industry standards.
Section 6.5 Inspection of Properties and Books. Permit authorized
----------------------------------
representatives of the Bank, its parent company or affiliates to discuss the
business, operations, assets and financial condition of the Borrower and its
Subsidiaries with their officers and employees and to examine their books of
account and make copies or extracts thereof, all at such reasonable times as the
Bank may request. The Borrower will provide its accountants with a copy of this
Agreement promptly after the execution hereof and will instruct its accountants
to answer candidly and fully any and all questions that the officers of the Bank
or any authorized representatives of the Bank may address to them in reference
to the financial condition or affairs of the Borrower and its Subsidiaries. The
Borrower may have its representatives in attendance at any meetings between the
officers or other representatives of the Bank and the Borrower accountants held
in accordance with this authorization.
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<PAGE>
Section 6.6 Notice. Give prompt written notice to the Bank of (a) on
------
the first day of each month, a litigation report detailing any action, suit or
proceeding instituted by or against the Borrower or any of its Subsidiaries in
any federal or state court or before any commission or other regulatory body
(federal, state or local, domestic or foreign), or any such proceedings
threatened against the Borrower or any of its Subsidiaries in a writing
containing the details thereof, (b) the filing, recording or assessment of any
federal, state or local tax lien against it, or any of its assets or any of its
Subsidiaries, (c) the occurrence of (i) any Event of Default hereunder or (ii)
the occurrence of any Default and continuation thereof for five (5) days, (d)
the actual or threatened suspension, revocation or termination of the Borrower's
eligibility, in any respect, as an approved lender, and issuer as described
under Section 5.27 hereof, (e) the suspension, revocation or termination of any
------------
existing credit or investor relationship made to the Borrower to facilitate the
sale and/or origination of residential mortgages, (f) the transfer or loss of
any Servicing Contract to which the Borrower is a party, or which is held for
the benefit of the Borrower, and the reason for such transfer or loss, if known
to the Borrower, (g) any demand by any Investor or Insurer for either the
repurchase of a mortgage loan or indemnification and (h) any other action, event
or condition of any nature which may lead to or result in a material adverse
effect upon the business, operations, assets, or financial condition of the
Borrower and its Subsidiaries or which, with or without notice or lapse of time
or both, would constitute a default under any other agreement, instrument or
indenture to which the Borrower is a party or to which the Borrower, its
properties or assets may be subject.
Section 6.7 Payment of Debt, Taxes, etc. Pay and perform all
---------------------------
obligations of the Borrower, and cause to be paid and performed all obligations
of its Subsidiaries, promptly and in accordance with the terms thereof and pay
and discharge or cause to be paid and discharged promptly all taxes, assessments
and governmental charges or levies imposed upon the Borrower or its Subsidiaries
or upon their respective income, receipts or properties before the same shall
become past due, as well as all lawful claims for labor, materials and supplies
or otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof, provided, however, that the Borrower and its
Subsidiaries shall not be required to pay taxes, assessments or governmental
charges or levies or claims for labor, materials or supplies for which the
Borrower or its Subsidiaries shall have obtained an adequate bond or adequate
insurance or which are being contested in good faith and by proper proceedings
which are being reasonably and diligently pursued.
Section 6.8 Reimbursement of Expenses. Borrower shall pay (i) all
-------------------------
reasonable legal fees incurred by the Bank in connection with the preparation,
negotiation or execution of this Agreement, the Note and the Loan Documents and
any amendments, modifications, renewals, extensions, consents or waivers
executed in connection therewith, (ii) all fees, charges or taxes for the
recording or filing of the Loan Documents, (iii) all out-of-pocket expenses of
the Bank incurred in connection with the administration of this Agreement, the
Note and the Loan Documents, including courier expenses incurred in connection
with the Collateral, and (iv) all reasonable amounts expended, advanced or
incurred by the Bank to satisfy any obligation of Borrower under this Agreement
or any Loan Document or to collect the Note, or to enforce the rights of the
Bank under this Agreement or any Loan Document, which amounts shall include all
court costs, attorneys' fees and expenses (including, without limitation, legal
fees and expenses for trial, appeal or other proceedings), fees of auditors and
accountants, and investigation expenses reasonably incurred by the Bank in
connection with any such matters, together with interest at the post-maturity
rate specified in the Note on each such amount from ten (10) days after the date
of written demand or request for reimbursement until the date of reimbursement.
Section 6.9 Insurance. Will maintain (a) errors and omissions insurance
---------
or mortgage impairment insurance and blanket bond coverage, with such companies
and in such amounts as satisfy the requirements under the applicable Servicing
Agreemnts applicable to a qualified mortgage originating institution, and (b)
liability insurance and fire and other hazard insurance on its properties, with
responsible insurance companies approved by the Bank, in such amounts and
against such risks as is customarily carried by similar businesses operating in
the same vicinity; and (c) within thirty (30) days after notice from the Bank,
will obtain such additional insurance as the Bank shall reasonably require, all
at the sole expense of the Borrower. Copies of all such policies shall be
furnished to the Bank without charge upon request of the Bank.
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<PAGE>
Section 6.10 Insured Closings. The Borrower will obtain and maintain
----------------
in effect at all times an insured closing letter from each title insurance
company from which mortgagee title insurance is procured, indemnifying and
holding the Borrower harmless from and against the failure of the agents and
approved title attorneys of such title insurance companies to comply with the
written closing instructions of the Borrower as to the Mortgage Loans relating
to the Servicing Contracts serving as Collateral hereunder serviced under the
Servicing Contracts and will provide the Bank with evidence of the same from
time to time upon request. The Borrower agrees to indemnify and hold the Bank
harmless from and against any loss, including reasonable attorneys' fees and
costs, attributable to the failure of such title insurance company, agent or
approved attorney to comply with the disbursement or instruction letter or
letters of the Borrower or of the Bank relating to such Mortgage Loan.
Section 6.11 Other Loan Obligations. Will perform all obligations under
----------------------
the terms of each loan agreement, note, mortgage, security agreement or debt
instrument by which the Borrower is bound or to which any of its property is
subject, and will promptly notify the Bank in writing of the cancellation or
reduction of any of its other mortgage warehousing lines of credit or agreements
with any other lender.
Section 6.12 Use of Proceeds of Advances. Will use the proceeds of each
---------------------------
Advance solely for the purpose of financing the working capital requirements of
the Borrower.
Section 6.13 ERISA and Plans. Borrower shall promptly furnish to the
---------------
Bank:
6.13(a) Within ten (10) Business Days after the occurrence of a
Reportable Event with respect to any Plan, a copy of any materials required
to be filed with the PBGC with respect to such Reportable Event;
6.13(b) A copy of any notice of intent to terminate a Plan, no later
than the date such notice is required to be provided to participants of
such Plan under Section 4041(a)(2) of ERISA, and copies of any notices of
noncompliance received from the PBGC under Section 4041(b)(2)(C) of ERISA,
within ten (10) Business Days after the receipt by Borrower or its
Subsidiary of such notice;
6.13(c) Not later than ten (10) Business Days after the receipt
thereof by Borrower, any Subsidiary of Borrower, any ERISA Affiliate of
Borrower or such Subsidiary, or the administrator of any Plan, a copy of
any notice to Borrower or such Subsidiary that the PBGC has instituted
proceedings to terminate such Plan or to appoint a trustee to administer
such Plan;
6.13(d) A statement from the chief financial officer of Borrower
describing any event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of any Plan or for the
appointment of a trustee to administer any Plan, within ten (10) Business
Days after Borrower knows or has reason to know such event or condition
exists; and
6.13(e) Within ten (10) Business Days after receipt thereof by
Borrower or any ERISA Affiliate of Borrower, a copy of any notice
concerning the imposition of any withdrawal liability under Section 4202 of
ERISA.
Section 6.14 Special Affirmative Covenants Concerning Collateral.
---------------------------------------------------
6.14(a) The Borrower warrants and will defend the right, title and
interest of the Bank in and to the Collateral against the claims and demands of
all persons whomsoever.
6.14(b) The Borrower shall service or cause to be serviced all
Mortgage Loans in accordance with the standard requirements of all applicable
governmental requirements, including without limitation taking all actions
necessary to enforce the obligations of the obligors under such Mortgage Loans.
The Borrower shall hold all
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<PAGE>
escrow funds collected in respect of Mortgage Loans in trust, without
commingling the same with non-custodial funds, and apply the same for the
purposes for which such funds were collected.
6.14(c) The Borrower shall execute and deliver to the Bank such
Uniform Commercial Code financing statements with respect to the Collateral as
the Bank may request. The Borrower shall also execute and deliver to the Bank
such further instruments of sale, pledge or assignment or transfer, and such
powers of attorney, as required by the Bank, and shall do and perform all
matters and things necessary or desirable to be done or observed, for the
purpose of effectively creating, maintaining and preserving the security and
benefits intended to be afforded the Bank under this Agreement. The Bank shall
have all the rights and remedies of a secured party under the Uniform Commercial
Code of the State of Texas, or any other applicable law, in addition to all
rights provided for herein.
6.14(d) In the event, for any reason, that the law of any
jurisdiction other than the State of Texas becomes or is applicable to the
Collateral, or any part thereof, or to any of the Obligations, Borrower agrees
to execute and deliver all such instruments and to do all such other things as
may be necessary or appropriate to preserve, protect and enforce the security
interest or lien of Bank, under the law of such other jurisdiction, to at least
the same extent as such security interest would be protected under the UCC.
6.14(e) The Borrower shall maintain, at its principal office or in a
regional office approved by the Bank, or in the office of the Subservicer or a
computer service bureau engaged by the Borrower and approved by the Bank, and,
upon request, shall make available to the Bank the originals, or copies, all
files, surveys, certificates, correspondence, appraisals, computer programs,
tapes, discs, cards, accounting records and other information and data relating
to the Collateral.
6.14(f) Subject to the qualifications stated in the second to the
last paragraph of Section 3.1, unless otherwise approved in writing by the Bank,
Borrower shall keep the Collateral free from any lien, attachment, security
interest, sequestration, encumbrance, or any other legal or equitable process,
or any encumbrance of any kind or character except as may be granted to the
Bank.
6.14(g) Borrower shall promptly notify Bank of any change in any
fact or circumstance warranted or represented by Borrower in this Agreement or
in any other writing furnished by Borrower to Bank in connection with the
Collateral or the Obligations, and promptly notify Bank of any claim, action or
proceeding affecting title to the Collateral, or any part thereof, or the
security interests herein granted, and, at the request of Bank appear in and
defend, at Borrower's expense, any such action or proceeding.
6.14(h) Subject to the final paragraph of Section 3.1, unless and
until notified to the contrary by the Bank, Borrower shall promptly, at its
expense deliver to the Bank, with appropriate endorsement or assignment, all
Instruments, Chattel Paper, monies, checks, notes, drafts and other evidence of
indebtedness, or other property in the nature of items of payment representing
proceeds of any of the Collateral which are then in, or may thereafter come
into, Borrower's possession.
6.14(i) Borrower shall perform, at its sole cost and expense, any
and all steps, and shall pay the amount of all reasonable expenses necessary to
obtain, preserve, perfect, defend and enforce the security interest in any of
the Collateral, and preserve, defend, enforce and collect the Collateral.
6.14(j) Subject to the final paragraph of Section 3.1, should the
Collateral, or any part thereof, ever be in any manner converted into another
type of property or any money or other proceeds ever be paid or delivered to
Borrower as a result of Borrower's rights in the Collateral, then, in any such
event, all such property, money or other proceeds shall become part of the
Collateral, and Borrower covenants to immediately pay and deliver to Bank all of
the same which are susceptible of delivery, and, at the same time Borrower will
properly endorse or assign the same.
6.14(k) Borrower shall deliver to Bank the following: (i) a true and
correct copy of each Agency Servicing Agreement (exclusive of any Agency
servicing guide) and Non-Agency Servicing Agreement; (ii) a
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<PAGE>
consent to and/or acknowledgment of the security interest of Bank in each such
Agency Servicing Agreement and Non-Agency Servicing Agreement and the rights of
Bank under this Agreement, executed by each Agency; (iii) a listing of all
Mortgage Loans subject to the Agency Servicing Agreements and the location of
Borrower's files and records with respect thereto; and (iv) such other files,
documents, instruments, certificates, correspondence or records that Bank, in
its reasonable discretion, may deem necessary, appropriate or desirable in
accordance with this Agreement.
6.14(l) On the date hereof, on the date of each Advance and the
first day of each calendar quarter (January 1, April 1, July 1, October 1)
Borrower shall deliver to Bank, at Borrower's sole expense, an Appraisal, from a
third party appraiser acceptable to Bank in its sole discretion stating the
current fair market value of the Collateral Value of all Eligible Collateral.
Additionally, Bank may at any time require, upon demand, that Borrower furnish
Bank with a Compliance Certificate. A Compliance Certificate shall accompany
all Appraisals.
ARTICLE VII
NEGATIVE COVENANTS
The Borrower agrees that so long as the Commitment is outstanding or there
remain any obligation of the Borrower to be paid or performed hereunder or under
the Note, the Borrower shall not, either directly or indirectly, without the
prior written consent of the Bank:
Section 7.1 Limitation on Indebtedness. Borrower shall not, without the
--------------------------
prior written consent of the Bank, 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) Existing Indebtedness listed on
Exhibit "G" attached hereto and incorporated herein by this reference, (iv)
- -----------
current amounts payable or accrued (other than for borrowed funds or purchase
money obligations) which have been incurred in the ordinary course of business
and (v) Indebtedness incurred in the ordinary course of business not to exceed
on an annual basis $200,000.00 at any time other than any Indebtedness incurred
pursuant to clauses (i), (ii), (iii) and (iv); provided that all such
---------------------------------
liabilities, accounts and claims permitted under clauses (ii) through (v) 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 Borrower.
Section 7.2 No Merger. Borrower shall not 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 unless approved fifteen (15)
days in advance by the Bank in writing.
Section 7.3 Fiscal Year, Method of Accounting. Borrower shall not change
---------------------------------
its fiscal year or method of accounting.
Section 7.4 Lines of Business. Borrower shall not directly or
-----------------
indirectly engage in any business other than that currently engaged in by
Borrower and any business incidental thereto.
Section 7.5 Liquidations, Consolidations and Dispositions of Substantial
------------------------------------------------------------
Assets. Borrower shall not dissolve or liquidate or sell, transfer, pledge,
- ------
lease or otherwise dispose of any portion of its property or assets or business
(other than Mortgage Loans sold in compliance with the provisions of the Loan
Documents in the ordinary course of business); provided, however, that nothing
herein shall be construed to prohibit Borrower from selling Mortgage Notes to
Investors in the ordinary course of its business subject to the terms of this
Agreement.
Section 7.6 Loans, Advances, and Investments. Borrower shall not make
--------------------------------
any loan (other than loans made in the ordinary course of its business as a
mortgage company), advance, or capital contribution to, or investment in, or
purchase or otherwise acquire any of the capital stock, securities, or evidences
of indebtedness of, any Person
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<PAGE>
(collectively, "Investment"), or otherwise acquire any interest in, or control
----------
of, another Person, except for the following:
(a) Cash Equivalents;
(b) Any acquisition of securities or evidences of indebtedness of
others when acquired by Borrower in settlement of accounts receivable or
other debts arising in the ordinary course of business, so long as the
aggregate amount of any such securities or evidences of indebtedness is not
material to the business or condition (financial or otherwise) of Borrower;
(c) Mortgage Backed Securities acquired in the ordinary course of
Borrower's business; and
(d) Owned real estate and Mortgage Loans, required to be repurchased
by Investors, not to exceed at any one time $75,000.00 on an annual basis.
Section 7.7 Operational Changes. Borrower shall not (a) change the
-------------------
location of any Collateral for the Loan, (b) change its taxpayer identification
number, (c) change its address for its chief executive office or its mailing
address or change its name, identity or corporate structure in any manner which
might make any financing or continuation statement filed in connection with this
Security Agreement seriously misleading within the meaning of Section 9.402 of
the UCC (or any other then applicable provision of the UCC) unless Borrower
shall have given the Bank at least sixty (60) days' prior written notice thereof
and shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Bank to amend such
financing statement or continuation statement so that it is not seriously
misleading, or (d) change its principal place of business or remove the records
concerning the Collateral unless it has given the Bank at least thirty (30)
days' prior written notice of its intent to do so and has taken such action as
is necessary or advisable in the opinion of the Bank to cause the security
interest of the Bank in the Collateral to continue to be a first priority
perfected security interest.
Section 7.8 Compliance with ERISA. Borrower shall not, and shall not
---------------------
permit any ERISA Affiliate to:
(a) (i) engage in any transaction in connection with which Borrower
or any ERISA Affiliate could be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, (ii) fail to make full payment when due of all amounts which, under
the provisions of any Plan, applicable law or applicable collective
bargaining agreement, Borrower or any ERISA Affiliate is required to pay as
contributions thereto, or (iii) permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Plan if, in the case
of any of subdivision (i), (ii) or (iii) above, such penalty or tax, or the
failure to make such payment, or the existence of such deficiency, as the
case may be, will likely have a Material Adverse Effect on the financial
position of Borrower;
(b) permit the amount of unfunded benefit liabilities (within the
meaning of Section 4001 (a) (18) of ERISA) under each Plan maintained at
such time by Borrower or any of its Related Persons (other than
Multiemployer Plans or "multiple employer Plans") to exceed $50,000; or
(c) permit the aggregate complete or partial withdrawal liability
under Title IV of ERISA with respect to all Plans which are 'multiple
employer Plans" and all Multiemployer Plans incurred by Borrower or any
Related Person to exceed $50,000.
Section 7.9 Net Worth. Borrower's Net Worth shall not be less than
---------
the sum of (a) $3,000,000.00, (b) 80% of Borrower's Net Income for all preceding
calendar quarters beginning in the calendar quarter beginning on
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<PAGE>
June 30, 1996, plus (c) 100% of all contributions to stockholders' equity of
Borrower after the date hereof, less all fees and costs directly incurred in
connection with such contribution.
Section 7.10 Tangible Net Worth. Borrower's Tangible Net Worth will
------------------
never be less than the minimum required by the respective purchasers of the
Mortgages, including HUD, FNMA, GNMA and FHLMC requirements in existence at any
time.
Section 7.11 Adjusted Tangible Net Worth. Borrower's Adjusted Tangible
---------------------------
Net Worth shall not be less than the sum of (a) $3,000,000.00, (b) 80% of
Borrower's Net Income for all preceding calendar quarters beginning in the
calendar quarter beginning on June 30, 1996, plus (c) 100% of all contributions
to stockholders' equity of Borrower after the date hereof, less all fees and
costs directly incurred in connection with such contribution.
Section 7.12 Total Liabilities to Adjusted Tangible Net Worth Ratio. The
------------------------------------------------------
ratio of Borrower's Total Liabilities to Borrower's Adjusted Tangible Net Worth
shall not at any time be more than 3.5 to 1.0.
Section 7.13 Minimum Liquidity. Borrower shall at all times maintain a
-----------------
Liquidity of no less than $500,000.00.
Section 7.14 Management. The President of Borrower shall not be changed
----------
without the prior written consent of the Bank.
Section 7.15 Interested Transactions. Except with respect to any
-----------------------
transaction not exceeding $50,000.00 in value, Borrower shall not engage in any
transaction with any of its Affiliates (a) except on an arm's-length basis and
on terms no less favorable to Borrower than those obtainable from persons who
have no such relationship to Borrower and (b) provided that Borrower shall have
given the Bank prior written notice of such transaction with any director,
officer or managerial personnel.
Section 7.16 Transfer of Stock. Individually and on a cumulative no more
-----------------
than 35% of the stock in Borrower shall be sold, transferred or conveyed to or
by any party without the prior written consent of the Bank.
Section 7.17 Subsidiaries. Borrower shall not create any Subsidiaries
------------
without the prior written consent of the Bank.
Section 7.18 Sale or Pledge of Servicing Contracts. Sell, contract to
-------------------------------------
sell, pledge or grant a security interest in any existing or future Servicing
Contracts of the Borrower pursuant to the terms of this Agreement, or omit to
take any action required to keep all such Servicing Contracts in full force and
effect.
Section 7.19 Loss of Eligibility. Take, or fail to take, any action that
-------------------
would cause the Borrower to lose all or any part of its status as an eligible
lender, as described under Section 5.27 hereof.
------------
Section 7.20 Special Negative Covenants Concerning Collateral.
------------------------------------------------
7.20(a) Except as otherwise provided in the Servicing Agreement in
connection with the performance of the Borrower's servicing obligations
thereunder, the Borrower shall not amend or modify, or waive any of the terms
and conditions of, or settle or compromise any claim in respect of, any
Collateral pledged hereunder.
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<PAGE>
7.20(b) The Borrower shall not sell, contract to sell, assign,
transfer or otherwise dispose of, or grant any option with respect to, or pledge
or otherwise encumber any of the Collateral or any interest therein.
7.20(c) The Borrower shall not make any compromise, adjustment or
settlement in respect of any of the Collateral or liquidate the Collateral.
