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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
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(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1997.
[_] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 (IRS Employer
Incorporation or Organization) Identification No.)
6836 AUSTIN CENTER BLVD.
SUITE 280
AUSTIN, TEXAS 78731
(Address of Principal Executive Offices) (Zip Code)
(512) 427-5200
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange 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 Exchange Act 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. [X]
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The issuer's revenues for the fiscal year ended September 30, 1997 were
$23,968,818.
As of December 15, 1997, there were 8,268,485 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 15, 1997, was
$19,899,813 based upon the average bid and asked price of $5.063 per share on
the Nasdaq SmallCap Market of the National Association of Securities Dealers,
Inc. on December 15, 1997.
The text of Items 9, 10, 11 and 12 of Part III of this Form 10-KSB
incorporate by reference the corresponding information from the Proxy Statement
of the Registrant on Schedule A pursuant to Rule 14a-101 to be filed with the
Securities and Exchange Commission in connection with the 1998 annual meeting of
stockholders of the Registrant.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X].
Exhibit Index appears on page 35.
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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. See Note 1 to Notes to Financial
Statements.
Home is a specialized consumer finance company organized in 1993 to
originate, purchase, sell and service home improvement loans 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 originated or purchased by Home are financed through warehouse credit
lines and then sold to the Federal National Mortgage Association ("Fannie Mae"),
secondary market mortgage investors and other financial institutions or
exchanged for Fannie Mae Mortgage-backed securities. Home originates and
purchases its loans through two primary sources: wholesale (i.e., "Correspondent
Loans"), and retail (i.e., "Direct Loans"). Home purchases Correspondent Loans
through a national network of mortgage company loan correspondents
("Correspondents"). Home originates Direct Loans through direct mail
solicitation of individual homeowners, through referrals from home improvement
contractors, located principally in the Southwestern and Western regions of the
United States, and through special marketing arrangements with home improvement
supply and installation firms ("Corporate Alliances") to provide loans to
customers of these firms.
SIGNIFICANT EVENTS IN FISCAL 1997. During fiscal 1997, the Company
completed several significant transactions and achieved several milestones. The
most notable of those events are summarized as follows:
. In July 1997, the Company received approval for listing of its
Common Stock on the NASDAQ SmallCap Market;
. On August 6, 1997, the Company, through its wholly-owned
subsidiary Home, completed a bulk acquisition of approximately $15.9 million in
principal amount of Title I Loans;
. In September 1997, the Company received approval for listing
of its Common Stock on the Pacific Exchange;
. In September 1997, the Company and its affiliates completed their
first securitization transaction with the private placement of $47 million of
Asset Backed Bonds, Series 1997-1. The bonds were collateralized by $48 million
of Fannie Mae Mortgage-backed securities.
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. For the 1997 fiscal year, the Company produced home improvement
loans and other second mortgage loans totaling approximately $182 million, which
was an increase of 81% over the 1996 fiscal year production of approximately
$100 million.
. In September 1997, the Company completed an amended warehouse
line of credit facility and an amended working capital line of credit for
increased commitments from its lender of up to $20,000,000 and $16,666,600,
respectively; and
. During fiscal 1997, the Company commenced participation in the
Fannie Mae Title I Mortgage-backed securities program whereby the Company is
allowed to swap Title I Loans to Fannie Mae for Mortgage-backed securities
issued by Fannie Mae. These Mortgage-backed securities are accumulated and sold
for cash or included in securitization transactions. In connection with these
transactions, Fannie Mae has provided uncommitted funding facilities for the
Title I Loans and the Mortgage-backed securities.
Each of these accomplishments reflect the ongoing growth of the
Company and its evolution from an originator of loans which were sold for cash
with servicing released to a larger producer of Title I and conventional second
mortgage loans which are sold for cash, sold with a retained interest, or
converted to Mortgage-backed securities for inclusion in securitizations. The
following discussions expand upon the Company's development and strategies in
Loan Products, Loan Production, Loan Funding, Loan Sales and Disposition, Loan
Underwriting and Loan Servicing.
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 overall loan credit quality. The Company's strategies
include: (i) offering new loan products; (ii) expanding its existing network of
Correspondents, Corporate Alliances and direct marketing sales offices; (iii)
expanding its retail originations by utilizing direct sales marketing to
generate leads in support of four retail branches; (iv) realizing operational
efficiencies through economies of scale; (v) using loan sales to Fannie Mae and
asset-backed securitizations to sell higher volumes of loans on more favorable
terms; and (vi) pursuing community development lending opportunities with local
and State units of government, housing finance agencies, and community based
non-profit housing organizations. During fiscal 1997, the Company continued the
sale of a significant volume of its Title I Loans to Fannie Mae.
During fiscal 1997, the Company increased its origination of
conventional second mortgage loans through utilization of a direct marketing
sales office. The Company intends to expand the capabilities of that office in
fiscal 1998. It is anticipated that through the utilization of direct marketing
sales offices, the level of overall production will be increased and the
proportion of conventional loans to Title I Loans will also increase.