ARTICLE VIII
DEFAULTS; REMEDIES
Section 8.1 Events of Default. The occurrence of any of the following
-----------------
conditions or events shall be an event of default ("Event of Default"):
----------------
8.1(a) Failure to pay the principal of any Advance when due,
whether at stated maturity, by acceleration, or otherwise; or failure to pay any
installment of interest on any Advance or any other amount due under this
Agreement or under the Warehousing Credit Facility when due; or
8.1(b) Failure of the Borrower or any of its Subsidiaries or
Guarantor to pay, or any default in the payment of any principal or interest on,
any other indebtedness or in the payment of any contingent obligation beyond any
period of grace provided; or breach or default with respect to any other
material term of any other indebtedness or of any loan agreement, note,
mortgage, security agreement, indenture or other agreement relating thereto, if
the effect of such failure, default or breach is to cause, or to permit the
holder or holders thereof (or a trustee on behalf of such holder or holders) to
cause, indebtedness of the Borrower or its Subsidiaries to become or be declared
due prior to its stated maturity (upon the giving or receiving of notice, lapse
of time, both, or otherwise); or
8.1(c) Failure of the Borrower or Guarantor to perform or comply
with any term or condition applicable to it contained in Sections 6.1 through
--------------------
6.14, inclusive, or 7.1 through 7.20, inclusive, of this Agreement, or any of
- ---- ----------------
its obligations under the Warehousing Credit Facility; or
8.1(d) Any of the Borrower's or Guarantor's representations or
warranties made herein or in any statement or certificate at any time given by
the Borrower or Guarantor in writing pursuant hereto or in connection herewith
shall be false in any material respect on the date as of which made; or
8.1(e) The Borrower or Guarantor shall default in the performance
of or compliance with any term contained in this Agreement [other than those
referred to in subsections 8.1(a), (b), (c), (d), (f), (g), (h), (i), (j), (k)
---------------------------------------------------------------
or (l)] and such default shall not have been remedied or waived within fifteen
- -------
(15) days after receipt of notice from the Bank of such default; or
8.1(f) (1) A court having jurisdiction shall enter a decree or
order for relief in respect of the Borrower or any of its Subsidiaries or of
Guarantor in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, which decree or order is not
stayed; or (2) any other similar relief shall be granted under any applicable
federal or state law; or a decree or order of a court having jurisdiction for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Borrower or any of its Subsidiaries
or of Guarantor, or over all or a substantial part of their respective property,
shall have been entered; or the involuntary appointment of an interim receiver,
trustee or other custodian of the Borrower or any of its Subsidiaries or of
Guarantor for all or a substantial part of their respective property; or the
issuance of a warrant of attachment, execution or similar process against any
substantial part of
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<PAGE>
the property of the Borrower or any of its Subsidiaries or of Guarantor, and the
continuance of any such events in this clause (2) for thirty (30) days unless
----------
dismissed, bonded off or discharged; or
8.1(g) The Borrower or any of its Subsidiaries or Guarantor shall
have an order for relief entered with respect to it or commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion to an involuntary case, under any such
law, or shall consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property; the
making by the Borrower or any of its Subsidiaries or any Guarantor of any
assignment for the benefit of creditors; or the inability or failure of the
Borrower or any of its Subsidiaries or of any Guarantor, or the admission by the
Borrower or any of its Subsidiaries or any Guarantor in writing of its inability
to pay its debts as such debts become due; or
8.1(h) Any money judgment, writ or warrant of attachment, or
similar process involving in any case an amount in excess of $25,000 shall be
entered or filed against the Borrower or any of its Subsidiaries or Guarantor or
any of their respective assets and shall remain undischarged, unvacated,
unbonded or unstayed for a period of five (5) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder; or
8.1(i) Any order, judgment or decree shall be entered against the
Borrower or Guarantor decreeing the dissolution, liquidation or split up of the
Borrower or Guarantor and such order shall remain undischarged or unstayed; or
8.1(j) Any Plan maintained by the Borrower or any of its
Subsidiaries or Guarantor shall be terminated within the meaning of Title IV of
ERISA or a trustee shall be appointed by an appropriate United States district
court to administer any Plan, or the Pension Benefit Guaranty Corporation (or
any successor thereto) shall institute proceedings to terminate any Plan or to
appoint a trustee to administer any Plan if as of the date thereof the
Borrower's liability or any such Subsidiary's liability or Guarantor's
liabilities (after giving effect to the tax consequences thereof) to the Pension
Benefit Guaranty Corporation (or any successor thereto) for unfunded guaranteed
vested benefits under the Plan exceeds the then current value of assets
accumulated in such Plan by more than $25,000 (or in the case of a termination
involving the Borrower or any of its Subsidiaries or Guarantor's liabilities as
a "substantial employer" (as defined in Section 4001(a)(2) of ERISA) the
withdrawing employer's proportionate share of such excess shall exceed such
amount); or
8.1(k) The Borrower or any of its Subsidiaries or Guarantor as
employer under a Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding
$25,000; or
8.1(l) The Borrower or Guarantor shall purport to disavow its
obligations hereunder or shall contest the validity or enforceability hereof; or
the Bank's security interest in any portion of the Collateral shall become
unenforceable or otherwise impaired.
Section 8.2 Remedies.
--------
8.2(a) Upon the occurrence of any Event of Default described in
Section 8.1(f) or (g) the unpaid principal amount of and accrued interest on the
- ---------------------
Note shall automatically become due and payable, without presentment, demand or
other requirements of any kind, all of which are hereby expressly waived by the
Borrower.
8.2(b) Upon the occurrence of any Event of Default (other than
those described in Section 8.1(f) or (g)), the Bank may, by written notice to
----------------------
the Borrower declare all or any portion of the Advances to be due and payable
whereupon the same shall forthwith become due and payable, together with all
accrued interest thereon, and the obligation of the Bank to make Advances shall
thereupon terminate.
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<PAGE>
8.2(c) Upon the occurrence of any Event of Default, the Bank may
also do any one or more or all of the following:
(1) Foreclose upon or otherwise enforce its security
interest in and Lien on all of the Collateral or on any portion thereof to
secure all payments and performance of obligations owed by Borrower under this
Agreement.
(2) Notify all obligors of Collateral or on any portion
thereof that the Collateral has been assigned to the Bank and that all payments
thereon are to be made directly to the Bank or such other party as may be
designated by the Bank; settle, compromise, or release, in whole or in part, any
amounts owing on the Collateral, any such obligor or Investor or any portion of
the Collateral, on terms acceptable to the Bank; enforce payment and prosecute
any action or proceeding with respect to and any and all Collateral; and where
any such Collateral is in default, foreclose on and enforce security interests
in, such Collateral by any available judicial procedure or without judicial
process and sell property acquired as a result of any such foreclosure.
(3) Act, or contract with a third party to act, as servicer
of all or any item of Collateral requiring servicing, such third party's fees to
be paid by the Borrower.
(4) Exercise all rights and remedies of a secured creditor
under the Uniform Commercial Code of the State of Texas or the state in which
the Collateral is located, including but not limited to taking possession and
disposing of all or any portion of the Collateral and selling the Collateral at
public or private sale, as a unit or in parcels, upon any terms and prices and
in any order, free from any claim or right of any kind; and for such purpose the
Bank may maintain all or any part of the Collateral and the Servicing Records
with respect to the Collateral on Borrower's premises for such period of time as
may be reasonably necessary without any charge whatsoever. Upon Bank's demand,
Borrower will take all steps necessary to prepare the Collateral for and
otherwise assist in any proposed disposition of the Collateral; and assemble the
Collateral and the Servicing Records with respect to the Collateral and make it
available to the Bank at a reasonably convenient location. Any disposition of
the Collateral may be made by way of one or more contracts and at any such
disposition it shall not be necessary to exhibit the Collateral. To enforce the
rights granted to the Bank pursuant to the terms of this Security Agreement, the
Bank may take all actions reasonably necessary to take possession of the
Collateral and the Servicing Records with respect to the Collateral, and shall
not be liable for damages to, or destruction of, persons or property in
connection therewith and shall in no way be liable for any consequential damages
(whatsoever be the proximate cause thereof) of any kind. In addition, in order
to dispose of the Collateral and otherwise enforce the rights granted to it
hereunder, Bank may use, and advertise the Collateral for sale under, any and
all trade names or service names attached to, fixed upon or made part of any of
the Collateral. Subject to the limitations of the Agencies, Bank may access any
or all Custodial Accounts, to the extent that Borrower is entitled to do so, for
the recovery of Agency Servicing Payments and Non-Agency Servicing Payments due
to Borrower, and to apply such amounts so received in payment of the outstanding
amount of the Obligations in such order and manner as Bank shall determine in
its sole discretion. The Bank shall give the Borrower not less than five (5)
days' notice of any such public sale or of the date after which private sale may
be held. The Borrower agrees that five (5) days' notice shall be reasonable
notice. At any such sale the Collateral may be sold as an entirety or in
separate parts, as the Bank may determine. The Bank may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by the Bank until
the selling price is paid by the purchaser thereof, but the Bank shall not incur
any liability in case of the failure of such purchaser to take up and pay for
the Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Bank may, however, instead of exercising the
power of sale herein conferred upon it, proceed by a suit or suits at law or in
equity to collect all amounts due upon all or any portion of the Collateral or
to foreclose the pledge and sell all or any portion of the Collateral under a
judgment or decree of a court or courts of competent jurisdiction, or both.
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<PAGE>
(5) Proceed against the Borrower on the Note or against the
Guarantor under the Guaranty or both.
(6) Pursue any rights and/or remedies available at law or
in equity against the Borrower or the Guarantor or both.
8.2(d) The Bank shall incur no liability as a result of the sale of
the Collateral, or any part thereof, at any private sale. The Borrower hereby
waives any claims it may have against the Bank arising by reason of the fact
that the price at which the Collateral may have been sold at such private sale
was less than the price which might have been obtained at a public sale or was
less than the aggregate amount of the outstanding Advances and the unpaid
interest accrued thereon, even if the Bank accepts the first offer received and
does not offer the Collateral, or any part thereof, to more than one offeree.
8.2(e) The Borrower waives any right to require the Bank to (1)
proceed against any Person, (2) proceed against or exhaust all or any of the
Collateral or pursue its rights and remedies as against the Collateral in any
particular order, or (3) pursue any other remedy in its power. The Bank shall
not be required to take any steps necessary to preserve any rights of the
Borrower against holders of mortgages prior in lien to the Lien of any Mortgage
included in the Collateral or to preserve rights against prior parties.
8.2(f) The Bank may, but shall not be obligated to, advance any
sums or do any act or thing necessary to uphold and enforce the Lien and
priority of, or the security intended to be afforded by, any Mortgage included
in the Collateral, including, without limitation, payment of delinquent taxes or
assessments and insurance premiums. All advances, charges, costs and expenses,
including reasonable attorneys' fees and disbursements, incurred or paid by the
Bank in exercising any right, power or remedy conferred by this Agreement, or in
the enforcement hereof, together with interest thereon, at the rate of interest
specified in the Note, from the time of payment until repaid, shall become a
part of principal balance outstanding under the Note.
8.2(g) The rights, titles, interests, liens and securities of the
Bank hereunder shall be cumulative of all of the securities, rights, titles,
interests or liens which the Bank may now or at any time hereafter hold securing
the payment of the Obligations, or any part thereof.
8.2(h) The Bank is hereby expressly authorized to apply by
appropriate judicial proceedings for appointment of a receiver for the
Collateral, or any part thereof, and Borrower hereby expressly consents to any
such appointment.
8.2(i) The Bank is hereby authorized, in its own name or the name
of Borrower, after an Event of Default, to notify any or all parties obligated
on any of the Collateral to make all payments due or to become due thereon
directly to the Bank, or such other person or officer as the Bank may require,
whereupon the power and authority of Borrower to collect the same in the
ordinary course of its business shall be deemed to be immediately revoked and
terminated. With or without such general notification, the Bank may take or
bring in Borrower's name or that of the Bank all steps, actions, suits or
proceedings deemed by the Bank necessary or desirable to effect possession or
collection of the Collateral, including sums due or paid thereon, may complete
any contract or agreement of Borrower in any way related to any of the
Collateral, may make allowances or adjustments related to the Collateral, may
compromise any claims related to the Collateral, may issue credit in its own
name or the name of Borrower, and Bank may remove from Borrower's premises all
documents, instruments, records, files or other items relating to the Collateral
(including any Servicing Records with respect to the Collateral) , and the Bank
may, without cost or expense to the Bank, use Borrower's personnel, supplies and
space to take possession of, administer, collect and dispose of the Collateral.
Regardless of any provision hereof, however, Bank shall ever be liable to
Borrower for the failure of Bank to collect or for its failure to exercise
diligence in the collection, possession, or any transaction concerning, all or
part of the Collateral or sums due or paid thereon, nor shall Bank be under any
obligation whatsoever to anyone by virtue of this Security Agreement, except to
account for the funds that the Bank shall actually receive hereunder.
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<PAGE>
8.2(j) No failure on the part of the Bank to exercise, and no delay
in exercising, any right, power or remedy provided hereunder, at law or in
equity shall operate as a waiver thereof; nor shall any single or partial
exercise by the Bank of any right, power or remedy provided hereunder, at law or
in equity preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. Without intending to limit the foregoing, all
defenses based on the statute of limitations are hereby waived by the Borrower.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided at law or in equity.
Section 8.3 Application of Proceeds. The proceeds of any sale or other
-----------------------
enforcement of the Bank's security interest in all or any part of the Collateral
shall be applied by the Bank:
First, to the payment of the costs and expenses of such sale or
-----
enforcement, including reasonable compensation to the Bank's agents and counsel,
and all expenses, liabilities and advances made or incurred by or on behalf of
the Bank in connection therewith;
Second, to the payment of any other amounts due (other than principal
------
and interest) under the Note or this Agreement and the Warehousing Credit
Facility;
Third, to the payment of interest accrued and unpaid on the Note and
-----
the Note evidencing the Warehousing Credit Facility;
Fourth, to the payment of the outstanding principal balance of the
------
Note and the Note evidencing the Warehousing Credit Facility; and
Finally, to the payment to the Borrower, or to its successors or
-------
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds. If the proceeds of any such sale are insufficient
to cover the costs and expense; of such sale, as aforesaid, and the payment in
full of the Note and all other amounts due hereunder, the Borrower shall remain
liable for any deficiency.
Section 8.4 Bank Appointed Attorney-in-Fact. The Bank is hereby
-------------------------------
appointed the attorney-in-fact of the Borrower, with full power of substitution,
for the purpose of carrying out the provisions hereof and taking any action and
executing any instruments which the Bank may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, the Bank shall have the right and power to give notices of its
security interest in the Collateral to any Person, either in the name of the
Borrower or in its own name, or to receive, endorse and correct all checks made
payable to the order of the Borrower representing any payment on account of the
principal of or interest on, or the proceeds of sale of, any of the Collateral
or and to give full discharge for the same.
Section 8.5 Right of Set-Off. If the Borrower shall default in the
----------------
payment of the Note, any interest accrued thereon, or any other sums which may
become payable hereunder when due, or in the performance of any of its other
obligations or liabilities under this Agreement, the Bank, shall have the right,
at any time and from time to time, without notice, to set-off and to appropriate
or apply any and all deposits of money or property or any other indebtedness at
any time held or owing by the Bank or a parent company, affiliate, or subsidiary
of the Bank to or for the credit of the account of the Borrower against and on
account of the obligations and liabilities of the Borrower under the Note and
this Agreement, irrespective of whether or not the Bank shall have made any
demand hereunder and whether or not said obligations and liabilities shall have
matured, provided, however, that the aforesaid right of set-off shall not apply
to any deposits of escrow monies being held on behalf of the mortgagors under
Mortgage Loans or other third parties.
Section 8.6 Reasonable Assurances. If, at any time during the term of
---------------------
the Agreement, Bank has reason to believe that Borrower is not conducting its
business in accordance with, or otherwise is not satisfying: (i) all applicable
statutes, regulations, rules, and notices of federal, state, or local
governmental agencies or instrumentalities, all applicable requirements of
Investors and Insurers and prudent industry standards or (ii) all
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<PAGE>
applicable requirements of Bank, as set forth in this Agreement, then, Bank
shall have the right to demand, pursuant to written notice from Bank to Borrower
specifying with particularity the alleged act, error or omission in question,
reasonable assurances from Borrower that such a belief is in fact unfounded, and
any failure of Borrower to provide to Bank such reasonable assurances in form
and substance reasonably satisfactory to Bank, within the time frame specified
in such written notice shall itself constitute an Event of Default hereunder.
Borrower hereby authorizes Bank to take such actions as may be necessary or
appropriate to confirm the continued eligibility of Borrower for Advances
hereunder, including without limitation (i) ordering credit reports and (ii)
contacting licensing authorities, Agencies and Investors or Insurers.
ARTICLE IX
REIMBURSEMENT OF EXPENSES; INDEMNITY
The Borrower shall:
Section 9.1 Cost of Transaction and Enforcement. Pay all out-of-pocket
-----------------------------------
costs and expenses of the Bank, including reasonable attorney's fees, in
connection with the documentation, administration and enforcement of this
Agreement, the Note, and other documents and instruments related hereto and the
making and repayment of the Advances and the payment of interest thereon.
Section 9.2 Payments of Taxes. Pay, and hold the Bank and any holder of
-----------------
the Note harmless from and against, any and all present and future stamp,
documentary and other similar taxes with respect to the foregoing matters and
save the Bank and the holder or holders of the Note harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
to pay such taxes.
Section 9.3 INDEMNIFICATION. INDEMNIFY, PAY AND HOLD HARMLESS THE BANK
---------------
AND ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS AND ANY SUBSEQUENT
HOLDER OF THE NOTE FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS
OF ANY KIND WHATSOEVER (THE "INDEMNIFIED LIABILITIES") (EXCLUDING ANY SUCH
-----------------------
INDEMNIFIED LIABILITIES RESULTING FROM FAILURE BY THE BANK TO PERFORM ANY OF ITS
OBLIGATIONS (BUT INCLUDING THOSE RELATING TO BANK'S NEGLIGENCE) UNDER THIS
AGREEMENT, THE NOTE, OR ANY OTHER DOCUMENT REFERRED TO HEREIN AS ESTABLISHED IN
A SUIT BETWEEN THE BORROWER AND THE BANK WHICH MAY BE THE SAME SUIT IN WHICH
INDEMNIFICATION IS BEING SOUGHT HEREUNDER BY THE BANK) WHICH MAY BE IMPOSED
UPON, INCURRED BY OR ASSERTED AGAINST THE BANK OR SUCH HOLDER IN ANY WAY
RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE NOTE, OR ANY OTHER DOCUMENT
REFERRED TO HEREIN OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY TO
THE EXTENT THAT ANY SUCH INDEMNIFIED LIABILITIES RESULT (DIRECTLY OR INDIRECTLY)
FROM (I) THE INACCURACY OR INCOMPLETENESS OF ANY REPRESENTATION OR WARRANTY MADE
BY THE BORROWER IN THIS AGREEMENT OR ANY SCHEDULE, STATEMENT, EXHIBIT OR
CERTIFICATE FURNISHED BY THE BORROWER PURSUANT TO THIS AGREEMENT OR (H) THE
FAILURE BY THE BORROWER TO OBSERVE OR PERFORM ANY TERM OR PROVISION OF THIS
AGREEMENT OR OF ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH, INCLUDING WITHOUT
LIMITATION ANY CLAIMS MADE, OR ANY ACTIONS, SUITS OR PROCEEDINGS COMMENCED OR
THREATENED, BY OR ON BEHALF OF ANY CREDITOR (EXCLUDING THE BANK AND THE HOLDER
OR HOLDERS OF THE NOTE), SECURITY HOLDER, SHAREHOLDER, MORTGAGOR, CUSTOMER
(INCLUDING, WITHOUT LIMITATION, ANY PERSON OR ENTITY HAVING ANY DEALINGS OF ANY
KIND WITH THE BORROWER), TRUSTEE, DIRECTOR, OFFICER, EMPLOYEE AND/OR AGENT OF
THE BORROWER ACTING IN SUCH CAPACITY, THE BORROWER OR ANY GOVERNMENTAL
REGULATORY BODY OR AUTHORITY (EXCLUDING THE OFFICE OF THE COMPTROLLER OF THE
CURRENCY, THE FEDERAL DEPOSIT
-40-
<PAGE>
INSURANCE CORPORATION AND ANY OTHER BANKING REGULATORY BODY OR AUTHORITY HAVING
JURISDICTION OVER THE BANK).
ARTICLE X
[INTENTIONALLY DELETED]
ARTICLE XI
MISCELLANEOUS
Section 11.1 Relationship of Parties. The relationship between Bank and
-----------------------
the Borrower is limited to that of creditor/secured party, on the one hand, and
borrower, on the other hand. The provisions herein for compliance with
financial covenants and delivery of financial statements, are intended solely
for the benefit of Bank to protect its interests as lender in assuring
performance of the obligations hereunder, and nothing contained in this
Agreement shall be construed as permitting or obligating Bank to act as a
financial or business advisor or consultant to the Borrower, as permitting or
obligating the Bank to control the Borrower or to conduct the Borrower's
operations, as creating any joint venture, agency, fiduciary, trustee, or other
relationship between the parties other than as explicitly and specifically
stated in this Agreement. The Borrower acknowledges that it has had the
opportunity to obtain the advice of experienced counsel of its own choosing in
connection with the negotiation and execution of this Agreement and to obtain
the advice of such counsel with respect to all Matters contained herein. The
Borrower further acknowledges that it is experienced with respect to financial
and credit matters and has made its own independent decision to execute and
deliver this Agreement.
Section 11.2 Recourse. The Borrower acknowledges and agrees that it is
--------
fully liable for repayment of all Advances and all sums due hereunder or under
the Note and for performance of all obligations contained in this Agreement.
Section 11.3 Notices. All notices, demands, consents, requests and other
-------
communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly provided
-------
hereunder, be in writing and shall be delivered in person or telegraphed or
mailed, first class, return receipt requested, postage prepaid, or by overnight
delivery service or by telecopy or other telecommunications device addressed to
the respective parties hereto at their respective addresses hereinafter set
forth or, as to any such party, at such other address as may be designated by it
in a Notice to the other. All Notices shall be conclusively deemed to have been
properly given or made on the day when deposited in the mails or when delivered
to the overnight delivery service or when sent by telecopy, addressed as
follows:
if to the Borrower: HomeOwners Mortgage & Equity, Inc.,
a Delaware corporation, d/b/a Home, Inc.
6836 Austin Center Blvd., Suite 280
Austin, Texas 78731
Attn: John Ballard, President
Telecopy No.: (512) 343-1837
if to the Bank: Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attn: Warehouse Lending
Telecopy No: (214) 360-1660
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<PAGE>
Section 11.4 Terms Binding Upon Successors; Survival. The terms and
---------------------------------------
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. All
representations, warranties, covenants and agreements herein contained on the
part of the Borrower shall survive the making of any Advance and the execution
of the Note, and shall be effective so long as there remains any obligation of
the Borrower hereunder or under the Note or under the Warehousing Credit
Facility, to be paid or performed.
Section 11.5 Regulatory Requirements. This Agreement is subject to all
-----------------------
governmental regulations to which the Bank is subject. Notwithstanding anything
to the contrary, in no event shall the Bank be obligated to advance to Borrower
hereunder or under the Loan Documents any amounts which would cause the Bank to
exceed applicable governmental lending limit regulations.
Section 11.6 Interest. Notwithstanding anything contained herein or in
--------
the Note to the contrary, the Bank shall never be deemed to have contracted
for or be entitled to receive, collect or apply as interest on any Note, any
amount in excess of the amount permitted and calculated at the maximum rate
permitted by applicable law (the "Maximum Rate"), and, in the event Bank ever
-------------
receives, collects or applies as interest any amount in excess of the amount
permitted and calculated at the Maximum Rate, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance of Note, and, if the principal balance of Note is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining whether or
not the interest paid or payable under any specific contingency exceeds the
Maximum Rate, Borrower and Bank shall, to the maximum extent permitted under
applicable law, (i) characterize any non-principal payment (other than payments
which are expressly designated as interest payments hereunder) as an expense,
fee, or premium, rather than as interest, (ii) exclude voluntary prepayments and
the effect thereof, and (iii) spread the total amount of interest throughout the
entire contemplated term of such Note.
To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is
relevant to the Bank for the purpose of determining the Maximum Rate, the Bank
hereby elects to determine the applicable rate ceiling under such Article by the
"indicated rate ceiling" from time to time in effect, subject to the Bank's
right subsequently to change such method in accordance with applicable law.
Section 11.7 Assignments, etc.
----------------
(a) Assignments and Participations. All covenants and agreements by or on
------------------------------
behalf of Borrower in the Note, this Agreement, or any other Loan Document shall
bind Borrower's successors and assigns and shall inure to the benefit of the
Bank and its successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest herein, without
the prior written consent of the Bank. The Bank may assign to one or more
Persons all or any part of, and may grant participations to one or more Persons
in all or any part of, its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and the Note held by it). In the event that Bank sells
participations in the Note or other Obligations of Borrower incurred or to be
incurred pursuant to this Agreement, to other lenders, each of such other
lenders shall have the rights of set off against such Obligations and similar
rights or Liens to the same extent as may be available to the Bank.
(b) Additional Bank. From time to time additional Bank may be added
---------------
hereto upon execution by the Borrower, the Bank and such additional Bank of
documentation in form and substance satisfactory to each of such parties.
Section 11.8 Exhibits. The exhibits attached to this Agreement are
--------
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
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<PAGE>
Section 11.9 Titles of Articles, Sections and Subsections. All titles or
--------------------------------------------
headings to articles, sections, subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 11.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and it shall not be necessary that the signatures of both parties
hereto be contained on any one counterpart hereof; each counterpart shall be
deemed an original, but all counterparts together shall constitute one and the
same instrument.
SECTION 11.11. WAIVER OF TRIAL BY JURY. AS A SPECIFICALLY BARGAINED
-----------------------
INDUCEMENT FOR THE BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO
BORROWER, BORROWER AND THE BANK EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY
ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE
BANK AND BORROWER.
Section 11.12. Confidentiality. Except as provided herein to the contrary,
---------------
all correspondence from the Bank to Borrower and all of the Loan Documents are
confidential and may not be shown by Borrower to or discussed by Borrower with
any third party (other than on a confidential basis with Borrower's legal
counsel and independent public accountants) without Bank's prior written
consent. All documents, forms, correspondence, files, contracts, customer
lists, financial tables, records, techniques, processes and all other
information directly or indirectly given to or received by Bank during the term
of this Agreement, that relate in any manner to any business or operation that
Borrower is engaged in, constitute trade secrets of Borrower and shall remain
the property of Borrower subject to the rights, security interests and remedies
of Bank. During and after the term of this Agreement, Bank shall maintain the
confidentiality of all such trade secrets and not disclose to any person (other
than an employee or agent of Bank or any Affiliate thereof) any confidential
information relating to such trade secrets, without the consent of Borrower, or
until such information ceases to be confidential. Notwithstanding the
foregoing, Bank shall not be precluded from disclosures respecting Borrower when
required by law or a governmental agency or in connection with the audit and
preparation of the Bank's financial statements. Upon the termination of this
Agreement by Bank, Bank shall deliver to Borrower all materials and information
constituting such trade secrets.
Section 11.13 Amendments. This Agreement may be modified or amended by
----------
the Bank at any time upon 30 days notice to the Borrower. Such modification or
amendment will not take effect if, within fifteen (15) days from the date of
such notice, the Bank receives a written objection to such modification or
amendment from the Borrower. If no such objection is received by the Bank such
modification or amendment will automatically become effective upon the 30th day
from the date of such notice by the Bank.
Section 11.14 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Borrower or the Bank or any holder of the Note in exercising any
right, power or privilege hereunder and no course of dealing between the
Borrower and the Bank or the holder of the Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or under the Note preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Borrower or the Bank or the holder of the
Note would otherwise have. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Bank or the
holder of the Note to any other or further action in any circumstances without
notice or demand.
Section 11.15 Invalidity. 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
-43-
<PAGE>
unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had not been included.
Section 11.16 Participations. The Bank may from time to time sell or
--------------
otherwise grant participations in the Commitment and the Note, and the holder of
any such participation, if the participation agreement so provides, (i) shall,
with respect to its participation, be entitled to all of the rights of the Bank
and (ii) may exercise any and all rights of setoff or banker's lien with respect
thereto, in each case as fully as though the Borrower were directly indebted to
the holder of such participation in the amount of such participation; provided,
however, that the Borrower shall not be required to send or deliver to any of
the participants other than the Bank any of the materials or notices required to
be sent or delivered by it under the terms of this Agreement, nor shall it have
to act except in compliance with the instructions of the Bank.
SECTION 11.17 CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND EACH LOAN
-------------
DOCUMENT IS A CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF TEXAS,
EXCEPT AS OTHERWISE SPECIFIED HEREIN OR THEREIN, AND, WITH RESPECT TO USURY
LAWS, IF ANY, APPLICABLE TO THE BANKS AND TO THE EXTENT ALLOWED THEREBY, AS SUCH
LAWS MAY HEREAFTER BE IN EFFECT WHICH ALLOW A HIGHER MAXIMUM NONUSURIOUS
INTEREST RATE THAN SUCH LAWS NOW ALLOW. TEX. REV. CIV. STAT. ANN. ART. 5069,
CH. 15 (WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND REVOLVING TRI-PARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
Section 11.18 Additional Instruments, etc. The Borrower shall execute
---------------------------
and deliver such further instruments and shall do and perform all matters and
things necessary or expedient to be done or observed for the purpose of
effectively creating, maintaining and preserving the security and benefits
intended to be afforded by this Agreement.
Section 11.19 Right of Offset. Borrower hereby grants to the Bank, to
---------------
each Bank and to any assignee or participant of any Bank a right of offset, to
secure the repayment of the Obligations, upon any and all monies, securities or
other property of Borrower, and the proceeds therefrom now or hereafter held or
received by or in transit to such Person, from or for the account of Borrower,
whether for safekeeping, custody, pledge, transmission, collection or otherwise,
and also upon any and all deposits (general or special, time or demand,
provisional or final) and credits of Borrower, and any and all claims of
Borrower against such Person at any time existing. Upon the occurrence of any
Event of Default, such Person is hereby authorized at any time and from time to
time, without notice to Borrower, to offset, appropriate, and apply any and all
items hereinabove referred to against the Obligations. Bank's contractual right
of offset granted by Borrower hereunder is separate and independent of Bank's
common law right of offset and is not governed by any restrictions existing
under the common law right of offset. Notwithstanding anything in this Section
-------
11.19 or elsewhere in this Agreement to the contrary, the Bank and any assignee
- -----
or participant of any Bank shall not have any right to offset, appropriate or
apply any accounts of Borrower which consist of escrowed funds (except and to
the extent of any beneficial interest of Borrower in such escrowed funds) which
have been so identified by Borrower in writing at the time of deposit thereof.
SECTION 11.20 VENUE. THE BORROWER HEREBY AGREES THAT THE OBLIGATIONS
-----
CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL PARTIES HERETO
AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION MAY BE FILED IN DALLAS
COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN
THE LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION
SHALL BE IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE COMMENCED AGAINST BORROWER IN DALLAS
COUNTY, (V) SUCH ACTION MAY BE INSTITUTED IN THE COURTS OF THE STATE OF TEXAS
LOCATED IN DALLAS COUNTY, TEXAS OR IN THE UNITED STATES
-44-
<PAGE>
DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS LOCATED IN DALLAS COUNTY,
TEXAS, AT THE OPTION OF THE BANK AND (VI) THE BORROWER HEREBY WAIVES ANY
OBJECTION TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND ADDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO BE SUED ELSEWHERE. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF BANK TO ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.
Section 11.21 Borrower Information. The Borrower hereby authorizes the
--------------------
Bank to provide any Affiliate of the Bank with information regarding the
Borrower, including copies of documents, financial statements, corporate records
and reports, obtained by the Bank from the Borrower or any other entity during
the course of the negotiation or administration of this Agreement.
Section 11.22 Time. Time is of the essence in the performance of this
----
Agreement.
SECTION 11.23. ENTIRE AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
----------------
LOAN DOCUMENTS REPRESENTED 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Borrower:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By: /s/ Tommy M. Parker
------------------------------------
Tommy M. Parker,
Executive Vice President
BANK:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: ____________________________________
W. James Meintjes,
Assistant Vice President
-45-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 8 day of November, 1996,
by Tommy M. Parker, in his capacity as Executive Vice President of HOMEOWNERS
MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME, INC., on behalf of
said corporation.
/s/ Glenda Houchin
--------------------------------
Notary Public - State of Texas
My Commission expires: Glenda Houchin
1-20-98 ---------------------------------
- --------------------- Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S) [NOTARY PUBLIC SEAL]
This instrument was ACKNOWLEDGED before me the ____ day of November, 1996,
by W. James Meintjes, in his capacity as Assistant Vice President of GUARANTY
FEDERAL BANK, F.S.B., a federal savings bank, on behalf of said bank.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
-46-
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A Promissory Note
EXHIBIT B Guaranty
EXHIBIT C Advance Request
EXHIBIT D Borrowing Base Report
EXHIBIT E List of Servicing Contracts
EXHIBIT F Compliance Certificate
EXHIBIT G Subsidiaries
EXHIBIT H Form of Legal Opinion by Counsel to Borrower
EXHIBIT I Certificate Accompanying Financial Statements
EXHIBIT J Purchaser's Acknowledgment
EXHIBIT K Indebtedness
EXHIBIT L Subservicing Contracts
-47-
<PAGE>
EXHIBIT "A"
-----------
PROMISSORY NOTE
---------------
$3,000,000.00 Dallas, Texas November 8, 1996
FOR VALUE RECEIVED, the undersigned, HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation, d/b/a HOME, INC. (herein called "Borrower"), hereby
--------
promises to pay to the order of GUARANTY FEDERAL BANK, F.S.B., a federal savings
bank (herein called "Bank"), the principal sum of THREE MILLION AND NO/100
----
DOLLARS ($3,000,000.00) or, if less, the aggregate unpaid principal amount of
the Loan made under this Note by Bank to Borrower pursuant to the terms of the
Working Capital Line of Credit and Security Agreement [Servicing Secured]
together with all amendments, modifications and extensions thereto ("Loan
----
Agreement") dated of even date herewith, together with interest on the unpaid
- ---------
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America, for
the account of Bank, at 8333 Douglas Avenue, Dallas, Texas 75225 or at such
other place within Dallas County, Texas or such other address as may be given to
Borrower by the Bank.
This Note (a) is executed and delivered pursuant to the Loan Agreement and
is the Note as defined therein, (b) is subject to the terms and provisions of
the Loan Agreement, which contains provisions for payments and prepayments
hereunder, acceleration of the maturity hereof upon the happening of certain
stated events and the obligation of Bank to advance funds hereunder, and (c) is
secured by and entitled to the benefits of certain Loan Documents (herein so
called). Payments on this Note shall be made and applied as provided herein and
in the Loan Agreement. Reference is hereby made to the Loan Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Loan Documents for a description of the nature and extent of
the security thereby provided and the rights of the parties thereto. All
capitalized terms used herein and not otherwise defined herein shall have the
meanings given thereto in the Loan Agreement. The holder of this Note shall be
entitled to the benefits provided for in the Loan Agreement.
Interest shall be due and payable on the tenth day of each month, beginning
December 10, 1996. Interest shall accrue on the outstanding principal balance of
this Note at the rates specified in the Loan Agreement.
The principal amount of this Note, together with all unpaid interest
accrued hereon, shall be due and payable in full on November 7, 1997 (the
"Maturity Date"). All payments of principal of and interest upon this Note
-------------
shall be made by Borrower to the Bank in federal or other immediately available
funds. All payments made hereon shall be due and payable and applied in
accordance with the Loan Agreement.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Loan Agreement which more fully set out the limitations on how
interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Maximum Rate and for all other purposes. The term "applicable
law" as used in this Note shall mean the laws of the State of Texas or the laws
of the United States,
_____________
Initialed for
Identification
-1-
<PAGE>
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court of in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, diligence in
collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
Maker reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Loan Agreement.
THE BORROWER HEREBY AGREES THAT THE OBLIGATIONS CONTAINED HEREIN ARE
PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL PARTIES HERETO AGREE THAT (I) ANY
ACTION ARISING OUT OF THIS TRANSACTION SHALL BE FILED IN DALLAS COUNTY, TEXAS,
(II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN THE LOAN
DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION SHALL BE
IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT SHALL BE COMMENCED AGAINST BORROWER IN DALLAS COUNTY,
(V) SUCH ACTION SHALL BE INSTITUTED IN THE COURTS OF THE STATE OF TEXAS LOCATED
IN DALLAS COUNTY, TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS, AT THE OPTION OF THE BANK AND
(VI) THE BORROWER HEREBY WAIVES ANY OBJECTION TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO BE SUED
ELSEWHERE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF BANK TO ACCOMPLISH SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
THIS NOTE, TOGETHER WITH ALL OF THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED
BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
-2-
<PAGE>
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware
corporation, d/b/a HOME, INC.
By: ________________________________________
Tommy M. Parker,
Executive Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of November, 1996,
by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY,
INC., a Delaware corporation, d/b/a HOME, INC. on behalf of said corporation.
_________________________________________
Notary Public -State of Texas
My Commission expires: _________________________________________
- --------------------- Printed Name of Notary
-3-
<PAGE>
EXHIBIT "B"
-----------
UNCONDITIONAL GUARANTY
----------------------
WHEREAS, HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a
HOME, INC. (hereinafter called the "Borrower"), desire to borrow from GUARANTY
--------
FEDERAL BANK, F.S.B. the "Bank"), the principal sum of THREE MILLION AND NO/100
----
DOLLARS ($3,000,000.00) (collectively, the "Loan"); and
----
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that Working Capital Line of Credit and Security Agreement
[Servicing Secured] dated of even date herewith, between the Borrower and the
Bank together with all amendments thereof (hereinafter called the "Loan
----
Agreement") and all promissory notes executed by Borrower in connection
- ---------
therewith; and
WHEREAS, the undersigned desires the Bank to enter into the Loan Agreement
and to make the aforesaid Loan, and the Bank requires, as a condition thereof,
that a guaranty in the form hereof be executed and delivered by the undersigned;
NOW, THEREFORE, in consideration of the premises and to induce the Bank to
enter into the Loan Agreement and to make the Loan contemplated thereby and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, HOMECAPITAL INVESTMENT CORPORATION, a
Nevada corporation (hereinafter called the "Guarantor"), hereby unconditionally
---------
guarantees to the Bank and to every subsequent holder or holders of any
promissory note or notes evidencing the Loan (said promissory note or notes
together with any note or notes renewing the same or any part thereof being
hereinafter collectively called the "Note") that (i) the principal of and
----
interest on, and attorneys' fees provided in, the Note will be promptly paid
when due in accordance with the provisions thereof or, in the case of extension
of time of payment in whole or in part of the Note, all sums will be promptly
paid when due in accordance with the terms of the extension; (ii) all covenants
and agreements of the Borrower contained in the Note, the Loan Agreement and/or
any other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, will be duly and
promptly observed and performed; and (iii) all additional amounts owing or which
hereafter become owing by the Borrower under the terms of the Note, the Loan
Agreement and/or any other instrument evidencing, securing or governing the
disbursement of the Loan, whether presently existing or hereinafter entered
into, will be promptly paid when due. This Guaranty directly and substantially
benefits Guarantor.
The obligations of the Guarantor shall be performable without demand of the
Bank and shall be unconditional irrespective of the genuineness, validity,
regularity or enforceability of the Loan Agreement or the Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or a guarantor; and the Guarantor hereby waives diligence, presentment,
demand of payment, protest, all notices (whether of nonpayment, acceleration,
dishonor, protest or otherwise) with respect to the Note, notice of acceptance
of this Guaranty and of the incurring by the Borrower of any of the obligations
hereinbefore mentioned, all demands whatsoever, and all rights to require the
Bank, to (a) proceed against the Borrower, (b) proceed against or exhaust any
collateral held by the Bank to secure the payment of the indebtedness guaranteed
hereby, or (c) pursue any other remedy the Bank may now or hereafter have
against the Borrower.
The Guarantor hereby agrees that, at any time or from time to time, without
notice to the Guarantor:
(1) The time for payment of the principal of or interest on the Note
evidencing the Loan may be extended or the Note may be renewed in whole or
in part;
-----------
Initialed for
Identification
<PAGE>
(2) The time for the Borrower's performance of or compliance with any
covenant or agreement contained in the Loan Agreement, the Note and/or any
other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, may be
extended or such performance or compliance may be waived;
(3) The maturity of the Note may be accelerated as provided therein
or in the Loan Agreement and/or any other instrument evidencing, securing
or governing the disbursement of the Loan, whether presently existing or
hereinafter entered into;
(4) The Loan Agreement, the Note and/or any other instrument
evidencing, securing or governing the disbursement of the Loan, whether
presently existing or hereinafter entered into, may be modified or amended
by the Bank and the Borrower in any respect, including, but not limited to,
an increase in the principal amount; and
(5) Any security for the Loan may be modified, exchanged, surrendered
or otherwise dealt with and/or additional security may be pledged or
mortgaged for the Loan;
all without affecting the liability of the Guarantor.
The Guarantor hereby acknowledges that the withdrawal from, or termination
of, any ownership interest in Borrower shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
If this Guaranty shall be placed in the hands of an attorney for collection
or should it be collected by legal proceedings or through any probate or
bankruptcy court, the Guarantor agrees to pay to the Bank's reasonable
attorneys' or collection fees.
The Bank may assign its rights hereunder in whole or in part; and upon any
such assignment, all the terms and provisions of this Guaranty shall inure to
the benefit of such assignee to the extent so assigned. The terms used to
designate any of the parties herein shall be deemed to include the heirs, legal
representatives, successors and assigns of such parties; and the term "Bank"
shall include, in addition to the Bank, any lawful owner, holder or pledgee of
any indebtedness guaranteed hereby.
The Bank is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly, if any provision or provisions of
this instrument should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
The Guarantor acknowledges that the Loan represents money which will be
advanced to the Borrower in a series of advances to be made from time to time
pursuant to the Loan Agreement. To induce the Bank to make the advances
thereunder, the Guarantor hereby agrees that in the event of the termination,
liquidation or dissolution of the Borrower, this Guaranty shall continue in full
force and effect.
The Guarantor hereby represents and warrants to the Bank that the financial
statements and information regarding the Guarantor heretofore delivered to the
Bank are true and correct in all material respects, having been applied on a
consistent basis throughout the period covered thereby, and fairly present the
financial position of the Guarantor as of the dates thereof, and that no
material adverse change has occurred in the financial condition of the Guarantor
reflected therein since the date thereof.
The Guarantor hereby represents and warrants to the Bank that:
(a) Neither the execution and delivery of this Guaranty, 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,
statute or regulation to
-----------
Initialed for
Identification
-2-
<PAGE>
which Guarantor is subject or any judgment, license, order or permit applicable
to Guarantor, or any indenture, mortgage, deed of trust or other agreement or
instrument to which Guarantor is a party or by which Guarantor may be bound, or
to which Guarantor may be subject.
(b) Guarantor is not in default (and no event exists which with notice or
the passage of time could become a default) under any loan agreement, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound including but not limited to
the Loan Documents.
(c) There are no actions, suits or legal, equitable, arbitration or
administrative proceedings pending, or to the knowledge of Guarantor, threatened
against Guarantor.
(d) All tax returns required to be filed by the Guarantor in any
jurisdiction have been filed or extended and all taxes, assessments, fees and
other governmental charges upon Guarantor or upon any of its 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 and
with respect to which reserves in conformity with GAAP have been established on
the books of Guarantor. The Guarantor has no knowledge of any proposed tax
assessment against Guarantor.
(e) Guarantor shall permit any authorized officer, employee or agent of
the Bank, to visit and inspect any of the business properties of the Guarantor,
examine Guarantor's books of record and accounts, take copies and extracts
therefrom, and inspect and discuss the procedures, finances and accounts of
Guarantor with Guarantor's accountants and auditors, all at such reasonable
times and as often as Bank may desire. Guarantor shall furnish such reports as
Bank may reasonably request.
Notwithstanding any provision in this Guaranty to the contrary, Guarantor
hereby waives and releases (i) any and all rights of subrogation, reimbursement,
indemnification or contribution which it may have, against others liable on all
or any part of the Loan, (ii) any and all rights to be subrogated the rights of
the Bank in any collateral or security for all or any part of the Loan, and
(iii) any and all other rights and claims of such Guarantor against Borrower or
any third party as a result of such Guarantor's payment of all or any part of
the Loan.
Capitalized terms not defined herein are used as defined in the Loan
Agreement.
The obligations of the Guarantor and any other guarantor of the Note
evidencing the Loan shall be joint and several. The Guarantor agrees that the
Bank, in its sole discretion, may (i) bring suit against the Guarantor and any
other guarantor of the Note evidencing the Loan jointly and severally or against
any one or more of them, (ii) compound or settle with any one or more of the
guarantors of the Note evidencing the Loan for such consideration as the Bank
may deem proper, (iii) release one or more of the guarantors of the Note
evidencing the Loan from liability thereunder, and (iv) otherwise deal with the
Guarantor and any other guarantors of the Note, or any one or more of them, in
any manner whatsoever; and that no such action shall impair the rights of the
Bank to collect the indebtedness hereby guaranteed from the Guarantor. Nothing
contained in this paragraph shall in any way affect or impair the rights or
obligations of the Guarantor with respect to any other guarantor of the Note
evidencing the Loan.