With the passage of home equity lending in Texas in November 1997, the
Company expects to devote significant resources to this new market beginning
early in 1998. With offices already established in Austin, Dallas, and Houston,
the Company believes it is well positioned to participate in this new lending
opportunity in Texas in 1998.
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The Company intends to consider additional bulk acquisitions of Title
I Loans in fiscal 1998.
However, loan production is subject to a number of economic and social
risks, including consumer needs and trends, alternative and competitive
financing sources, fluctuations in interest rates and the availability of
funding sources. Therefore, 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 10% 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 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.
For Title I Loans sold to Fannie Mae or Title I Loans exchanged with
Fannie Mae for Mortgage-backed securities, Home pays a guaranty fee for Fannie
Mae to assume the 10% uninsured portion under the FHA credit insurance programs.
This feature of the Fannie Mae FHA Title I Loan Program assists in mitigating
future loss exposure for the uninsured portion of the Title I Loans.
In addition to Title I Loans, Home originates or purchases a variety
of Conventional Loans for home improvement, combination home improvement and
debt consolidation, 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. Conventional Loans are sold with limited recourse.
In the event that the borrower defaults on the first payment, the Company is
committed to repurchase the loan.
LOAN PRODUCTION. Home originates loans principally through (i)
wholesale purchase transactions with regional Correspondent lenders, (ii) a
network of independent home
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improvement contractors, (iii) direct mail solicitation of individual
homeowners, (iv) Corporate Alliances with national home improvement supply and
installation companies, and (v) participation in community development lending
with state/local housing finance agencies.
Correspondent Lending. The Company currently maintains a correspondent
relationship with 207 Correspondents operating in 26 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. These loans are pre-approved and priced by Home's
underwriting staff and subsequently purchased by Home at a premium ranging from
2% to 9% depending on the coupon rate and maturity of the loans. 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
existing and new offices proposed for fiscal 1998.
During fiscal 1997, the Company established 138 new correspondent,
relationships and purchased loans from 160 Correspondents. As a percentage of
total 1997 Title I Loan production, 31 Correspondents accounted for 82% of the
Company's loans, including a bulk loan acquisition. Except for the single bulk
loan acquisition in fiscal 1997, no Correspondent accounted for more than 10% of
production, three Correspondents each accounted for 5% to 10% and an additional
12 Correspondents each accounted for 2% to 5% of total production of Title I
Loans. Home is not required to establish offices and obtain territorial
operating approval from HUD to originate Correspondent Loans, but can originate
all such loans from its executive office.
Home Improvement Contractor Lending. The Company originates either
indirect or direct loans through its established network of home improvement
contractors. Under HUD's indirect or "Dealer" program, the contractor is
approved and supervised by Home. The "Dealer" facilitates the loan by taking the
customer application, transmitting the application to Home for pre-approval,
gathering the necessary loan stipulations from the borrower, performing the work
on the property, and closing the loan transaction. When Home has verified that
the remodeling project has been completed to the satisfaction of the borrower,
Home funds the pre-approved loan at face or par value. Home receives any
origination fees from the transaction. Home also funds loans on a direct basis
for borrowers that have been referred by contractors. These "Direct Contractors"
refer the customer to Home and perform the work on the homeowner's property.
Home funds the loan proceeds, either payable directly to the customer or jointly
to the customer and the contractor prior to the initiation of the home
improvement work. Home receives any origination fee resulting from the
transaction. See "Regulation" herein.
Home is required to obtain territorial operating approval from HUD
prior to funding indirect or direct Dealer home improvement loans. As of
December 15, 1997, Home held HUD lending approval in 37 states. In addition to
HUD approval, the origination of indirect and direct loans requires Home to be
approved or exempt from approval by state lending authorities for loan
origination in the respective states. As of December 15, 1997, Home was approved
or exempt in 44 states and the District of Columbia, had submitted applications
for lending authority
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in three states and anticipates applying in fiscal 1998 in an additional three
states, one of which requires the establishment of an office in that state prior
to application.
Direct Mail Lending. Home also makes direct loans through direct mail
solicitation. This effort is primarily conducted by the Company's Phoenix office
by mailing to homeowners in three states. This effort generates Title I Loans,
as well as Conventional Loans. The Company is seeking to expand this type of
loan origination to eight states in the coming fiscal year.
Corporate Alliance Lending. 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 at the 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 home improvement (such as a new kitchen, bathroom, windows
or other particular home improvement), and the entire project is installed on a
turnkey basis by the Corporate Alliance company. The Corporate Alliance company
may benefit from increased sales by accessing 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.
In November 1996, Home entered into a Corporate Alliance with Builders
Square, Inc. This agreement provides for Home to market, on an exclusive basis,
its loan products through Builders Square stores. The agreement provided for the
initial implementation of Home's marketing efforts in a limited number of
Builders Square stores during a test period of nine months. Effective May 31,
1997, Home and Builders Square agreed to an early conclusion of the test period
and to proceed under the marketing agreement with a 3-year term and the
implementation of Home's marketing efforts on a national basis to all of
Builders Square's 162 stores. During calendar year 1997, Builders Square entered
into a merger agreement with Hechinger's, a similar home improvement
retail/wholesale firm based in the Washington, D.C. area. Home expects to
consult with the new management of the merged entity during the first quarter of
calendar year 1998 to expand it marketing effort to the 271 stores represented
in the merger of these two retailers.