Any indebtedness of the Borrower to the Guarantor now or hereafter existing
(including, but not limited to, any rights to subrogation the Guarantor may have
as a result of any payment by the Guarantor under this Guaranty), together with
any interest thereon, shall be, and such indebtedness is hereby subordinated
until payment in full of the indebtedness of the Borrower to the Bank under the
Loan Documents and all other obligations hereunder. Until payment in full with
interest of the indebtedness of the Borrower to the Bank (and including interest
accruing on the Note after any petition under the Bankruptcy Reform Act of 1978,
as amended (the "Bankruptcy Code"), which post-petition interest the parties
---------------
agree shall remain a claim that is prior and superior to any claim of the
Guarantor notwithstanding any contrary practice, custom or ruling in proceedings
under the Bankruptcy Code generally), the Guarantor agrees not to accept any
payment or satisfaction of any kind of any
-----------
Initialed for
Identification
-3-
<PAGE>
indebtedness of the Borrower to the Guarantor, except with respect to the
payment of any dividends declared by the Borrower, the payment of which will not
cause the Borrower to breach any covenant under the Loan Agreement, and except
with respect to any other payment for which the Bank grants its prior written
consent. Further, the Guarantor agrees that until such payment in full: (i) no
Guarantor shall accept payment from any other guarantor by way of contribution
on account of any payment made hereunder by such party to the Bank; (ii) no one
of them will take any action to exercise or enforce any rights to such
contribution; and (iii) if any individual or entity comprising the Guarantor
should receive any payment, satisfaction or security for any indebtedness of the
Borrower to any individual or entity comprising the Guarantor or for any
contribution by any other individual or entity comprising the Guarantor for
payment made hereunder by the recipient to the Bank at any time the Borrower is
in default under the Loan Documents, the same shall be delivered to the Bank in
the form received, endorsed or assigned as may be appropriate for application on
account of, or as security for the indebtedness of the Borrower to the Bank.
This provision shall not restrict or impair Guarantor's right to receive
dividends declared by the Borrower, which comply with the covenants under the
Loan Agreement. Any lien or charge on the Collateral (as defined in the Loan
Agreement), all rights therein and thereto, and on the profits, losses, income
and distributions to be realized therefrom, which the Guarantor may have or
obtain as security for any loans or advances to Borrower shall be, and such Lien
or charge hereby is, waived. Guarantor waives any rights Guarantor has under, or
any requirements imposed by Chapter 34 of the Texas Business & Commerce Code, as
in effect on the date of this Guaranty or as it may be amended from time to
time. Guarantor waives any rights of subrogation it may have against the
Borrower.
In the event the Borrower is a corporation, joint stock association or
partnership, or is hereafter incorporated, if the indebtedness at any time
hereafter exceeds the amount permitted by law, or the Borrower is not liable
because the act of creating the obligation is ultra vires, or the officers or
persons creating same acted in excess of their authority, and for these reasons
the indebtedness to the Bank which the Guarantor agrees to pay cannot be
enforced against the corporation, joint stock association or partnership, such
fact shall in no manner affect the Guarantor's liability hereunder; but the
Guarantor shall be liable hereunder, notwithstanding any finding that said
corporation, joint stock association or partnership is not liable for such
indebtedness, and to same extend as the Guarantor would have been if the
indebtedness of the Borrower had been enforceable against the Borrower.
THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING HEREUNDER
SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA.
THIS GUARANTY SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY,
TEXAS. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL
DISPUTES BETWEEN GUARANTOR AND BANK, WHETHER IN LAW OR EQUITY, INCLUDING, BUT
NOT LIMITED TO, ANY AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT; AND VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS. GUARANTOR HEREBY CONSENTS TO
PERSONAL JURISDICTION IN DALLAS COUNTY, TEXAS AND WAIVES ANY RIGHTS HE OR SHE
MAY HAVE TO BE SUED ELSEWHERE.
THIS GUARANTY AND THE LOAN DOCUMENTS 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.
-----------
Initialed for
Identification
-4-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 8th day of
November, 1996.
Address of Guarantor:
- --------------------
6836 Austin Center Blvd. HOMECAPITAL INVESTMENT CORPORATION,
Suite 280 a Nevada corporation
Austin, Texas 78731
By: _____________________________________
Name:________________________________
Title:_______________________________
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of November, 1996,
by _________________________, _____________________ of HOMECAPITAL INVESTMENT
CORPORATION, a Nevada corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
-5-
<PAGE>
EXHIBIT "C"
-----------
ADVANCE REQUEST
From: HomeOwners Mortgage & Equity, Inc.,
d/b/a Home, Inc.
6836 Austin Center Blvd., Suite 280
Austin, Texas 78731
Phone (512) 343-8911
Fax (512) 343-1837
TO: Guaranty Federal Bank, F.S.B. ("Bank")
----
1. HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME,
INC. ("Borrower") hereby requests an Advance in the amount and on the
--------
date specified from the Bank (an "Advance") in the amount and on the date
-------
herein specified, pursuant to the Working Capital Line of Credit and
Security Agreement [Servicing Secured] among Borrower and the Bank, dated
as of November 8, 1996, as amended to date (the "Agreement"), and hereby
---------
grants to Bank, in accordance with the provisions of that Agreement,
between Borrower and the Bank, as amended to date, a security interest
and Lien in each Mortgage Loan described on the attached schedule.
Capitalized terms used herein and defined in the Agreement shall be used
herein as so defined.
2. Advances requested:
(i) Borrower hereby requests an Advance in the principal
amount of $__________.
(ii) Requested Advance Date: _______________, 199__.
(iii) Borrower hereby grants to the Bank a security interest in
the Servicing Rights described on Schedule I attached
----------
hereto.
Requirement of Agreement: Maximum of $3,000,000.00.
Requirement satisfied _______.
Requirement not satisfied _______.
3. The undersigned officer of Borrower represents and warrants to the Bank:
(a) Borrower is entitled to receive the requested Advance under the
terms and conditions of the Agreement;
(b) all items which Borrower is required to furnish to the Bank
pursuant to the Agreement accompany this Advance Request;
(c) all Collateral offered hereby conform in all respects with the
applicable requirements set forth in the Agreement;
(d) no Event of Default has occurred and is continuing under the
Agreement;
(e) no change or event which with notice and/or the passage of time
would constitute an Event of Default; and
<PAGE>
(f) attached hereto is the Compliance Schedule showing Borrower's
-------------------
compliance as of the date hereof with the requirements of Article
-------
VII of the Agreement.
---
4. Borrower represents and warrants that:
(A) The Collateral Value as defined in
the Agreement of all Collateral
prior to this Advance is: $___________
(B) The outstanding Advances prior to this Advance are: $___________
(C) The Collateral Value of all Collateral pledged
to Bank after this Advance Request is: $___________
(D) The outstanding Advances under the Note after this
Advance Request will be: $___________
4. The representations and warranties of Borrower contained in the Agreement
and those contained in each other Loan Document to which Borrower is a
party are true and correct in all respects on and as of the date hereof.
HomeOwners Mortgage & Equity, Inc.,
a Delaware corporation, d/b/a Home, Inc.
Date:____________, 199___ By:___________________________________________
Tommy M. Parker,
Executive Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of
________________, 199___, by Tommy M. Parker, Executive Vice President, of
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME, INC., on
behalf of said corporation.
_______________________________________
Notary Public - State of Texas
My Commission expires: _______________________________________
_____________________ Printed Name of Notary
-2-
<PAGE>
SCHEDULE I
SERVICING AGREEMENTS
-3-
<PAGE>
Compliance Schedule
-------------------
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
---------------
1) Limitation on Indebtedness
of Borrower [7.1]: [YES] or [NO] *
2) No Merger [7.2]: [YES] or [NO] *
3) Fiscal Year [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Liquidations, etc. [7.5]: [YES] or [NO] *
6) Loans [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) Net Worth [7.9]: Not less than
$3 million plus
80% Net Income
plus 100% Contributions _______
10) Tangible Net Worth [7.10]: [YES] or [NO] *
11) Adjusted Tangible Net Worth [7.11]: Not less than
$3 million plus
80% Net Income
plus 100% Contributions _______
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 3.5 to 1.0 _______
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _______
14) Management [7.14]: [YES] or [NO] *
15) Interested Transactions [7.15]: [YES] or [NO] *
16) Transfer of Stock [7.16]: [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Sale or pledge of servicing [YES] or [NO] *
contracts [7.18]:
-4-
<PAGE>
19) Loss of Eligiblity [7.19]: [YES] or [NO] *
20) Negative Covenants/ [YES] or [NO] *
Collateral [7.20]:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By: ____________________________________________
Tommy M. Parker,
Executive Vice President
______________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE &
EQUITY, INC., a Delaware corporation, d/b/a HOME, INC., on behalf of said
corporation.
_____________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
-5-
<PAGE>
EXHIBIT D
---------
1. Description of all FNMA Eligible Servicing Contracts
a) Unpaid Principal Balance
b) Pools and related gains on sale
2. Borrowing Base Calculations
A UPB of FNMA Servicing Rights $
-----------------
B Appraised Value as of __________. $
-----------------
C 50% of Appraised Value (.50 x B) $
-----------------
D Book Value as of ______________. $
-----------------
E Lesser of C or D $
-----------------
F Current Loan Balance $
-----------------
G Requested Advance $
-----------------
H New Loan Balance $
-----------------
I Excess/(Deficit) after Advance (E-H) $
-----------------
<PAGE>
EXHIBIT "E"
-----------
Listing of Servicing Contracts
------------------------------
1. Mortgage Selling and Servicing Contract with Federal National Mortgage
Association dated March 1, 1996.
2. Lehman FHA Title I Loan Trust 1995-6.
3. Lehman FHA Title I Loan Trust 1996-2.
4. Lehman FHA Title I Loan Trust 1996-3.
<PAGE>
EXHIBIT "F"
-----------
COMPLIANCE CERTIFICATE
----------------------
Reference is made to that certain Working Capital Line of Credit and
Security Agreement [Servicing Secured] dated as of November 8, 1996 (the "Loan
----
Agreement"), between HomeOwners Mortgage & Equity, Inc., a Delaware corporation,
- ---------
d/b/a Home, Inc. ("Borrower") and Guaranty Federal Bank, F.S.B. Terms which are
--------
defined in the Loan Agreement and which are used but not defined herein shall
have the meanings given them in the Loan Agreement. The undersigned,
_____________________ does hereby certify that he/she has made a thorough
inquiry into all matters certified herein and, based upon such inquiry,
experience, and the advice of counsel, does hereby further certify that:
1. He/she is the duly elected, qualified, and acting officer of Borrower.
2. All representations and warranties made by any Related Person in any
Loan Document delivered on or before the date hereof are true on and as of the
date hereof (except to the extent that the facts upon which such representations
are based have been changed by the transactions contemplated in the Loan
Agreement) as if such representations and warranties had been made as of the
date hereof.
3. No Event of Default exists on the date hereof and no event has occurred
and is continuing which with notice and/or opportunity to cure would become an
Event of Default.
4. Each Related Person has performed and complied with all agreements and
conditions required in the Loan Documents to be performed or complied with by it
on or prior to the date hereof.
5. Attached hereto is the Compliance Schedule showing Borrower's
-------------------
compliance as of the date hereof with the requirements of Article VII of the
-----------
Loan Agreement and Borrower's non-compliance as of the date hereof with the
requirements of Section(s) of the Loan Agreement.
---------------------------
6. No Net Collateral Deficit exists.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
__________________, 1996.
_________________________________________
Tommy M. Parker, Executive Vice President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of
___________________, 1996, by Tommy M. Parker, in his capacity as Executive Vice
President of HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a
HOME, INC., on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
Printed Name of Notary
_____________________
<PAGE>
Compliance Schedule
-------------------
<TABLE>
<CAPTION>
Financial Covenants Required Actual or
- ------------------- -------- ---------
[IN COMPLIANCE]*
---------------
<S> <C> <C>
1) Limitation on Indebtedness
of Borrower [7.1]: [YES] or [NO] *
2) No Merger [7.2]: [YES] or [NO] *
3) Fiscal Year [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Liquidations, etc. [7.5]: [YES] or [NO] *
6) Loans [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) Net Worth [7.9]: Not less than
$3 million plus
80% Net Income
plus 100% Contributions _______
10) Tangible Net Worth [7.10]: [YES] or [NO]*
11) Adjusted Tangible Net Worth [7.11]: Not less than
$3 million plus
80% Net Income
plus 100% Contributions _______
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 3.5 to 1.0 _______
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _______
14) Management [7.14]: [YES] or [NO] *
15) Interested Transactions [7.15]: [YES] or [NO] *
16) Transfer of Stock [7.16]: [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Sale or pledge of servicing
contracts [7.18]: [YES] or [NO] *
</TABLE>
<PAGE>
<TABLE>
<S> <C>
19) Loss of Eligiblity [7.19]: [YES] or [NO] *
20) Negative Covenants/
Collateral [7.20]: [YES] or [NO] *
</TABLE>
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By: ___________________________________________
Tommy M. Parker,
Executive Vice President
______________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE &
EQUITY, INC., a Delaware corporation, d/b/a HOME, INC., on behalf of said
corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
Printed Name of Notary
_____________________
<PAGE>
EXHIBIT "G"
-----------
Subsidiaries
------------
HomeOwners Mortgage & Equity, Inc., has no subsidiaries.
<PAGE>
EXHIBIT "H"
-----------
(FORM OF LEGAL OPINION BY COUNSEL TO COMPANY)
on Attorney's Letterhead
[Date]
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
10th Floor
Dallas, Texas 75225
RE: Working Capital Line of Credit and Security Agreement [Servicing Secured]
dated November 8, 1996 (the "Agreement") by and between Guaranty Federal Bank,
---------
F.S.B. (the "Bank") and ___________________ (the "Company").
---- -------
Ladies and Gentlemen:
We have acted as counsel to the Company in connection with the preparation,
execution and delivery of the above referenced Agreement. This Opinion Letter is
provided to you at the request of the Company pursuant to Section 4.1(a)(4) of
-----------------
the Agreement. Except as otherwise provided herein, capitalized terms used in
the Opinion Letter are defined as set forth in the Agreement or the Accord (see
below).
This Opinion Letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
------
(1991). As a consequence, it is subject to a number of qualifications
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law covered by the opinions expressed herein
is limited to the Federal Law of the United States and the Law of the State of
Florida.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Agreement is enforceable against the Company.
2. Execution and delivery by the Company of, and performance of its
agreements in, the Agreement do not (i) violate the Constituent
Documents, or (ii) breach, or result in a default under, any existing
obligation of the Company under an Other Agreement, or (iii) breach or
otherwise violate any existing obligation of the Company under a Court
Order.
3. Execution and delivery by the Company of, and performance by the
Company of its agreements in, the Agreement do not violate applicable
provisions of statutory law or regulation.
4. The filing of an executed UCC Financing Statement in Texas, will give
the Bank a perfected first lien security interest in the Collateral.
5. The transactions contemplated by the Agreement do not require the
payment of any intangible taxes or documentary stamp taxes by Company
or Bank in the State of Texas.
The General Qualifications apply to the No Violation of Law Opinion set forth in
paragraph (3) above as well as to the Remedies Opinion set forth in paragraph
one (1) above.
<PAGE>
We hereby confirm to you, pursuant to the request set forth in Section 5.5 of
-----------
the Agreement, that there are no actions or proceedings against the Company
pending or overtly threatened in writing, before any court, governmental agency
or arbitrator which (i) seek to affect the enforceability of the Agreement, or
(ii) come within the objective standards established in the Agreement for
disclosure of such matters.
A copy of this Opinion Letter may be delivered by you to syndicate participants,
potential and actual, in connection with any sale, or potential sale, of
participation interests in the warehousing line of credit established by the
Agreement. Additionally, a copy of this Opinion Letter may be delivered by you
to any state or federal regulatory entity in connection with your continued
compliance of state and federal regulations or any such regulatory examination.
Such syndicate participants and regulatory entities may rely on this Opinion
Letter as if it were addressed and had been delivered to them on the date
hereof. Subject to the foregoing, this Opinion Letter may be relied upon by you
only in connection with the Transaction any may not be used or relied upon by
you or any other person for any purpose whatsoever, except to the extent
authorized in the Accord, without in each instance our prior written consent.
Very truly yours,
________________________
<PAGE>
EXHIBIT "I"
-----------
CERTIFICATE ACCOMPANYING
------------------------
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Working Capital Line of Credit and
Security Agreement dated as of _____________________, 1996 (as from time to time
amended, the "Agreement"), by and between HOMEOWNERS MORTGAGE & EQUITY, INC., a
---------
Delaware corporation, d/b/a HOME, INC. ("Borrower"), GUARANTY FEDERAL BANK,
--------
F.S.B. ("Bank"), which Agreement is in full force and effect on the date hereof.
----
Terms which are defined in the Agreement are used herein with the meanings given
them in the Agreement.
This Certificate is furnished pursuant to Sections 4.1(a)(7) or (8) or 6.2
--------------------------------
of the Agreement. Together herewith Borrower is furnishing to Bank Borrower's
audited annual financial statements or monthly financial statement (the
"Financial Statements") dated ______________ (the "Reporting Date"). Borrower
- --------------------- --------------
hereby represents, warrants, and acknowledges to Bank that:
(a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting __________________________________
of Borrower and as such is Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c) attached hereto is the Compliance Schedule showing Borrower's
-------------------
compliance as of the Reporting Date with the requirements of
Article VII of the Agreement and Borrower's non-compliance as of
-----------
such date with the requirements of Section(s) __________________
of the Agreement;
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements
of Section 6.6 of the Agreement, and no Default otherwise existed
-----------
on the Reporting Date or otherwise exists on the date of this
instrument [except for Default(s) under Section(s)
____________________ of the Agreement, which are more fully
described on a schedule attached hereto].
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ___________________,
19______.
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By:_______________________________________________
Tommy M. Parker,
Executive Vice President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by John Ballard, President of HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation, d/b/a HOME, INC., on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
Compliance Schedule
-------------------
<TABLE>
<CAPTION>
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1) Limitation on Indebtedness
of Borrower [7.1]: [YES] or [NO] *
2) No Merger [7.2]: [YES] or [NO] *
3) Fiscal Year [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Liquidations, etc. [7.5]: [YES] or [NO] *
6) Loans [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) Net Worth [7.9]: Not less than
$3 million plus
80% Net Income
plus 100% Contributions _______
10) Tangible Net Worth [7.10]: [YES] or [NO] *
11) Adjusted Tangible Net Worth [7.11]: Not less than
$3 million plus
80% Net Income
plus 100% Contributions _______
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 3.5 to 1.0 _______
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _______
14) Management [7.14]: [YES] or [NO] *
15) Interested Transactions [7.15]: [YES] or [NO] *
16) Transfer of Stock [7.16]: [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Sale or pledge of servicing
contracts [7.18]: [YES] or [NO] *
</TABLE>
<PAGE>
<TABLE>
<S> <C>
19) Loss of Eligiblity [7.19]: [YES] or [NO] *
20) Negative Covenants/ [YES] or [NO] *
Collateral [7.20]:
</TABLE>
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By: ____________________________________________
Tommy M. Parker,
Executive Vice President
______________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by John Ballard, President of HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation, d/b/a HOME, INC., on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
EXHIBIT "J"
-----------
PURCHASER'S ACKNOWLEDGMENT AGREEMENT
HomeOwners Mortgage & Equity, Inc., a Delaware corporation, d/b/a Home, Inc.
("Seller") has contracted to sell servicing rights to service certain
- --------
residential mortgages to _________________________________ ("Purchaser")
---------
pursuant to that certain Purchase and Sale Agreement, dated
_____________________________ (the "Sales Contract"). Seller has pledged its
--------------
right to receive any and all payments from Purchaser in connection with such
sale to Guaranty Federal Bank, F.S.B. ("GFB"). Seller hereby directs Purchaser
---
to make and Purchaser hereby agrees to make all payments owed under or in
connection with the Sales Contract to GFB by wire transfer under the terms of
the Sales Contract and send all such payments to GFB as follows:
by wire transfer, to:
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: Karen Cosby
Account No.: 3940000973
ABA No.: 314-970-664
Upon payment in full of the Redemption Amount ___________________ GFB shall
execute appropriate documents providing for the release of GFB's liens and
security interests in and to such servicing rights, such releases in form and
content acceptable to GFB in its sole discretion.
This letter shall remain in full force and effect and may not be rescinded.
HomeOwners Mortgage & Equity, Inc.,
a Delaware corporation, d/b/a Home, Inc.
By: ____________________________________
Tommy M. Parker,
Executive Vice President
Agreed And Accepted As Of the ____
Day of ________________, 199__:
Firm:______________________________
By: ______________________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT "K"
-----------
Indebtedness
------------
SEPTEMBER 30, 1996
Following is a list of Indebtedness, as of September 30, 1996:
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Revolving notes payable to financial
institutions $ 4,064,180
Accrued expenses and other liabilities 2,393,497
Capital lease obligations 14,352
--------------
$ 6,472,029
==============
</TABLE>
<PAGE>
EXHIBIT "L"
-----------
Subservicing Contracts
----------------------
Attached hereto is a copy of the Home Improvement Loan Program Sub-Servicing
Agreement dated May 31, 1995, between the Borrower and Compu-Link Service, Inc.
<PAGE>
EXHIBIT 10.19
UNCONDITIONAL GUARANTY
----------------------
WHEREAS, HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a
HOME, INC. (hereinafter called the "Borrower"), desire to borrow from GUARANTY
--------
FEDERAL BANK, F.S.B. the "Bank"), the principal sum of THREE MILLION AND NO/100
----
DOLLARS ($3,000,000.00) (collectively, the "Loan"); and
----
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that Working Capital Line of Credit and Security Agreement
[Servicing Secured] dated of even date herewith, between the Borrower and the
Bank together with all amendments thereof (hereinafter called the "Loan
----
Agreement") and all promissory notes executed by Borrower in connection
- ---------
therewith; and
WHEREAS, the undersigned desires the Bank to enter into the Loan Agreement
and to make the aforesaid Loan, and the Bank requires, as a condition thereof,
that a guaranty in the form hereof be executed and delivered by the undersigned;
NOW, THEREFORE, in consideration of the premises and to induce the Bank to
enter into the Loan Agreement and to make the Loan contemplated thereby and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, HOMECAPITAL INVESTMENT CORPORATION, a
Nevada corporation (hereinafter called the "Guarantor"), hereby unconditionally
---------
guarantees to the Bank and to every subsequent holder or holders of any
promissory note or notes evidencing the Loan (said promissory note or notes
together with any note or notes renewing the same or any part thereof being
hereinafter collectively called the "Note") that (i) the principal of and
----
interest on, and attorneys' fees provided in, the Note will be promptly paid
when due in accordance with the provisions thereof or, in the case of extension
of time of payment in whole or in part of the Note, all sums will be promptly
paid when due in accordance with the terms of the extension; (ii) all covenants
and agreements of the Borrower contained in the Note, the Loan Agreement and/or
any other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, will be duly and
promptly observed and performed; and (iii) all additional amounts owing or which
hereafter become owing by the Borrower under the terms of the Note, the Loan
Agreement and/or any other instrument evidencing, securing or governing the
disbursement of the Loan, whether presently existing or hereinafter entered
into, will be promptly paid when due. This Guaranty directly and substantially
benefits Guarantor.
The obligations of the Guarantor shall be performable without demand of the
Bank and shall be unconditional irrespective of the genuineness, validity,
regularity or enforceability of the Loan Agreement or the Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or a guarantor; and the Guarantor hereby waives diligence, presentment,
demand of payment, protest, all notices (whether of nonpayment, acceleration,
dishonor, protest or otherwise) with respect to the Note, notice of acceptance
of this Guaranty and of the incurring by the Borrower of any of the obligations
hereinbefore mentioned, all demands whatsoever, and all rights to require the
Bank, to (a) proceed against the Borrower, (b) proceed against or exhaust any
collateral held by the Bank to secure the payment of the indebtedness guaranteed
hereby, or (c) pursue any other remedy the Bank may now or hereafter have
against the Borrower.
The Guarantor hereby agrees that, at any time or from time to time, without
notice to the Guarantor:
(1) The time for payment of the principal of or interest on the Note
evidencing the Loan may be extended or the Note may be renewed in whole or
in part;
<PAGE>
(2) The time for the Borrower's performance of or compliance with any
covenant or agreement contained in the Loan Agreement, the Note and/or any
other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, may be
extended or such performance or compliance may be waived;
(3) The maturity of the Note may be accelerated as provided therein
or in the Loan Agreement and/or any other instrument evidencing, securing
or governing the disbursement of the Loan, whether presently existing or
hereinafter entered into;
(4) The Loan Agreement, the Note and/or any other instrument
evidencing, securing or governing the disbursement of the Loan, whether
presently existing or hereinafter entered into, may be modified or amended
by the Bank and the Borrower in any respect, including, but not limited to,
an increase in the principal amount; and
(5) Any security for the Loan may be modified, exchanged, surrendered
or otherwise dealt with and/or additional security may be pledged or
mortgaged for the Loan;
all without affecting the liability of the Guarantor.
The Guarantor hereby acknowledges that the withdrawal from, or termination
of, any ownership interest in Borrower shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
If this Guaranty shall be placed in the hands of an attorney for collection
or should it be collected by legal proceedings or through any probate or
bankruptcy court, the Guarantor agrees to pay to the Bank's reasonable
attorneys' or collection fees.
The Bank may assign its rights hereunder in whole or in part; and upon any
such assignment, all the terms and provisions of this Guaranty shall inure to
the benefit of such assignee to the extent so assigned. The terms used to
designate any of the parties herein shall be deemed to include the heirs, legal
representatives, successors and assigns of such parties; and the term "Bank"
shall include, in addition to the Bank, any lawful owner, holder or pledgee of
any indebtedness guaranteed hereby.
The Bank is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly, if any provision or provisions of
this instrument should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
The Guarantor acknowledges that the Loan represents money which will be
advanced to the Borrower in a series of advances to be made from time to time
pursuant to the Loan Agreement. To induce the Bank to make the advances
thereunder, the Guarantor hereby agrees that in the event of the termination,
liquidation or dissolution of the Borrower, this Guaranty shall continue in full
force and effect.
The Guarantor hereby represents and warrants to the Bank that the financial
statements and information regarding the Guarantor heretofore delivered to the
Bank are true and correct in all material respects, having been applied on a
consistent basis throughout the period covered thereby, and fairly present the
financial position of the Guarantor as of the dates thereof, and that no
material adverse change has occurred in the financial condition of the Guarantor
reflected therein since the date thereof.
The Guarantor hereby represents and warrants to the Bank that:
(a) Neither the execution and delivery of this Guaranty, 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,
statute or regulation to
-2-
<PAGE>
which Guarantor is subject or any judgment, license, order or permit applicable
to Guarantor, or any indenture, mortgage, deed of trust or other agreement or
instrument to which Guarantor is a party or by which Guarantor may be bound, or
to which Guarantor may be subject.
(b) Guarantor is not in default (and no event exists which with notice or
the passage of time could become a default) under any loan agreement, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound including but not limited to
the Loan Documents.
(c) There are no actions, suits or legal, equitable, arbitration or
administrative proceedings pending, or to the knowledge of Guarantor, threatened
against Guarantor.
(d) All tax returns required to be filed by the Guarantor in any
jurisdiction have been filed or extended and all taxes, assessments, fees and
other governmental charges upon Guarantor or upon any of its 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 and
with respect to which reserves in conformity with GAAP have been established on
the books of Guarantor. The Guarantor has no knowledge of any proposed tax
assessment against Guarantor.
(e) Guarantor shall permit any authorized officer, employee or agent of
the Bank, to visit and inspect any of the business properties of the Guarantor,
examine Guarantor's books of record and accounts, take copies and extracts
therefrom, and inspect and discuss the procedures, finances and accounts of
Guarantor with Guarantor's accountants and auditors, all at such reasonable
times and as often as Bank may desire. Guarantor shall furnish such reports as
Bank may reasonably request.
Notwithstanding any provision in this Guaranty to the contrary, Guarantor
hereby waives and releases (i) any and all rights of subrogation, reimbursement,
indemnification or contribution which it may have, against others liable on all
or any part of the Loan, (ii) any and all rights to be subrogated the rights of
the Bank in any collateral or security for all or any part of the Loan, and
(iii) any and all other rights and claims of such Guarantor against Borrower or
any third party as a result of such Guarantor's payment of all or any part of
the Loan.
Capitalized terms not defined herein are used as defined in the Loan
Agreement.
The obligations of the Guarantor and any other guarantor of the Note
evidencing the Loan shall be joint and several. The Guarantor agrees that the
Bank, in its sole discretion, may (i) bring suit against the Guarantor and any
other guarantor of the Note evidencing the Loan jointly and severally or against
any one or more of them, (ii) compound or settle with any one or more of the
guarantors of the Note evidencing the Loan for such consideration as the Bank
may deem proper, (iii) release one or more of the guarantors of the Note
evidencing the Loan from liability thereunder, and (iv) otherwise deal with the
Guarantor and any other guarantors of the Note, or any one or more of them, in
any manner whatsoever; and that no such action shall impair the rights of the
Bank to collect the indebtedness hereby guaranteed from the Guarantor. Nothing
contained in this paragraph shall in any way affect or impair the rights or
obligations of the Guarantor with respect to any other guarantor of the Note
evidencing the Loan.
Any indebtedness of the Borrower to the Guarantor now or hereafter existing
(including, but not limited to, any rights to subrogation the Guarantor may have
as a result of any payment by the Guarantor under this Guaranty), together with
any interest thereon, shall be, and such indebtedness is hereby subordinated
until payment in full of the indebtedness of the Borrower to the Bank under the
Loan Documents and all other obligations hereunder. Until payment in full with
interest of the indebtedness of the Borrower to the Bank (and including interest
accruing on the Note after any petition under the Bankruptcy Reform Act of 1978,
as amended (the "Bankruptcy Code"), which post-petition interest the parties
agree shall remain a claim that is prior and superior to any claim of the
Guarantor notwithstanding any contrary practice, custom or ruling in proceedings
under the Bankruptcy Code generally), the Guarantor agrees not to accept any
payment or satisfaction of any kind of any
-3-
<PAGE>
indebtedness of the Borrower to the Guarantor, except with respect to the
payment of any dividends declared by the Borrower, the payment of which will not
cause the Borrower to breach any covenant under the Loan Agreement, and except
with respect to any other payment for which the Bank grants its prior written
consent. Further, the Guarantor agrees that until such payment in full: (i) no
Guarantor shall accept payment from any other guarantor by way of contribution
on account of any payment made hereunder by such party to the Bank; (ii) no one
of them will take any action to exercise or enforce any rights to such
contribution; and (iii) if any individual or entity comprising the Guarantor
should receive any payment, satisfaction or security for any indebtedness of the
Borrower to any individual or entity comprising the Guarantor or for any
contribution by any other individual or entity comprising the Guarantor for
payment made hereunder by the recipient to the Bank at any time the Borrower is
in default under the Loan Documents, the same shall be delivered to the Bank in
the form received, endorsed or assigned as may be appropriate for application on
account of, or as security for the indebtedness of the Borrower to the Bank.
This provision shall not restrict or impair Guarantor's right to receive
dividends declared by the Borrower, which comply with the covenants under the
Loan Agreement. Any lien or charge on the Collateral (as defined in the Loan
Agreement), all rights therein and thereto, and on the profits, losses, income
and distributions to be realized therefrom, which the Guarantor may have or
obtain as security for any loans or advances to Borrower shall be, and such Lien
or charge hereby is, waived. Guarantor waives any rights Guarantor has under,
or any requirements imposed by Chapter 34 of the Texas Business & Commerce Code,
as in effect on the date of this Guaranty or as it may be amended from time to
time. Guarantor waives any rights of subrogation it may have against the
Borrower.
In the event the Borrower is a corporation, joint stock association or
partnership, or is hereafter incorporated, if the indebtedness at any time
hereafter exceeds the amount permitted by law, or the Borrower is not liable
because the act of creating the obligation is ultra vires, or the officers or
persons creating same acted in excess of their authority, and for these reasons
the indebtedness to the Bank which the Guarantor agrees to pay cannot be
enforced against the corporation, joint stock association or partnership, such
fact shall in no manner affect the Guarantor's liability hereunder; but the
Guarantor shall be liable hereunder, notwithstanding any finding that said
corporation, joint stock association or partnership is not liable for such
indebtedness, and to same extend as the Guarantor would have been if the
indebtedness of the Borrower had been enforceable against the Borrower.
THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING HEREUNDER
SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA.
THIS GUARANTY SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY,
TEXAS. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL
DISPUTES BETWEEN GUARANTOR AND BANK, WHETHER IN LAW OR EQUITY, INCLUDING, BUT
NOT LIMITED TO, ANY AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT; AND VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR
STATE COURT SHALL BE LAID IN DALLAS COUNTY, TEXAS. GUARANTOR HEREBY CONSENTS TO
PERSONAL JURISDICTION IN DALLAS COUNTY, TEXAS AND WAIVES ANY RIGHTS HE OR SHE
MAY HAVE TO BE SUED ELSEWHERE.
THIS GUARANTY AND THE LOAN DOCUMENTS 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.
-4-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 8th day of
November, 1996.
Address of Guarantor:
- --------------------
6836 Austin Center Blvd. HOMECAPITAL INVESTMENT CORPORATION,
Suite 280 a Nevada corporation
Austin, Texas 78731
By: /s/ Tommy M. Paker
----------------------------------------
Name: Tommy M. Parker
-----------------------------------
Title: Treasurer
----------------------------------
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 8 day of November, 1996,
---
by Tommy M. Parker Treasurer of HOMECAPITAL INVESTMENT CORPORATION, a Nevada
---------------, ---------
corporation, on behalf of said corporation.
/s/ Glenda Houchin
-------------------------------------
Notary Public - State of Texas
My Commission expires: Glenda Houchin
1-20-98 -------------------------------------
- ---------------------- Printed Name of Notary
(Notary Public Seal Appears Here)
-5-
<PAGE>
EXHIBIT 10.21
HOMECAPITAL INVESTMENT CORPORATION
SUBSCRIPTION AGREEMENT
FOR SHARES OF PREFERRED STOCK
This Subscription Agreement ("Agreement") is made by and between HomeCapital
Investment Corporation, a Nevada corporation ("Company"), and the undersigned
purchaser ("Purchaser") of shares of the $.01 par value Preferred Stock Series
A, of the Company ("Preferred Stock").
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
1. SUBSCRIPTION. The Purchaser hereby offers and agrees to purchase ______
shares of Preferred Stock of the Company ("Shares") in accordance with the terms
and conditions set forth in the Private Placement Memorandum, dated May 3, 1996
("Private Placement Memorandum"), provided by the Company to Purchaser and
accompanying this Agreement ("Subscription"). Purchaser hereby tenders to the
Company (i) two (2) executed counterparts of this Agreement, (ii) a bank check
payable to the order of the Company in the amount of $_____________________
representing the purchase price for the Shares ("Subscription Funds") at $1.50
per Share for all Shares hereby subscribed for and (iii) two (2) executed
counterparts of the Registration Agreement accompanying the Private Placement
Memorandum (collectively, the "Subscription Documents").
2. ACCEPTANCE OF SUBSCRIPTION. Investor understands and agrees that this
Subscription is made subject to the following terms and conditions:
(a) The Company shall have the right to reject this Subscription, in whole
or in part in its sole discretion, with or without reason;
(b) This Agreement shall be deemed to be accepted by the Company only when
it is signed by the Company;
(c) The Company shall have no obligation to accept subscriptions for shares
of Preferred Stock in the order received; and
(d) The offering of shares of Preferred Stock pursuant to the Private
Placement Memorandum ("Offering") may be terminated or extended by the Company
as described in the Private Placement Memorandum.
The Initial Subscription Funds tendered herewith shall be held by the
Company for the benefit of Purchaser together with subscription funds tendered
by other persons who submit Subscription Agreements for shares of Preferred
Stock, in an interest-bearing account of the Company at Frost National Bank,
Austin, Texas, or such other bank as the Company shall designate. The Company
shall promptly return to Purchaser in full the amount of the Subscription Funds
without deduction, together with any interest or earnings thereon, if this
<PAGE>
Subscription is rejected or if the Company does not accept the Subscription of
Purchaser prior to expiration of the Offering, whereupon this Agreement and the
Registration Agreement executed by Purchaser shall be rendered null and void and
of no further force and effect.
3. REPRESENTATIONS. The Purchaser represents and warrants to the Company as
follows:
(a) Purchaser is a bona fide resident of the state set forth opposite the
name of Purchaser on the signature page hereof and that: (i) if a corporation,
partnership, trust or other form of business organization, it has its principal
office within such state; (ii) if an individual, the principal residence of
Purchaser is in such state; and (iii) if a corporation, partnership, trust or
other form of business organization which was organized for the specific purpose
of acquiring the Shares in the Company, all of its beneficial owners are
residents of such state;
(b) Purchaser has full power and authority to act with respect to the
investment in Shares in the Company, including the full power and authority,
without more, to act in any manner with respect to any community property
interest of a spouse;
(c) Purchaser has received the Private Placement Memorandum and Reports
defined and described therein, has carefully read such Private Placement
Memorandum its appendices and such other Reports (collectively, "Disclosure
Documents"), and has relied only on the information contained therein;
(d) Purchaser understands that Purchaser is purchasing the Company's
Shares without being furnished any offering materials other than the Disclosure
Documents and that the offer and purchase of Shares and the Private Placement
Memorandum have not been reviewed or approved by the Securities & Exchange
Commission ("SEC") or securities regulatory authority of any other jurisdiction;
(e) Purchaser understands that the Shares and shares of common stock of
the Company into which the Shares are convertible ("conversion common stock")
have not been registered under the Securities Act of 1933, as amended
("Securities Act"), nor any state securities law ("State Law"), and Purchaser
has no right to require registration thereof under the Securities Act or any
State Law, except pursuant to the Registration Agreement;
(f) Purchaser understands that the Shares and conversion common stock are
being purchased for the account of Purchaser for investment, not for the
interest of any other person, and not with the intention of or for distribution
or resale to others;
(g) Purchaser has, alone or together with a Purchaser Representative
(identified in the Offeree Suitability Questionnaire heretofore submitted to the
Company), if any, such knowledge and experience in financial and business
matters that Purchaser is capable of evaluating the merits and risks of the
investment in the Shares.
2
<PAGE>
(h) Purchaser is able to bear the economic risk of the investment;
(i) (i) Purchaser is an "accredited investor" as defined in Regulation
D, Rule 501(a) (17 C.F.R.230.501(a)) and as summarized in the Private Placement
Memorandum; or
(ii) Purchaser is, in relation to the total investments and net worth
of Purchaser, making only a reasonable, suitable commitment to the Company which
does not, in any event, exceed twenty percent (20%) of the net worth of
Purchaser; or
(iii) The investment of Purchaser in the Shares hereby subscribed for
does not exceed ten percent (10%) of the net worth of Purchaser;
(j) Purchaser is making the investment in the Shares without the
intention, expectation or desire for a resale or distribution with respect
thereto;
(k) Purchaser has no need for liquidity with respect to the investment in
the Shares;
(l) Purchaser recognizes that an investment in the Preferred Stock
involves special risks, including those set forth under the Section entitled
"Special Considerations" in the Private Placement Memorandum;
(m) Purchaser realizes that, since the Shares and conversion common stock
cannot be readily sold and the Shares have no public market, the Purchaser may
not be able to sell or dispose of the Shares or conversion common stock and,
therefore, that Purchaser must not purchase the Shares, unless Purchaser has
liquid assets sufficient to assure that such purchase will cause Purchaser no
undue financial difficulties;
(n) Purchaser understands that the right to transfer the Shares and
conversion common stock will be restricted as set forth in this Agreement, in
the Private Placement Memorandum and the Registration Agreement, including a
restriction against transfers, unless Purchaser submits to the Company an
opinion of an attorney stating that the proposed transfer is registered or
exempt from registration pursuant to the Securities Act and all relevant State
Laws;
(o) Purchaser has duly completed, executed and delivered to the Company an
Offeree Suitability Questionnaire in the form attached to the Private Placement
Memorandum, Purchaser understands that all information which Purchaser has
provided to the Company concerning Purchaser, the financial position, and the
knowledge of financial and business matters is correct and complete as of the
date set forth herein and, if there should be any material change in such
information prior to delivery of this Agreement by Purchaser, that Purchaser has
provided the Company with such information; and
3
<PAGE>
(p) The Purchaser Representative, if any, employed by Purchaser (i) is not
an officer, director, employee, affiliate or beneficial owner of ten percent
(10%) or more of any class of equity securities of the Company, (unless the
Purchaser is related to the Purchaser Representative by blood, marriage or
adoption), (ii) has disclosed to Purchaser all material relationship between the
Purchaser Representative and the Company, directly or through any affiliates
during the last two (2) years and as presently contemplated, and (iii) does not
represent the Company and is not compensated by the Company, directly or through
any affiliate.
4. BINDING EFFECT AND IRREVOCABILITY. It is understood that this Subscription
Agreement is not binding on the Company unless and until it is accepted by the
Company as evidenced by the counter-execution below. The Purchaser agrees that
this Subscription Agreement shall be irrevocable until termination or expiration
of the Offering as described in the Private Placement Memorandum.
5. INDEMNIFICATION. Purchaser acknowledges that Purchaser understands the
meaning and legal consequences of the representations and warranties in
paragraph 4 hereof, and Purchaser hereby agrees to indemnify and hold harmless
the Company and the officers, employees and agents of the Company from and
against any and all claims, expenses, including attorney's fees, loss, damage or
actions resulting from any misrepresentations or a breach of any warranty with
respect to the representations and warranties contained in paragraph 4 hereof.
In such event, Purchaser understands that the Company has a right to rescind the
sale to Purchaser of Shares in the Company.
6. SECURITIES LAW COMPLIANCE. Purchaser understands and agrees that the
following restrictions and limitations are applicable to the purchase and any
resales, pledges, hypothecations or other transfers of the Shares:
(a) Purchaser agrees that the Shares shall not be sold, pledged,
hypothecated or otherwise transferred except in accordance with the Registration
Agreement and unless the Shares are registered under the Act and applicable
State Laws or exempt therefrom.
(b) A legend has been or will be placed on any certificate(s) or other
document(s) evidencing the Shares in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR APPLICABLE STATE
SECURITIES LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SUCH SECURITIES,
(II) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER
OF THE SECURITIES REASONABLY
4
<PAGE>
SATISFACTORY TO THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION, OR (III) THIS CORPORATION OTHERWISE SATISFIES ITSELF
THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
(c) During the term of the Registration Agreement, the legend described in
subparagraph (b) will be placed on any new certificate(s) issued upon
presentment by the Purchaser of certificate(s) for transfer to the extent that a
transfer is permitted by the Company.
7. SURVIVAL. The foregoing representations and warranties and undertakings
are made with the intent that they may be relied upon in determining my
suitability to purchase the Shares, and Purchaser hereby agrees that such
representations and warranties shall survive the purchase of the Shares.
Purchaser hereby acknowledges and agrees that Purchaser is not entitled to
cancel, terminate or revoke this Agreement or any agreements hereunder, unless
the Offering has expired or terminated in accordance with the Private Placement
Memorandum, and that this Agreement shall survive the death, disability or
dissolution of Purchaser, provided, however, that if the Company shall reject
this Subscription, this Agreement and all agreements of the Purchaser hereunder
shall automatically be cancelled, terminated and revoked.
8. NOTICES. All notices or other communications given or made hereunder shall
be in writing and shall be delivered or mailed by Registered or Certified Mail,
return receipt requested, postage prepaid, to the Purchaser or to the Company,
as the case may be, at their respective addresses set forth below.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, excluding any conflict of laws
principles that would otherwise apply the law of any other jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, Purchaser has executed this Agreement as of the
___________ day of ________________________, 1996.
___________________________________ _____________________________________
Signature of Subscriber Signature of Subscriber's Spouse
(If Applicable)
___________________________________ ____________________________________
Name (Typed or Printed) Name (Typed or Printed) of
Subscriber's Spouse
___________________________________ ____________________________________
Social Security Number or Federal Social Security Number of Employer
Identification Number Subscriber's Spouse
___________________________________ ____________________________________
Business Address Street Address of Subscriber's
Spouse
___________________________________ ____________________________________
City, State and Zip Code City, State and ZIP Code
___________________________________
Residence Address
___________________________________
City, State and Zip Code
**IMPORTANT** PLEASE PRINT BELOW EXACTLY HOW YOU WANT YOUR NAME(S) LISTED
ON YOUR CERTIFICATE:
___________________________________
6
<PAGE>
ACCEPTED as the _____ day of _________, 1996 by:
HOMECAPITAL INVESTMENT CORPORATION
a Nevada corporation
Address:
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
By:______________________________
JOHN W. BALLARD, President
7
<PAGE>
EXHIBIT 10.22
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT ("Agreement") is entered into as of the 27th day of
--------- ----
November, 1996 by and among HomeOwners Mortgage and Equity, Inc., a Delaware
corporation ("Home"), and Builders Square, Inc., a Delaware corporation
----
("Builders Square").
- -----------------
RECITALS
--------
A. Home is a consumer finance company in the business of originating,
purchasing, selling and servicing permanent, fixed term, home improvement and
other secondary priority mortgage and unsecured loans for owners of residential
real property.
B. Builders Square is a multi-store retailer selling home improvement and
repair building materials, hardware and related merchandise to consumers and
commercial contractors and providing installed sales of home improvement and
repair projects on a turn-key basis to its customers.
C. Builders Square desires to grant a license to Home, and Home desires to
accept a license from Builders Square, to allow Home to enter certain Builders
Square stores for the limited purposes described in this Agreement and otherwise
in accordance with this Agreement.
In consideration of the premises and the mutual promises, covenants, and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following definitions:
"Builders Square customers": All customers of Builders Square which buy
---------------------------
Builders Square's goods or services directly from Builders Square in
connection with any of the Stores.
"Designated employees": Employees of Builders Square selected by Builders
----------------------
Square in its sole discretion.
"Home's Loan Products" or "Loan Products": All terms, conditions,
-----------------------------------------
features and other descriptions of fixed term home improvement loans
offered by Home to customers of Builders Square that own residential real
property and are qualifying loans in all respects with the FHA Title I
mortgage insurance program and/or Home's conventional underwriting,
closing and funding criteria, as the same is revised or modified from time
to time, inclusive of unsecured loans up
1
<PAGE>
to $7,500.00, secured "no equity required" loans of up to $25,000.00, and
secured loans of over $25,000.00 with equity requirements. Loan Products
include permanent, fixed term loans for the purpose of financing the
purchase of materials or installed sales projects on a turn-key basis.
"Kiosk": A kiosk with an automated loan machine which includes certain
-------
computer hardware and software developed and manufactured by Affinity
Technology Group, Inc. ("Affinity"), which originates, processes, closes
--------
and funds loans in an automated fashion.
"Loan Documents": Any and all loan documents relating to any of Home's
---------------
Loan Products or the MoneyLink financing program, including, without
limitation, any and all loan agreements, promissory notes, deeds of
trusts, mortgages, financing statements, disclosures, notices, and any and
all other agreements, disclosures, correspondence and/or notices related
thereto.
"MoneyLink" financing program: The array of Home's Loan Products and the
-----------------------------
method in which such loans are offered, originated, underwritten,
approved, closed, funded and serviced for customers of Home.
"Promotional Materials": Home's informational brochures, sales counter
-----------------------
brochures and displays, advertising copy, advertising banners, books,
audio tapes, and other similar materials which describe Home's Loan
Products and/or MoneyLink financing program.
2. LICENSE; TERM AND TERMINATION.
2.1 LICENSE. Upon the terms and subject to the conditions contained in this
Agreement, Builders Square hereby grants a license (the "License") to Home, and
-------
Home hereby accepts such a License, to enter the Builders Square stores
described on Exhibit "A" attached hereto and incorporated herein for all
-----------
purposes (collectively, the "Stores") to (i) place Kiosks in the Stores in order
------
to make available Home's Loan Products to customers of Builders Square and (ii)
otherwise allow Home to make available its Loan Products to customers of
Builders Square, in accordance with the provisions of this Agreement. The actual
location of each Kiosk within each Store shall be designated by Builders Square
in a reasonably visible and accessible space within each Store. During the Test
Period (defined in Section 2.2 hereof), and subject to availability from
-----------
Affinity, Home shall place one (1) Kiosk in each of the particular Test Stores
(defined in Section 2.2 hereof) which are designated as containing a Kiosk on
-----------
Exhibit "A". After the Test Period, Home shall place one (1) Kiosk in such
- -----------
Builders Square stores and at such times as will be in accordance with a
schedule to be agreed upon by Home and Builders Square prior to the end of the
Test Period, or as may be otherwise agreed upon by Home and Builders Square.
Notwithstanding any provision
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contained herein to the contrary, this Agreement shall not apply to any Builders
Square stores which are not in existence as of the date hereof.
All loans offered by Home under its Loan Products program shall be subject
to the requirements of Home's underwriting guidelines, credit standards, rates
of return and expense reimbursement standards, payment features, loan and credit
documentation requirements and other features and criteria as may be established
by Home from time to time for its Loan Products offered to customers of Builders
Square. In no event shall Builders Square have any authority, duty,
responsibility or obligation whatsoever to review any credit applicant's
information for determining their worthiness of meeting Home's loan requirements
or rendering any decision regarding the approval of a requested loan from Home.
All credit decisions shall be the sole decision and responsibility of Home.
Builders Square agrees that its designated employees shall, from time to time,
inform interested customers about available Loan Products offered by Home,
without remuneration of any kind from Home, by supplying the customers with
Promotional Materials furnished by Home and informing the customers of the
nature and benefits of Home's Loan Products.
2.2 TERM. The term of this Agreement shall commence on the date hereof and
continue through May 31, 1997 (the "Test Period"). Notwithstanding anything to
-----------
the contrary contained herein, during such Test Period, this Agreement shall
only apply to those Builders Square stores identified on Exhibit "A" as the
-----------
"Test Stores." Prior to the end of the Test Period, either party may terminate
- ------------
this Agreement based on either party's determination that the results achieved
during the Test Period are unsatisfactory, in that party's sole judgment and
discretion, by giving to the other party written notice of cancellation before
the end of the Test Period. In the event this Agreement is not terminated before
the end of the Test Period as described herein, this Agreement shall continue
and remain in force and effect (unless terminated as provided in this Section 2)
---------
with respect to all the Stores for an initial term of three (3) years following
the date of this Agreement. This Agreement shall thereafter be automatically
renewed for three (3) successive renewal terms of three (3) years each, unless
(i) either Home or Builders Square shall give to the other party at least ninety
(90) days prior written notice of its intent not to renew this Agreement prior
to the expiration of the initial three (3) year term or any three (3) year
renewal term, or (ii) otherwise terminated pursuant to any other provision of
this Section 2. For purposes of this Agreement, "term" means the Test Period,
---------
the initial term, and any renewal terms. Notwithstanding anything to the
contrary contained herein, should Builders Square, for any reason whatsoever,
close or cease operations at any Store, this Agreement shall ipso facto
---- -----
terminate with respect to that Store, and Builders Square shall, in such
instance, have no liability whatsoever to Home as a result of such closure or
cessation of operations.
2.3 TERMINATION. Notwithstanding the provisions of Section 2.2 hereof, this
-----------
Agreement may be terminated as follows:
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<PAGE>
(a) Termination by Mutual Consent. Home and Builders Square may
-----------------------------
terminate this Agreement at any time by mutual written consent.
(b) Termination Upon Default. Either party may terminate this Agreement
------------------------
upon default by the other party with (i) thirty (30) days prior written notice
to the other party of such party's default with respect to an obligation other
than a breach of any warranty or representation contained in Sections 11.1 or
-------------
11.2 of this Agreement or (ii) fifteen (15) days prior written notice to the
- ----
other party of such party's default with respect to a breach of any such
warranty or representation, unless such default is cured prior to the expiration
of the applicable notice period. Any notice of default shall contain a detailed
description of the alleged default and shall refer to the relevant provisions of
this Agreement.
(c) Termination by Notice. Either party may terminate this Agreement for
---------------------
any reason whatsoever in its sole and absolute discretion by giving the other
party notice of its election to terminate. The termination shall be effective
one (1) year from the date of the notice of termination (the "Notice Termination
------------------
Date"). The effect of a notice of termination is to change the expiration date
- ----
of the term of the Agreement to the Notice Termination Date; in all other
respects, this Agreement will remain in full force and effect until the Notice
Termination Date unless this Agreement is terminated earlier under subparagraphs
(a) or (b) of this Section.
(d) Damages Limited. In no event shall either party hereunder be liable
---------------
for any special, indirect, incidental, consequential or exemplary damages that
may be incurred or claimed to be incurred by the other party, and each party
hereby waives its rights to recover any such damages from the other party.
3. Operation of Kiosks.
3.1 GENERAL; OWNERSHIP; TAXES. Each Kiosk shall be no larger than six feet
(6') by eight feet (8') in dimension. The Kiosks shall not be physically affixed
to the Stores. Builders Square may move each Kiosk to a different location
within the same Store (which different location is mutually acceptable to
Builders Square and Home), at Builders Square's sole cost and expense, no more
than once in every calendar year, unless otherwise agreed by the parties. The
Kiosks, and all personal property located on, in or at the Kiosks, shall be
owned by Home, and Home shall pay any and all personal property taxes and any
other taxes that may be levied by any governmental authority or quasi-
governmental authority with jurisdiction in connection with the Kiosks, the
operation or use of the Kiosks (including, without limitation, the loan and
financing services to be offered by Home to Builders Square customers as
described in this Agreement), and/or the personal property contained on, in or
at the Kiosks.
3.2 MAINTENANCE; REPAIRS. Any and all repairs and maintenance in connection
with the Kiosks shall be the obligation of Home; Builders Square shall have no
obligation
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whatsoever to repair or maintain any of the Kiosks. Home shall keep and maintain
the Kiosks clean and in good working condition at all times during the term
hereof at Home's sole cost and expense.
3.3 ELECTRICITY AND TELEPHONE SERVICE. Builders Square shall make available
reasonable lighting and power for Home to operate and maintain the Kiosks and
agrees that Home may obtain telephone service for the Kiosks; provided that (i)
all telephone lines and service used by Home in connection with the Kiosks shall
be at Home's sole cost and expense, (ii) Builders Square shall not be
responsible for the costs of extending any utility lines or utilities, and (iii)
Builders Square shall not be responsible for, and shall not incur any liability
to Home or any other person or entity as a consequence of, any electrical
failure, power outage or telephone service failure which may affect the Kiosks
and/or their operation.
3.4 SIGNS; NOISE. Home shall not place or erect any directional,
informational or other signs or banners (collectively, the "Signs") in
-----
connection with the Kiosks at the Stores without the prior consent of Builders
Square (including, without limitation, with regard to the size, color,
dimensions, composition, and method of installation of the Signs). Any and all
signs shall be the sole cost and expense of Home. Home shall comply with all
Applicable Laws in connection with the Signs. All Signs shall be removed by Home
on the termination or expiration of this Agreement. In addition, no
loudspeakers, horns, flashing lights, music, public announcement system, or
other similar loud or disruptive noise or communication shall be used by Home in
connection with any of the Kiosks.
3.5 HOURS OF OPERATION; ACCESS. Home agrees to operate the Kiosks during the
same hours and days that the relevant Stores are open to the public. Home's
employees shall have access through the Stores to the Kiosks during the term
hereof for purposes of maintaining the Kiosks; provided, however, that (i) such
access through the Stores shall be restricted to normal business hours on days
when the Stores are otherwise open to the public, and (ii) the activities of
Home and its employees shall not interfere with the normal activities of
Builders Square or its employees or customers. Builders Square shall make
available reasonable work space surrounding the Kiosks for Home's employees to
perform the services described in this Agreement.
4. COVENANTS.
4.1 AFFIRMATIVE COVENANTS OF HOME. During the term of this Agreement, Home
agrees to and acknowledges the following affirmative covenants of Home, in
addition to any other covenants of Home in this Agreement:
(a) During the Test Period, Home shall offer its Loan Products to
customers of Builders Square as provided in this Agreement only in connection
with the Test Stores. After the Test Period, Home shall offer its Loan Products
to customers of
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<PAGE>
Builders Square as provided in this Agreement in connection with the Stores in
accordance with a schedule to be agreed upon by Home and Builders Square prior
to the end of the Test Period.
(b) Home will continuously provide each Store (subject to the
provisions of Section 4.1(a) hereof) with an ample supply of Promotional
-----------
Materials for use by Builders Square in Builders Square's sole discretion, all
of which Promotional Materials shall accurately and adequately describe Home's
Loan Products.
(c) Home will schedule and present training classes, seminars and
conferences at times and in locations as mutually agreed by Builders Square and
Home to adequately train the designated employees of Builders Square to use the
Loan Products of Home and to effectively inform their respective customers of
the benefits of Home's Loan Products. The training will be in accordance with
the procedures set forth in Part Two of the ringbinder captioned The MoneyLink
Book furnished to Builders Square as an appendix to this Agreement and as the
same may be amended and modified from time to time, provided such an amended or
modified version is furnished by Home to Builders Square and their designated
employees, and provided, further, that all modifications and amendments shall be
subject to the reasonable approval of Builders Square, to the extent such
modifications or amendments may affect the rights, obligations or duties or
Builders Square or its employees. Home's training and training materials shall
also be consistent with the terms of this Agreement, including Exhibit "B"
-----------
hereto. For the initial term of this Agreement, this training will be provided
by Walter Stoeppelwerth and HomeTech Information Systems, Inc. on behalf of Home
and will include such additional topics as are mutually agreeable between the
parties and Walter Stoeppelwerth and HomeTech Information Systems, Inc.
Notwithstanding anything to the contrary set forth in this Agreement or in the
training materials, it is expressly understood and agreed that Builders Square's
designated employees shall not be expected or have any obligation to perform any
tasks under or in connection with this Agreement other than the tasks set forth
in Exhibit "B" attached hereto and made a part hereof for all purposes, and Home
-----------
agrees to provide adequate training in the performance of such tasks at the
foregoing-described training classes, seminars and conferences.
(d) Home's Loan Products shall comply in all respects with the FHA Title
I Home Improvement Loan Program and such other conventional loan programs as it
deems necessary in its sole discretion to make credit available to customers of
Builders Square considered to be within Home's grades as "A" through "C" credit
quality loans, using Home's underwriting and credit scoring criteria and
systems.
(e) During the term hereof, Home agrees not to offer or make available
its Loan Products or MoneyLink financing program through any home-improvement
retail store operated by The Home Depot, Inc., Lowe's Co., Inc., Menard, Inc.,
or any affiliate or subsidiary of the foregoing, that is located within a twenty
(20) mile radius of any
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<PAGE>
Store. Notwithstanding the above, (i) the restriction described in the
immediately preceding sentence shall not apply in connection with any Builders
Square stores that do not exist as of the date of this Agreement, and (ii) Home
may offer its Loan Products in any of the aforementioned stores, but only (A)
with regard to unsecured loans, not secured loans, and (B) through the use of a
Kiosk or similar automated technology.
4.2 AFFIRMATIVE COVENANTS OF BUILDERS SQUARE. During the term of this
Agreement, Builders Square agrees to the following affirmative covenants:
(a) Builders Square will allow Home to offer its Loan Products and
MoneyLink financing program in all of the Stores, in accordance with the terms
of this Agreement.
(b) Builders Square will direct its designated employees to inform
Builders Square customers of the availability of, and benefits provided by,
Home's Loan Products and its MoneyLink financing program; provided, however,
that Builders Square's designated employees shall not be required or expected to
undertake any tasks with respect to Home's Loan Products or the MoneyLink
financing program other than those set forth in Exhibit "B" hereto.
-----------
(c) Builders Square will display Home's Signs (in accordance with
Section 3.4 hereof), point-of-sale marketing displays and Promotional Materials
- -----------
in its Stores, provided that the amount and general appearance of the marketing
displays and Promotional Materials are subject to Builders Square's prior
approval.
(d) Builders Square will direct its designated employees to participate
in training classes, sessions and conferences provided by Home and Home's
selected training representatives and vendors. Notwithstanding any provision to
the contrary contained herein, however, Builders Square shall not be required to
hire additional employees or pay any overtime to any employees in order to
afford such employees the opportunity to attend such classes, sessions and
conferences, or to otherwise satisfy Builders Square's obligations hereunder.
(e) The license granted herein to Home shall be non-exclusive, except
that Home's rights granted herein to offer Builders Square customers at the
Stores permanent, fixed-term loans for the purposes of financing the purchase of
materials or an installed sale project on a turn-key basis shall be exclusive to
the extent specified herein. During the term hereof, Builders Square shall not
permit itself or any other third party (except Home) to offer such permanent,
fixed-term Loan Products as described in the immediately preceding sentence at
the Stores. However, nothing contained herein shall be construed to prohibit
Builders Square from offering, either itself or through any other third parties,
any loan products that are of a revolving-term nature, such as credit card sales
or commercial revolving line of credit programs,
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<PAGE>
Square Plus, regular private label cards, business credits, or revolving third
party credit cards, at any of the Stores.
5. ADVERTISING.
5.1 Home agrees to provide joint marketing and/or advertising to promote its
Loan Products, Kiosks, and/or MoneyLink financing program at the Stores and
Builders Square's products and services in connection therewith. Home agrees
that such marketing and advertising will be conducted jointly with Builders
Square, in accordance with the provisions of this Article 5 and this Agreement.
---------
The content of the joint marketing and advertising and the expenditure of funds
related thereto shall be subject to the prior joint approval of Home and
Builders Square. Except as provided below, Home agrees that the amount of its
participation in advertising and promotion as described in this Section will, on
a quarterly basis, be equal to (but may in Home's sole discretion exceed) one
percent (1%) of the gross amount of all loans made by Home through Home's
MoneyLink financing program, through the Kiosks or otherwise, to customers of
Builders Square during the preceding quarter (the "Advertising Budget"). Home is
------------------
not required to contribute any funds toward advertising and marketing during the
Test Period; Home's contribution during the first (1st) quarter following the
Test Period will be equal to one percent (1%) of the gross funding of all loans
made by Home to Builders Square customers during the Test Period. Home's
contributions to marketing and advertising as described in this Section shall be
in addition to Home's costs and expenses for the preparation of Promotional
Materials to be used in the Stores (excluding advertising copy), which costs and
expenses are Home's sole responsibility and shall not be part of the Advertising
Budget.
5.2 Home agrees to provide Builders Square and its auditors with copies of
such financial information as Builders Square or its auditors may reasonably
request to establish the amount of the Advertising Budget and to verify the
required amount of Home's expenditures relating to the Advertising Budget. Home
shall also provide Builders Square with [monthly] [quarterly] written reports,
in form and substance acceptable to both parties, describing its marketing and
advertising during the reporting period, which reports shall include an
itemization of the amounts spent by Home (including copies of invoices) in
connection with such marketing and advertising and a copy of the actual
advertising copy or other marketing materials. Home will fund its participation
in the marketing and advertising described above by making payments directly to
third party vendors of such services. Notwithstanding anything contained herein
to the contrary, neither party hereto shall issue any publicity or press release
regarding the terms and conditions of its contractual relations with the other
party hereunder, and neither party shall refer to this Agreement in the
solicitation of business without obtaining the other party's prior written
approval.
5.3 Home shall not use the Kiosks, Promotional Materials or the MoneyLink
financing program to advertise, promote, refer or offer for sale the goods or
services of
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<PAGE>
any third parties without the prior written consent of Builders Square, and Home
agrees to pay to Builders Square fifty percent (50%) of any fees, commissions or
other payments Home receives in connection with any such approved third party
advertisements, promotions, referrals or offers.
6. SERVICE MARKS, TRADEMARKS AND TRADE NAMES. Neither party shall use any of
the service marks, trademarks or trade names (collectively, the "Marks") of the
-----
other party without such party's prior written consent and only under the terms
of any such consent; provided, however, that Builders Square may not
unreasonably withhold its consent to Home's use of Builders Square's name and
address in Home's Promotional Materials and advertising for the purpose of
informing potential customers of the Stores at which Home's Loan Products are
available. Each party will comply with all rules and procedures pertaining to
the Marks prescribed by the owner of such Marks as may be amended from time to
time (collectively, the "Rules"). Any unauthorized use of the Marks will
-----
constitute a default under this Agreement. Upon the termination or expiration
of this Agreement, each party will immediately discontinue any and all uses of
the other party's Marks.
7. EXPENSES. Home shall be solely responsible for all costs and expenses in
connection with the Kiosks except as provided in Section 3.3 hereof. Home shall
-----------
also be solely responsible for all costs and expenses in connection with the
Promotional Materials, including, without limitation, the creative design,
production and printing of the Promotional Materials (in accordance with Article
-------
5 hereof).
- -
8. HOME RESPONSIBILITIES.
8.1 LOAN PRODUCTS. Home will be solely responsible for creating, modifying
and maintaining Home's Loan Products to be offered to customers of Builders
Square for the purpose of enhancing the retail sales of Builders Square at the
Stores. Home shall be solely responsible for explaining and selling its Loan
Products to Builders Square customers (except only to the extent of the
participation of Builders Square's designated employees as described in Exhibit
-------
"B"), and processing, closing, funding, and servicing all loans thereunder;
- ---
Builders Square shall have no such responsibilities (except only to the extent
described in Exhibit "B"). Without limiting the foregoing, it is expressly
----------
understood and agreed that (i) all Promotional Materials shall state in a manner
approved by both Builders Square and Home that Home is the sole lender with
respect to Home's Loan Products, that Home is not affiliated with Builders
Square, and that Builders Square has no liability or responsibility with respect
to Home's Loan Products, and (ii) Home shall provide, either in all Loan
Documents or as a separate disclosure that shall constitute a Loan Document and
shall be provided at the same time as the other Loan Documents, a notice that
Home is the sole lender with respect to Home's Loan Products, that Home is not
affiliated with Builders Square, and that Builders Square has no liability or
responsibility with respect to Home's Loan Products.
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<PAGE>
8.2 LOAN PROCESSING, CLOSING AND FUNDING; HOME REPRESENTATIVES. Home shall
maintain sufficient facilities and staff to review adequately all loan
applications of Builders Square customers and process, close and fund all
approved applicants in an expedient and timely manner, subject to the receipt of
any requested documentation from and the cooperation of, customers of Builders
Square. All of the persons described in the foregoing sentence shall be Home
employees or representatives (collectively, the "Home Representatives"). Home
--------------------
shall be solely responsible for arranging, directly or through third-party
employers, for all compensation, workers' compensation, disability and taxes
applicable to the Home Representatives. Home Representatives shall not
represent that they are employees or agents of Builders Square. The Home
Representatives shall comply with all rules and regulations that are applicable
to Builders Square employees at the Stores whenever they are working at a Store.
In addition, Builders Square reserves the right to deny access to any Store to
any member of the Home Representatives who, in Builders Square's sole opinion,
is disruptive, disorderly, under the influence of alcohol or drugs, harasses
customers or Builders Square employees, or causes damages to persons or property
located within the Store.
8.3 LOAN REPORTING. Home will furnish Builders Square with hardware and
software in thirty-three (33) regional installed sales offices and the Builders
Square home offices, consisting of thirty-four (34) personal computers as
specified in Exhibit "C" attached hereto, together with software that allows the
-----------
personal computers to furnish Builders Square with the hereafter described
reports. The hardware and software will be made available on a timetable to be
agreed by the parties. Home will furnish Builders Square with three (3) reports
on a daily basis detailing (i) the number of applications received from the
previous day's activity, the loan decision by Home with respect to each
application, the borrower's name, and the originating Store location, (ii) the
number of loans funded for the previous day, the borrower's name, the loan
amount funded and the originating Store location, and (iii) the number of
approved and unfunded loans with closings pending (the "pipeline report"),
---------------
showing the borrower's name, loan amount, status of closing and the originating
Store location. Home shall retain ownership of the hardware and software and
shall allow Builders Square to use the same free of charge for the term of this
Agreement. Home will pay shipping costs involved in delivery of the hardware
and software to each Builders Square office, and shall be responsible for any
maintenance or replacement of the same throughout the term of this Agreement.
Builders Square shall be responsible for the costs of setting up the hardware
and installation of the software. Upon termination of this Agreement for any
reason, Builders Square shall return all hardware and software to Home at
Builders Square's sole cost and expense.
9. BUILDERS SQUARE RESPONSIBILITIES. Builders Square will have no
responsibilities under this Agreement except as otherwise specifically provided
herein. Notwithstanding any other provision herein to the contrary, it is
expressly understood and agreed that Builders Square is not the lender with
respect to Home's Loan Products. Furthermore, it is understood and agreed that
Builders Square shall not in
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<PAGE>
any way be responsible for closing, funding, servicing, collecting, qualifying
or making any loan that is a Home Loan Product, for underwriting or guarantying
any loan that is a Home Loan Product, or for investigating or verifying any
information provided by any applicant for any Home Loan Product, it being
understood and agreed that all such tasks are to be performed solely by Home.
10. RELATIONSHIP BETWEEN BUILDERS AND HOME. Home is an independent contractor
and licensee hereunder and nothing contained in this Agreement shall be deemed
or construed to create a partnership, joint venture or employee-employer or
principal-agent relationship between Home and Builders Square. Neither Home nor
Builders Square shall make any representations to any customer or any other
person or entity that implies that Builders Square is an ostensible or apparent
agent, partner or joint venturer of Home or that Home is an ostensible or
apparent agent, partner or joint venturer of Builders Square.
11. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
11.1 REPRESENTATIONS AND WARRANTIES OF HOME. Home represents and warrants to
Builders Square that:
(a) Home currently possesses and shall maintain during the term of this
Agreement, all necessary or required licenses, permits, consents or approvals
(collectively, the "Licenses") required under any applicable federal, state or
--------
local law, regulation, code or ordinance (collectively, "Applicable Laws"), by
---------------
the states and/or governmental or quasi-governmental agencies or political
subdivisions of such states as set forth in paragraph (a) of Exhibit "D", in
-----------
connection with this Agreement, including the loan and financing services
offered by Home hereunder and/or the establishment and operation of the Kiosks
at the Stores.
(b) As of the date hereof, Home has applied for all necessary Licenses
required under Applicable Laws in such states as set forth in paragraph (b) of
Exhibit "D". Home shall diligently pursue the obtainment of all such Licenses
- -----------
and upon obtainment of such Licenses, shall maintain the Licenses thereafter in
good standing with the appropriate state and/or other governmental authorities.
(c) Home will, within fifteen (15) business days after the date of this
Agreement, apply for and diligently pursue all necessary Licenses required under
Applicable Laws by the states set forth in paragraph (c) of Exhibit "D". Home
-----------
shall diligently pursue the obtainment of all such Licenses, and upon obtainment
of such Licenses, shall maintain the Licenses thereafter in good standing with
the appropriate state and/or other governmental authorities.
(d) If Home does not obtain the Licenses described in paragraphs (b) or
(c) above by the end of the Test Period, then this Agreement may be terminated
by either
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<PAGE>
party upon written notice to the other party. In addition, if any governmental
or regulatory authority now or hereafter in existence shall disapprove of the
offering of loan and financing services by Home at the Stores or any aspect of
the performance by either party as required herein to satisfy this Agreement, or
if any such authority shall direct any party hereto to discontinue its
performance hereunder, the parties agree that this Agreement may be immediately
terminated at the election of either party by written notice, without liability
to either party hereunder.
(e) Home currently possesses and shall maintain during the term of this
Agreement sufficient financial capability to originate, close, fund and service
all qualifying loans to customers of Builders Square in accordance with the
terms of this Agreement.
(f) Home currently possesses and shall maintain during the term of this
Agreement a contract of insurance for property improvement home loans under
Title I of the National Housing Act as issued by the U.S. Department of HUD,
Federal Housing Commissioner, or in absence of such a contract if, and only if,
the same ceases to exist due to a statutory change of law, the ability to
originate, close, fund and service loans of a similar nature to loans made
available under the Title I program.
(g) Home's execution of and entering into this Agreement does not
violate or contravene any provision of any other contract or agreement to which
Home is a party.
(h) Home has no actual knowledge of any fact which would prohibit Home
from receiving the Licenses described in subparagraphs (b) or (c) above.
(i) Home shall comply with all Applicable Laws (including, without
limitation, all Applicable Laws relating to usury, installment sales, consumer
credit, billing errors, credit discrimination, debt, collection, liens,
encumbrances, and unfair, deceptive or unconscionable practices) in connection
with this Agreement and the services to be provided by Home hereunder,
including, without limitation, Home's offering, evaluating, funding, processing,
servicing, and collecting of loans, its Promotional Materials, and its Loan
Documents.
11.2 REPRESENTATION AND WARRANTIES OF BUILDERS SQUARE. Builders Square
represents and warrants to Home that, except where the consent of a landlord of
Builders Square may be required as hereinbelow described, Builders Square's
execution of and entering into this Agreement does not violate or contravene any
provision of any other contract or agreement to which Builders Square is a
party. Should any Store lease require the consent of the landlord thereunder
prior to the installation of a Kiosk or commencement by Home of the activities
herein contemplated, Builders Square agrees to use commercially reasonable
efforts to promptly obtain such consent, and Home shall have no right to enter
or use such Store pursuant to this Agreement until such consent is obtained.
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<PAGE>
11.3 INDEMNIFICATION.
(a) Home shall indemnify and hold Builders Square, its affiliates,
employees, officers, directors, representatives, and agents harmless from and
against all expenses, claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on (i)
any breach by Home or any agent or employee thereof of any covenant, agreement,
warranty or representation set forth in this Agreement or any covenant,
agreement, warranty or representation made to any customer in any Promotional
Materials or in any Loan Document or in connection therewith, and (ii) the
negligence, misrepresentation, fraud, recklessness, intentional misconduct or
willful act or omission of Home or any agent or employee thereof, and (iii) any
violation of law, legal deficiency, misrepresentation or omission in any
Promotional Materials or in any Loan Document, or in the offering, evaluating,
funding services and/or collection of any loans (including, without limitation,
any damages or claims arising out of or in connection with the failure by Home
to provide adequate training or guidance to Builders Square or its employees
concerning Home's Loan Products, the Loan Documents, the MoneyLink financing
program, or Applicable Laws relating thereto or to the offering of the same to
the public), and (iv) any claim by any person or entity that Home failed or
refused to provide loan or financing services to such person or entity, and (v)
any property damage, personal injury or death arising, directly or indirectly,
from any occurrence at any of the Stores in connection with the Kiosks, and (vi)
any electrical, telephone or other utility failure that may affect the Kiosks,
and shall reimburse Builders Square for any legal and any other expenses
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability or action, as incurred; provided,
however, that Home shall not be liable in any case to the extent that such
claim, loss, damage, liability or expense arises out of or is based on the gross
negligence, recklessness or intentional actions of Builders Square or any of its
agents or employees.
(b) Builders Square shall indemnify and hold Home, its affiliates,
employees, officers, directors, representatives, and agents harmless from and
against all expenses, claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on (i)
any fraud or willful misconduct on the part of Builders Square or any of its
employees in connection with this Agreement, or (ii) an alleged defect in
Builders Square's goods or services, but only to the extent that the particular
claim or loss is covered by a Builders Square express written warranty (the
"Builders Square Warranty") that benefits the particular Builders Square
- -------------------------
customer that is involved in such claim. Notwithstanding any provision contained
herein to the contrary, including, without limitation, the immediately preceding
sentence and Section 15.10 hereof, Builders Square's indemnity described in
-------------
clause (ii) above shall expire on the earlier of the expiration date of the
Builders Square Warranty or the date of the Builders Square customer's signed
acceptance of the relevant goods and/or services of Builders Square. Builders
Square shall provide a Builders Square Warranty to each of its customers who
purchases a Builders Square's installed sales program. A
-13-
<PAGE>
copy of the Builders Square Warranty is attached hereto as Exhibit "E" and
----------
incorporated herein for all purposes.
(c) Each party entitled to indemnification under this Section 11.3 (the
------------
"Indemnified Party") shall give notice to the party required to provide
- ------------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
becomes aware of any claim as to which indemnity may be sought, and shall permit
the Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party, whose approval shall not be unreasonably withheld. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall bear the expense of such
defense of the Indemnified Party if representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicts of interest.
The failure of any Indemnified Party to give notice as provided herein shall
relieve the Indemnifying Party of its obligations under this Section 11.3 only
------------
to the extent that such failure to give notice shall materially and adversely
prejudice the Indemnifying Party in the defense of any such claim or any such
litigation. The Indemnifying Party litigation shall not be liable under this
Section 11.3 for amounts paid in settlement of any claim covered hereby if such
- ------------
settlement is effected without the consent of the Indemnifying Party, which
consent shall not be unreasonably withheld. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
12. INSURANCE. Home shall, at its sole cost and expense, obtain and maintain,
throughout the term hereof, commercial general liability insurance with limits
of not less than $1,000,000 for bodily injury and $500,000 for property damage
per occurrence, protecting it and Builders Square, and Builders Square's
landlords and their respective mortgagees, against any liability that may accrue
against them or any of them on account of occurrences on or about the Stores as
a consequence of the presence of the Kiosks at the Stores, which occurrences may
result in property damage, personal injury or death. Home shall also, at its
sole cost and expense, obtain and maintain, throughout the term hereof, errors
and omissions insurance with limits of not less than $1,000,000, protecting it
(with Builders Square as a loss payee) against any liability that may accrue in
connection with Home's Loan Products, including based on breach of duty,
negligence, error, misstatement, misleading statement or omission. Home shall
provide Builders Square and its landlords with certificates of insurance
acknowledging Builders Square and its landlords as additional insureds (or loss
payee, as applicable) under said insurance policies. Such insurance shall
contain waiver of subrogation clauses and shall provide that the same may not be
canceled unless thirty (30) days prior written notice of such cancellation is
given to Builders Square and its landlords
-14-
<PAGE>
by the insurers. Home shall maintain the Kiosks adequately insured against
casualty or damage, and Builders Square shall have no liability to Home for any
losses or damages suffered by the Kiosks.
13. SECURITY. Home shall provide any and all security that it may desire in
connection with the Kiosks and the personal property located on or in the
Kiosks; Builders Square shall have no liability or responsibility to Home or any
other person or entity for any security in connection with the Kiosks,
regardless of whether Home elects to provide any security as described in this
Section.
14. CONFIDENTIALITY. Each party (the "Receiving Party") covenants and agrees
---------------
that, both during the term of this Agreement and at all times thereafter, it
shall not use or disclose to any other person or entity any Confidential
Information (defined below) of the other party (the "Disclosing Party"), shall
----------------
not in any other way publicly or privately disseminate any Confidential
Information, and shall not help anyone else to do any of these things, except
(i) to the Receiving Party's employees to whom disclosure is necessary for
proper use of the Confidential Information in accordance herewith; (ii) to any
third party authorized in writing by an officer of the Disclosing Party to
receive such disclosure; and (iii) as may be required by law. "Confidential
Information" shall mean all information disclosed by the Disclosing Party to the
Receiving Party, not generally known to the public, that relates to the business
or customers of either party, including but not limited to any information
regarding Home's customers and/or Builders Square customers. All Confidential
Information shall be considered trade secrets of the Disclosing Party and the
Receiving Party shall treat such Confidential Information as it would treat its
own Confidential Information.
15. MISCELLANEOUS.
15.1 GOVERNING LAW AND VENUE. This Agreement shall be governed by and shall be
construed and enforced in accordance with the laws of the State of Texas
applicable to agreements entered into and performed within such State, but
without reference to the conflicts of law rules of such State, and suits brought
in connection with this Agreement shall be brought in the courts of Bexar
County, Texas.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and
be binding upon both of the parties hereto and their respective successors and
permitted assigns. Neither party shall assign this Agreement nor delegate any
obligations hereunder without the prior written consent of the other party which
consent may be withheld at each party's sole discretion. In this regard, Home
acknowledges that Builders Square is relying on the skill and character of Home
in the performance of this Agreement.
15.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof, and this Agreement
-15-
<PAGE>
supersedes and renders null and void any and all other prior oral or written
agreements, understandings, or commitments pertaining to the subject matter
hereof. No variation hereof shall be deemed valid unless in writing and signed
by the parties hereto, and no discharge of the terms hereof shall be deemed
valid unless by full performance by the parties hereto or by a writing signed by
the parties hereto.
15.4 WAIVER. The failure of any party to insist upon the strict performance of
any of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms, conditions and provisions shall remain in full force and effect. No
wavier of any term or any condition of this Agreement on the part of either
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party. No waiver by either party of any provision or
condition of this Agreement to be performed shall be deemed a waiver of similar
or dissimilar provisions and conditions at the same time or any prior or
subsequent time.
15.5 INVALIDITY. Should any part of this Agreement, for any reason whatsoever,
be declared invalid, illegal, or incapable of being enforced in whole or in
part, such decision shall not affect the validity of any remaining portion,
which remaining portion shall remain in full force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated, and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
portion which may for any reason be declared invalid.
15.6 NOTICES. Any notices required to be delivered under this Agreement shall
be in writing and sent to the addresses or telecopy numbers set forth below. Any
party may change its address and/or telecopy number for notice purposes by
giving written notice of such change as set forth herein:
If to Home: HomeOwners Mortgage and Equity, Inc.
6836 Austin Center Blvd., Suite 280
Austin, Texas 78731
Attn: John W. Ballard, President & CEO
Telecopy: (512) 795-9815
If to Builders Square: Builders Square, Inc.
9725 Datapoint Drive
San Antonio, Texas 78229
Attn: Senior Vice President - Chief Financial
Officer
Telecopy: (210) 616-8018
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopy number set
forth in this
-16-
<PAGE>
Section 15.6 and the telecopy machine used by the sender provides a written
- ------------
confirmation that such telecopy has been so transmitted or receipt of such
telecopy transmission is otherwise confirmed, (ii) if given by U.S. Mail, 72
hours after such communication is deposited in the mail for delivery by
certified or registered first class mail, return receipt requested, with the
appropriate postage prepaid, addressed as set forth in this Section 15.6, (iii)
------------
if delivered by overnight courier service, when such notice is actually received
at the address set forth in this Section 15.6 as recorded by such overnight
------------
courier service or (iv) if given by any other means, when actually received at
the address set forth in this Section 15.6.
------------
15.7 CAPTIONS. The captions contained in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
any of the provisions of this Agreement.
15.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
15.9 ATTORNEYS' FEES. If either party is required to retain the services of
any attorney to enforce or otherwise litigate or defend any matter or claim
arising out of or in connection with this Agreement, the prevailing party shall
be entitled to recover from the other party, in addition to any other relief
awarded or granted, its reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and reasonable expert witnesses' fees)
incurred in such proceeding.
15.10 SURVIVAL. The obligations of the parties set forth in Sections 11.3
-------------
(except as otherwise expressly provided in Section 11.3(b)), 14 and 15.9 shall
--------------- -- ----
survive the termination or expiration of this Agreement.
15.11 AMENDMENT. This Agreement may be amended or modified at any time and in
all respects, and may be waived as to any provisions, only by an instrument in
writing executed by all parties hereto.
15.12 AUTHORITY. Each person who executes this Agreement below on behalf of the
indicated party represents that he or she has obtained all consents, approvals,
and authority necessary to execute this Agreement on behalf of said party.
15.13 NO THIRD PARTY BENEFICIARIES. There are no third party beneficiaries of
this Agreement, it being the intention of the parties that this Agreement is for
the exclusive benefit of the parties hereto and for no one else.
-17-
<PAGE>
IN WITNESS WHEREOF, HOME AND BUILDERS SQUARE have executed this Agreement
as of the date first set forth above.
HOMEOWNERS MORTGAGE AND EQUITY, INC.
ATTEST:
BY:/s/ Anna M. Walker BY: /s/ John W. Ballard
--------------------- --------------------------------------
NAME:John W. Ballard
------------------------------------
TITLE:President/CEO
-----------------------------------
BUILDERS SQUARE, INC.
ATTEST:
BY:/s/ Betty Reed BY:/s/ Calvin B. Massmann
---------------------- --------------------------------------
NAME:CALVIN B. MASSMANN
------------------------------------
TITLE:SR. V.P/C.F.O.
-----------------------------------
-18-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF Travis (S)
------
Before me, the undersigned Notary Public in and for the County and State
aforesaid, personally appeared John Ballard, who upon oath acknowledged to be
------------
the President of Builders Square, a Delaware corporation, and that he/she
---------
executed the same as the act of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal this 27th day of November, 1996.
---- --------
[NOTARY PUBLIC SEAL] /s/ Ricardo Castillo
---------------------
Notary Public
My appointment expires:
____________________________
STATE OF TEXAS (S)
(S)
COUNTY OF BEXAR (S)
Before me, the undersigned Notary Public in and for the County and State
aforesaid, personally appeared CALVIN B. MASMANN, who upon oath acknowledged to
------ -- -------
be the SR.V.P./C.F.O. of Builders Square, a Delaware corportion, and that
---------------
he/she executed the same as the act of such corporation for the purposes and
consideration therin expressed, and in the capacity therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal this 27 day of November, 1966.
--
/s/ Carol A. Meales
-----------------------
Notary Public
My appointment expires:
2-15-2001
- ------------------------- [NOTARY PUBLIC SEAL]
-19-
<PAGE>
EXHIBIT A
* Designates Test Stores
BUILDERS SQUARE BY STATE
------------------------
State Store Address City, State, Zip
- ----- ----- ------- ----------------
ALABAMA 1554 2601 N. Memorial Huntsville, AL 35810
COLORADO 1041 860 S. Colorado Blvd. Glendale, CO 80222
1378 880 S. Abilene St. Aurora, CO 80012
1379 9050 N. Wadsworth Westminster, CO 80021
1499 1725 Sheridan Blvd. Edgewater, CO 80214
1580 813 E. Harmony Rd. Ft. Collins, CO 80525
1595 4887 S. Wadsworth Way Denver, CO 80123
FLORIDA 1009 13755 S.W. 88th St. Miami, FL 33186
1033 2495 Gulf to Bay Clearwater, FL 34625
1313 12525 W. Sunrise Blvd. Sunrise, FL 33323
1321 2302 E. Semoran Blvd. Apopka, FL 32703
1322 5750 Jog Rd. Lake Worth, FL 33467
1323 955 W. Brandon Blvd. Brandon, FL 33511
1325 750 University Dr. Coral Springs, FL 33071
1345 1400 Waterford Pl. Delray Beach, FL 33444
1350 11100 E. Colonial Dr. Orlando, FL 32817
1353 1450 Executive Circle Palm Bay, FL 32905
1355 20811 S. Dixie Hwy. Cutler Ridge, FL 33189
1369 13711 S. Taminani 100 Ft. Myers, FL 33912
1372 13501 S. Dixie Hwy. Miami, FL 33156
1377 4000 Oakwood Hollywood, FL 33020
1382 12201 Pines Blvd. Pembroke Pines, FL 33026
1397 2400 W. International Daytona Beach, FL 32114
1423 1412 W. Fairfield Dr. Pensacola, FL 32501
1512 4025 US 98 N. Lakeland, FL 33805
1526 204 Semoran Blvd. Casselberry, FL 32707
1535 5181 110th Ave N. Clearwater, FL 34620
ILLINOIS 1001 956 N. Illinois Rt. 59 Aurora, IL 60504
1003 6640 E. State St. Rockford, IL 61108
1021 7311 Melvina Niles, IL 60714
1043 2001 Belvidere Rd. Waukegan, IL 60085
1311 363 N. Naperville Rd. Bolingbrook, IL 60440
1318 4340 Lincoln Hwy. Matteson, IL 60443
1332 7200 Woodward Ave. Woodridge, IL 60517
1336 17620 Halsted Rd. Homewood, IL 60430
1337 7770 S. Cicero Ave. Burbank, IL 60459
1368 493 N. Milwaukee Vernon Hills, Il 60061
1376 3001 Plainfield Rd. Joliet, IL 60435
1386 1325 Meacham Rd. Schaumburg, IL 60173
1399 1000 Winston Plaza Melrose Park, IL 60160
1414 265 State Rt 83 Elmhurst, IL 60126
<PAGE>
State Store Address City, State, Zip
- ----- ----- ------- ----------------
ILLINOIS 1426 8901 N. Knoxville Ave. Peoria, IL 61615
1430 16199 South Harlem Tinley Park, IL 60477
1432 350 Army Trail Rd. Bloomingdale, IL 60108
1433 400 Airport Rd. Elgin, IL 60120
1434 1575 N. Rand Rd. Palatine, IL 60067
1520 2400 Main St. Evanston, IL 60202
1531 1 Countryside Plaza Countryside, IL 60525
INDIANA 1016 6235 Lima Road Ft. Wayne, IN 46818
1017 115 Cross Pointe Blvd. Evansville, IN 47715
1018 4641 Lafayette Indianapolis, IN 46254
1049 2782 East 79th Ave. Merrillville, IN 46410
1429 7826 Interstate Plaza Hammond, IN 46324
1480 602 N. Shortridge Indianapolis, IN 46219
KANSAS 1320 9609 E. Kellogg Wichita, KS 67207
1326 17th S. W. Wanamaker Topeka, KS 66604
1471 613 S. Dugan Rd. Wichita, KS 67209
1473 12010 W. 95th St. Lenexa, KS 66215
KENTUCKY 1339 828 Heights Blvd. Florence, KY 41042
MICHIGAN 1011 3175 Westbay Saginaw, MI 48604
1019 31510 Gratiot Ave. Roseville, MI 48066
1020 29659 7 Mile Rd. Livonia, MI 48152
1035 555 Ctr. Dr. N.W. Walker, MI 49504
1039 33801 Van Dyke Sterling Heights, MI 48312
1301 5115 Portage Rd. Kalamazoo, MI 49001
1361 45160 Utica Park Blvd. Utica, MI 48317
1383 2214 Summit Mall Dr. Waterford, MI 48328
1398 5951 Mercury Dr. Dearborn, MI 48126
1435 8400 East 8 Mile Detroit, MI 48234
1436 14800 Dix Toledo Rd. Southgate, MI 48195
1461 3603 Miller Rd. Flint, MI 48507
1490 43610 West Oaks Novi, MI 48377
1528 4250 28th St. S.E. Grand Rapids, MI 49508
1530 4949 Coolidge Hwy. Royal Oak, MI 48073
1533 5750 S. Cedar Lansing, MI 48911
1541 2820 Washtenaw Ave. Ypsilanti, MI 48197
1570 223 Auburn E. Rochester Hills, MI 48307
1578 42000 Ford Rd. Canton Township, MI 48187
1598 4715 24th Avenue Ft. Gratiot, MI 48059
<PAGE>
State Store Address City, State, Zip
- ----- ----- ------- ----------------
MISSOURI 1013 9440 Watson Rd. Crestwood, MO 63126
1394 13929 Manchester Rd. St. Louis, MO 63011
1458 11424 Hickman Mills Kansas City, MO 64134
1459 14221 Hwy 40 E. Kansas City, MO 64136
1537 12410 St. Charles Rock Bridgeton, MO 63044
1557 10710 W. Florissant Ferguson, MO 63136
1579 3300 S. Glenstone Springfield, MO 65804
1589 6750 Manchester Ave. St. Louis, MO 63139
NEW JERSEY 1396 2080 N. Blackhorse Williamstown, NJ 08094
1588 300 Trotters Way Freehold, NJ 07728
NEW MEXICO 1495 45 Hotel Circle NE Albuquerque, NM 87123
NEVADA 1439 4501 W. Charleston Las Vegas, NV 89102
NEW YORK 1304 2799 Wallllden Cheektowaga Twp, NY 14225
1305 Northern Lights Ctr, Rt 11 N. Syracuse, NY 13212
1331 4405 Milestrip Rd. Blasdell, NY 14219
1380 26 B. Crossing Blvd. Clifton Park, NY 12065
1385 750 Builders Way Niagara Falls, NY 14304
1560 1814 Central Ave. Colonie, NY 12205
1567 400 Jay Scutti Blvd. Rochester, NY 14623
OHIO 1025 8199 Pearl Rd. Strongsville, OH 44136
1306 4450 Eastgate Blvd. Cincinnati, OH 45245
1343 4066 W. Medina Rd. Montrose, OH 44333
1364 5865 Chantry Dr. Columbus, OH 43232
1392 3400 Highland Ave. Cincinnati, OH 45213
1441 1866 Shiloh Springs, Bldg A Dayton, OH 45426
1463 1520 Wooster Ave. Akron, OH 44320
1465 2230 Fairless Dr. Lorain, OH 44055
1486 510 Howe Ave. Cuyahoga Falls, OH 44221
1489 21669 Ctr. Ridge Rocky River, OH 44116
1513 5750 Columbus Sq. Columbus, OH 43231
1527 4321 Whipple Ave. Canton, OH 44718
1542 1191 Smiley Forest Park, OH 45240
1566 6199 Wilson Mills Rd. Highland Hts, OH 44143
1572 23100 Broadway Oakwood Village, OH 44146
1592 3575 W. Dublin-Grandville Columbus, OH 43235
OKLAHOMA 1388 9717 E. 71st St. Tulsa, OK 74133
1440 7700 S. Walker Oklahoma City, OK 73139
1442 525 N. Memorial Tulsa, OK 74115
1456 2905 N.W. 36th St. Oklahoma City, OK 73112
<PAGE>
State Store Address City, State, Zip
- ----- ----- ------- ----------------
OREGON 1464 2315 S.E. 82nd Ave. Portland, OR 97216
1466 1160 N. Hayden Meadow Portland, OR 97217
PENNSYLVANIA 1334 Rt. 51 Constitution Beaver Falls, PA 15010
1358 501 Cetronia Rd. Allentown, PA 18104
1359 232 Mall Blvd. King of Prussia, PA 19406
1384 5101 Jonestown Rd. Harrisburg, PA 17112
1448 1500 Yost Blvd. Braddock Hills, PA 15221
1488 8050 McKnight Rd. Pittsburgh, PA 15237
1510 2424 E. Lincoln Hwy. Langhorne, PA 19047
1558 903 Loucks Rd. York, PA 17404
1565 2030 Fruitville Pike Lancaster, PA 17601
1573 7200 Peach St, 300 Erie, PA 16509
1574 1025 Mountain View West Mifflin, PA 15122
PUERTO RICO 1002 Los Colobos, PR 3 KM 14.0 Carolina, PR 00985
1004 Montehiedra Ctr 9410 San Juan, PR 00926
1307 Plaza Mall 70, Hwy 30 Caguas, PR 00725
1309 2399 Carr #2 Bayamon, PR 00959
1310 2765 Carr #2 Mayaguez, PR 00680
1354 El Toque Industrial Prk Ponce, PR 00731
TEXAS * 1005 7950 FM 1960 Houston, TX 77070(KIOSK)
* 1006 25415 I-45 N. Woodlands, TX 77380(KIOSK)
* 1007 5400 Fairmont Pkwy Pasadena, TX 77505
1008 2500 Soncy Blvd. Amarillo, TX 79121
1030 11751 Gateway W. El Paso, TX 79936
1031 655 Sunland Park, Ste D El Paso, TX 79912
1032 5407 Andrews Hwy Midland, TX 79704
* 1036 6001 NW Loop 410 San Antonio, TX 78238
* 1340 13013 US 281 N. San Antonio, TX 78216
1341 716 E. Expwy 83 McAllen, TX 78501
* 1344 10241 N. Frwy Houston, TX 77037
* 1346 7500 IH 35 North San Antonio, TX 78218(KIOSK)
1348 2400 Boca Chica Brownsville, TX 78520
* 1351 14409 Park Hollow Dr. Houston, TX 77082
* 1373 2920 SW Military San Antonio, TX 78224
* 1401 100 Crossroads, 200 San Antonio, TX 78201
1406 3701 50th St. Lubbock, TX 79413
* 1409 4645 Beechnut Houston, TX 77096
* 1411 20091 Gulf Frwy Webster, TX 77598
* 1421 1010 West Belt N. Houston, TX 77043
1422 5501 Airport Blvd. Austin, TX 78751
1561 5425 S. Padre Island Corpus Christi, TX 78411
1583 4970 290 W, 5 Austin, TX 78735
1584 12707 N. MoPac Expwy. Austin, TX 78727
1590 5700 San Bernardo Laredo, TX 78041
VIRGINIA 1515 4725 Virginia Beach Virginia Beach, VA 23462
<PAGE>
State Store Address City, State, Zip
- ----- ----- ------- ----------------
WISCONSIN 1362 2429 S. Greenbay Rd. Racine, WI 53406
1393 401 E. Capitol Dr. Milwaukee, WI 53212
1483 150 West Holt Ave. Milwaukee, WI 53207
1487 6740 W. Greenfield West Allis, WI 53214
1523 10202 W. Silver Spring Milwaukee, WI 53225
<PAGE>
EXHIBIT "B"
TASKS TO BE PERFORMED BY BUILDERS SQUARE EMPLOYEES
In any instance where Builders Square is acting as a contractor to the
customer, the following procedures (in the sequence they are shown below) shall
apply to the employee(s) or representative(s) of Builders Square communicating
with the customer.
1. Builders Square shall determine the nature of the improvements and/or repairs
being sought by the customer to their residence by discussing the same with the
customer.
2. The customer shall be asked by Builders Square how they plan to pay for the
project.
3. The customer shall be shown by Builders Square the Authorized MoneyLink
Contractor Certificate which evidences that Builders Square is authorized to
introduce the customer to Home, inc. and its MoneyLink financing programs.
4. Builders Square shall discuss with the customer other projects that are
similar to the project the customer is inquiring about and their range of costs,
including the total prices of the comparison projects and the amount of monthly
payments for the prices if the projects were financed by Home, inc.
5. Builders Square shall explain to the customer the advantages of using Home,
inc.'s MoneyLink financing programs as explained in Home inc.'s Promotional
Materials furnished at the "point of purchase/sale" in the stores of Builders
Square, including pointing out to the customer the possibility of upgrades in
the project and/or allowing a more comprehensive project to be considered by the
customer as a result of using a MoneyLink loan offered by Home, inc.
6. At any time when the customer asks Builders Square the question, "What is the
interest rate for the loan?", Builders Square shall respond in a manner
consistent with the suggested responses contained on Page 19, in Part Two, The
MoneyLink Book.
7. Builders Square shall provide the customer with a MoneyLink brochure and
explain the features offered to the customer by Home, inc.'s loans, as set forth
in the brochure. Builders Square shall ask the customer to fill out the
"Preliminary Credit Worksheet" form contained in the brochure in the event the
customer is interested in requesting a loan from Home, inc. (THE FORM MUST BE
----------------
FILLED OUT BY THE CUSTOMER(S) AND SIGNED WITHOUT ANY ASSISTANCE FROM BUILDERS
- -----------------------------------------------------------------------------
SQUARE)
- ------
8. Builders Square shall offer to fax the "Preliminary Credit Worksheet" to
Home, inc. on behalf of the customer.
<PAGE>
Page Two
Exhibit "B"
9. On a customer's request for a proposal for Builders Square's installed sales
with Home, inc. financing, Builders Square shall prepare a written job proposal
covering Builders Square's installed sales with financing by Home, inc. for the
customer's review and acceptance. Upon the customer's signature accepting such
job proposal, Builders Square shall send a copy of the job proposal to Home,
inc. via facsimile, with the name of the customer and the relevant Builders
Square store set forth on the job proposal. Any financing by Home, inc. shall be
subject to Home, inc.'s approval of the loan to the customer.
THE FOLLOWING PROCEDURES AND RESPONSES ON THE PART OF BUILDERS SQUARE ARE
- -------------------------------------------------------------------------
PROHIBITED BY HOME, INC.:
- ------------------------
1. Any statement or representation by Builders Square to the customer that
Builders Square is the lender, or makes any decision on a customer's request for
a loan from Home, inc., including, but not limited to, the approval or denial of
the loan, or the setting of its terms and conditions.
2. Any statement or representation by Builders Square to the customer regarding
the rate of interest, fees or other charges that will be incurred by the
customer on an approved loan from Home, inc., or the terms and conditions under
which Home, inc. will approve a loan to a customer, or the probability that
Home, inc. will approve a loan to the customer.
3. Builders Square filling out the "Preliminary Credit Worksheet" for the
customer.
4. Builders Square using (or providing to any third party) any information
contained in the customer's "Preliminary Credit Worksheet" for any purpose other
than transmitting the same by fax or mail to Home, inc.
5. Builders Square using (or providing to any third party) any of the training
materials furnished by Home, inc. for any purpose other than its own use in
informing customers about Home, inc. and its MoneyLink financing programs.
IN THE EVENT THAT CLARIFICATION OF THE MATTERS SET FORTH ABOVE IS NECESSARY, THE
CONTENTS OF PART TWO, THE MONEYLINK BOOK ("PART TWO") MAY BE REFERRED TO BY THE
PARTIES. HOWEVER, NOTWITHSTANDING ANY PROVISION TO THE CONTRARY HEREIN OR
OTHERWISE, (A) THE TERMS OF THIS EXHIBIT SHALL GOVERN TO THE EXTENT OF ANY
CONFLICT BETWEEN THIS EXHIBIT AND PART TWO, AND (B) PART TWO SHALL BE REVISED BY
HOME, INC. IN ACCORDANCE WITH THE PROVISIONS OF EXHIBIT "B-1" ATTACHED HERETO
AND INCORPORATED HEREIN FOR ALL PURPOSES.
<PAGE>
[LETTERHEAD OF HOME, INC.]
EXHIBIT "B-1"
-------------
November 25, 1996
Mr. Cal Massmann (Via Fax #210-616-8548)
Mr. Dave Baratta " "
Builders Square, Inc.
9725 Datapoint Drive
San Antonio, Texas 78229
Anna Gonzalez Barber (Via Fax #210-224-8336)
Fulbright & Jaworski
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Re: Changes (in process) to the MoneyLink Book
Dear Cal, Dave and Anna:
The last draft of the License Agreement prepared by Anna on November 8th
provides under paragraph 4.1(c) that Home will furnish Builders Square with any
modifications it intends to make to The MoneyLink Book, of which Part Two is
incorporated in the License Agreement as an appendix. We have finished a review
of The MoneyLink Book for purposes of its intended use as a part of the training
we will be providing the designated employees of Builders Square and in
preparation of Exhibit "B" to the License Agreement. Accordingly, the following
modifications and updates will be included in the versions used for the training
of the designated Builders Square employees:
PART ONE, PAGE 12. This section will be updated with the changes related to
- ------------------
branch offices of Home, inc. and the licensed states.
PART TWO, PAGE 2. In the first sentence under the second section titled
- -----------------
MoneyLink OneDoc, the sentence will be modified as follows "... if the home is
at least three months old." The balance of the sentence will be deleted. (These
changes are as a result of changes in Title 1 regulations permitting the home to
only be three months old instead of six months old and deleting the requirement
the home be owner-occupied.)
PART TWO, PAGE 6. (MONEYLINK ESTIMATED PAYMENT TABLE) This table will be
- -----------------------------------------------------
modified to reflect a change in the amortization term for all loans under $8,000
being 10 years and all loans $8,000 and over, up to $25,000, being amortized
over 20 years. The resulting
<PAGE>
Page Two
Massmann, Baratta and Barber letter
November 25, 1996
estimated monthly payment amounts will also change due to the longer
amortization period allowed, resulting in lower monthly payments for loans under
$15,000 than what was previously depicted in the table.
PART TWO, PAGE 8. (LOAN COMPARISON CHART) This chart will be revised to reflect
- -----------------------------------------
an $8,000 loan example shown underneath the title of the chart instead of the
$15,000 example previously shown, in order to better reflect the typical
Builders Square loan. Additional changes will be made to the interest rate
column in the chart as follows:
<TABLE>
<CAPTION>
CREDIT QUALITY TYPE OF LOAN INTEREST RATE
- -------------- ------------ -------------
<S> <C> <C>
A HOME, INC. MONEYLINK+PLUS 9.99%
(CONVENTIONAL)
B HOME, INC. MONEYLINK 13.00%
C HOME, INC. MONEYLINK+PLUS 14.00% - 15.00%
(CONVENTIONAL)
C HOME, INC. MONEYLINK 14.00% - 15.00%
</TABLE>
The corresponding monthly payments for each of the above loan types will also
change due to the change in the interest rate used for each loan type. (The
changed rates reflect the change in market conditions. As rate changes occur in
the future, it may be necessary to modify the chart to reflect the fluctuation
in interest rates.)
PART TWO, PAGE 19. After the second sentence in the fifth paragraph, insert the
- ------------------
following new sentence: "However, in Texas, home equity loans can only be
secured with a lien by the lender if loan proceeds are used for either improving
or repairing one's primary home, paying taxes, or as part of the purchase
price." In the sixth paragraph, delete the last sentence in its entirety. In the
eighth paragraph, modify the last sentence to read as follows: "Otherwise, a
home improvement loan that does not require the borrower to have a certain
amount of equity is probably your only recourse."
PART TWO, PAGE 21. The last sentence in the first section will be modified as
- ------------------
follows: "..., or a closing agent will come to the house, except in Texas where
regulations prohibit a closing to occur in a borrower's residence." (This is due
to regulations promulgated by the Consumer Credit Commissioner of Texas)
<PAGE>
Page Three
Massmann, Baratta and Barber letter
November 25, 1996
In closing, the above changes are all that are contemplated for the Builders
Square version of The MoneyLink Book that will be used in the training of
employees. Since this letter is being used as an exhibit to the License
Agreement, we will consider your acceptance of the same to occur upon the
execution of the License Agreement by Builders Square and Home, inc.
Sincerely,
/s/ Gary J. Davis
Gary J. Davis
GJD/me
<PAGE>
EXHIBIT "C"
PROPOSED COMPUTER EQUIPMENT CONFIGURATION
Description Amount
- ----------- ------
Dell 5133/GL
1.4 GIG Hard Drive
16 Meg Ram
US Robotics 33.6 Fax/Modem
15" Monitor
HP-682C Printer
(ea) $2,017.08 x Quantity of 34 = $68,580.72
Tax = 5,315.00
----------
73,895.72
Shipping & Handling = 50.00
TOTAL = $74,745.72
----------
-22-
<PAGE>
EXHIBIT "D"
Section 11.1(a) Colorado
Florida
Indiana
Missouri
New Mexico
Oklahoma
Oregon
Texas
Section 11.1(b) Alabama
Kansas
Michigan
Nevada
Virginia
Section 11.1(c) Illinois
Kentucky
New York
Ohio
Pennsylvania
Wisconsin
Puerto Rico
-23-
<PAGE>
EXHIBIT E
LABOR GUARANTEE
------------------------------------------------------------------------
If the workmanship of any installation arranged by Builders
Square proves faulty within one year from date of this invoice,
Builders Square will, upon notice from you, cause such faults to
be corrected at no additional cost to you.
------------------------------------------------------------------------
INSTALLATION: IT IS UNDERSTOOD THAT BUILDERS SQUARE WILL NOT INSTALL SAID
MATERIALS BUT THAT BY ACCEPTANCE OF THIS PROPOSAL YOU AUTHORIZE BUILDERS SQUARE
TO ARRANGE WITH A CONTRACTOR LICENSED WHERE REQUIRED TO MAKE THE INSTALLATION
YOU AUTHORIZE BUILDERS SQUARE (1) TO ISSUE TO SAID CONTRACTOR A COPY OF THESE
SPECIFICATIONS (2) TO INSPECT THE INSTALLATION UPON COMPLETION WHEN CONSIDERED
NECESSARY AND (3) TO PAY THE CONTRACTOR HIS CHARGE FOR SUCH INSTALLATION UPON
YOUR SIGNATURE BELOW OR ELSEWHERE ESTABLISHING THAT THE INSTALLATION HAS BEEN
SATISFACTORILY COMPLETED. YOU AGREE TO PAY THE AMOUNT SPECIFIED HEREIN WHICH
WILL COVER THE PRICE OF SAID MATERIALS AND THE INSTALLATION CHARGES.
. THIS ESTIMATE IS BASED ON A COMPLETED JOB AND ANY SURPLUS MATERIAL REMAINS THE
PROPERTY OF BUILDERS SQUARE NO CREDIT SHALL BE DUE CUSTOMER ON RETURN OF SUCH
MATERIAL.
. THERE SHALL BE NO LIABILITY FOR DELAYS, OR FAILURE TO COMPLETE, DELIVER OR
INSTALL ALL OR ANY OF THE AFORESAID MERCHANDISE, IF DUE TO FIRE, STRIKES,
WAR, GOVERNMENT REGULATIONS, OR ANY CAUSE BEYOND OUR CONTROL.
. ANY CHANGES MADE BY YOU IN THESE SPECIFICATIONS NECESSITATING ADDITIONAL
MATERIALS OR LABOR SHALL NOT BE INCLUDED OR COVERED BY THIS PROPOSAL BUT SHALL
BE PROVIDED FOR UNDER SEPARATE AND ADDITIONAL ORDERS FROM YOU
THIS PROPOSAL AND SAID SPECIFICATIONS SHALL NOT BE ALTERED OR MODIFIED EXCEPT BY
WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO AND VERBAL UNDERSTANDINGS AND
AGREEMENTS WITH REPRESENTATIVES SHALL NOT BE BINDING UNLESS SET FORTH HEREIN.
----------------------------------------------------------------------------
NOTICE TO OWNER
Under the law, any contractor, subcontractor, material supplier,
or other entity or person who provides improvements to your real
property who is not paid for the labor, services or material supplied,
has a right to enforce a claim for same against your property (even
though you did not contract directly with such person.) Under the law,
there are one or more steps you may take to protect yourself against
such claims and/or minimize your exposure in correction therewith.
It's up to you to review the law and decide whether you want to
take these precautions. You should consult your attorney if
you have any questions.
----------------------------------------------------------------------------
TO CONTRACTOR:
The customer, named on the reverse side, wishes you to proceed with the
installation at the specified address, of materials specified on the reverse
side and/or on attached sketch or specification sheet. By the acceptance of this
order you agree to protect and indemnify said customer and Builders Square from
all claims or demands on account of injury to persons or property occurring
during or as a result of said installation. You are responsible for payment of
all contributions and taxes due under and for all requirements of Federal and
State Social Security and Income Tax laws with respect to any payrolls incurred
in performance of the work herein specified. These provisions do not in any way
amend or modify any other agreement that you may have with Builders Square. On
completion of the job you agree to obtain the customer's signature on the
Letter of Satisfaction below, and execute the Waiver of Lien, submitting both to
Builders Square, along with your invoice and any monies due on this contract.
CONTRACTOR: WAIVER AND RELEASE OF LIEN
The undersigned Contractor, in consideration of the sum of One Dollar and other
good and valuable considerations, the receipt whereof from the customer whose
name appears on the reverse side hereof is acknowledged, hereby waives,
relinquished and forever releases all liens, rights of lien, claims and demands
whatsoever which the undersigned, or any subcontractor, laborer, mechanic, or
materialman claiming thru or under the undersigned, now has or might or could
have for work done or for materials furnished on or to the building or buildings
and premises situated at the address appearing on the reverse side hereof as the
job location, the undersigned represents that all of the work performed on the
said premises and materials furnished therefor by any other party or parties
upon the order of the undersigned has been fully paid for, and the undersigned
agrees to cause the prompt release of any mechanics liens which may be filed
against said premises by any subcontractor, laborer, mechanic, or materialman
claiming the right to file such lien through or under the undersigned, and the
undersigned further agrees to defend, hold harmless and indemnify Builders
Square, the customer whose name appears on the reverse side hereof and the owner
of title to said premises, from and against all cost and expenses arising from
or by reason of such lien or the release and discharge thereof.
SEALED AND DELIVERED THIS ________ DAY OF ______________ 19 __
SIGNATURE OF CONTRACTOR ______________________________________
CONTRACTORS LICENSE (Where required) _________________________
CUSTOMER APPROVAL OF INSTALLATION
THE INSTALLATION AS SET FORTH IN THIS INVOICE HAS BEEN COMPLETED TO MY
SATISFACTION
____________________________________ ______________________
CUSTOMER SIGNATURE DATE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AT SEPTEMBER 30, 1996 AND STATEMENT OF OPERATIONS FOR THE YEAR
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 343,484
<SECURITIES> 0
<RECEIVABLES> 9,683,134
<ALLOWANCES> 125,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 838,554
<DEPRECIATION> 192,472
<TOTAL-ASSETS> 11,684,637
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
15,000
<COMMON> 72,927
<OTHER-SE> 4,815,530
<TOTAL-LIABILITY-AND-EQUITY> 11,684,637
<SALES> 7,753,507
<TOTAL-REVENUES> 8,913,603
<CGS> 0
<TOTAL-COSTS> 5,433,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 220,000
<INTEREST-EXPENSE> 462,064
<INCOME-PRETAX> 3,480,264
<INCOME-TAX> 914,041
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,566,223
<EPS-PRIMARY> .32
<EPS-DILUTED> .30
</TABLE>