Community Development Lending. Home has pursued use of the Title I
Loan as the basis for public/private partnership opportunities with local units
of government, state governments, housing finance agencies, and community based
non-profit housing providers. The use of the Title I Loan in conjunction with
subsidy dollars from HUD allows affordable payments for low and moderate income
homeowners. The Company has entered into a pilot project for development of this
type of loan product with the Texas State Affordable Housing Corporation, a non-
profit mortgage subsidiary of the Texas Department of Housing and Community
Affairs. The Company plans geographic diversification of this type of lending
program in the next fiscal year through a network of Fannie Mae Partnership
Offices throughout the nation. This effort will target rural as well as inner
city underserved credit need areas.
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The following table sets forth a summary of Title I Loan production
for the fiscal years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Title I Loans Funded
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------------------------- -------
% of % of
Correspondent Dealer Direct Total Total Total
State of Origination Loans (1) Loans Loans Loans Loans Loans
- -------------------- ------------- ------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Alabama $ 17 $ $ $ 17 * -
Arizona 831 4 1,813 2,648 1.8% *
Arkansas 61 169 230 * *
California 101,364 18 2,758 104,140 70.7% 67.3%
Colorado 773 8 19 800 * *
Florida 16,136 4 265 16,405 11.1% 4.0%
Georgia 138 4 593 735 * *
Hawaii 88 88 * *
Idaho 25 10 35 * *
Illinois 1,315 62 1,377 * *
Indiana 20 20 * -
Kansas 5 3 8 * -
Kentucky 81 81 * -
Louisiana 37 46 83 * *
Maryland 362 362 * -
Michigan 25 98 123 * -
Missouri 15 52 67 * -
Mississippi 14 14 * -
Montana 42 42 * -
Nevada 2,442 98 2,540 1.7% 4.3%
New Jersey 138 138 * *
New Mexico 153 49 202 * *
New York 1,744 1,744 1.2% 2.3%
North Carolina 565 565 * *
Ohio 209 52 261 * *
Oklahoma 185 327 382 894 * *
Oregon 103 4 107 * *
Pennsylvania 65 80 985 1,130 * -
South Dakota 4 4 * -
Texas 2,848 4,273 4,415 11,536 7.8% 17.9%
Utah 344 344 * *
Virginia 100 8 108 * -
Washington 351 351 * *
Wisconsin 16 16 * -
Wyoming 25 25 * -
-------- ------ -------- -------- ------- -------
Total Title I Loans $130,376 $4,883 $ 11,979 $147,240 100.00% 100.00%
======== ====== ======== ======== ======= =======
</TABLE>
__________________
*Less than one percent.
(1) Excludes bulk purchase of $15.9 million
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In addition to Title I Loan production, total Conventional Loan
production in fiscal 1997 of $18,718,072 was originated as follows: $6,240,502
in Arizona; $1,658,900 in Georgia; and $7,748,800 in Pennsylvania. Conventional
Loan production increased from $3,105,374 in fiscal 1996 to $18,718,072 in
fiscal 1997, with substantially all of the fiscal 1997 production coming from
the direct marketing sales office in Arizona. The Company intends to continue
the emphasis on Conventional Loans in fiscal 1998.
LOAN FUNDING. Home funds its origination and purchase of loans
through a commercial bank credit line or through an arrangement with Fannie Mae,
until loans in sufficient aggregate dollar amounts have been accumulated for
sale to Fannie Mae or to the secondary market. Presently, Home funds its
borrowings under a Warehouse Loan Agreement with Guaranty Federal Bank, F.S.B.
("Guaranty Bank") that allows borrowings of up to a maximum of $20,000,000
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 Title I Loan it
originates. Up to $10,000,000 of the Guaranty Bank line may be used for
Conventional Loans. The advance rate for Conventional Loans is equal to
approximately 97% of the purchase price of each loan. Advances under the loan
agreement bear interest at the Federal Funds Rate plus three percent per annum,
payable monthly. This warehouse credit line expires June 30, 1998. Home
expects, however, that it will be reviewed 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.
As part of the arrangement with Fannie Mae to exchange Title I Loans
for Mortgage-backed securities, Fannie Mae has provided short-term warehouse
funding to Home, on an uncommitted basis, for Title I Loans and Mortgage-backed
securities exchanged for such Title I Loans. Generally the funding facilities
require repayment with a cost of funds based on a 30 day LIBOR rate plus 30 to
90 basis points, depending upon whether the funding is provided for Title I
Loans or Mortgage-backed securities. At September 30, 1997, the principal
amount of the Company's obligations to Fannie Mae under these funding facilities
was approximately $7.7 million for Mortgage-backed securities that have been
issued by Fannie Mae and registered under the Federal Reserve book entry system
and was approximately $14.9 million for Mortgage-backed securities that have
been issued with Fannie Mae but not registered under the Federal Reserve book
entry system. These repayment obligations of the Company are secured by
Mortgage-backed securities with a fair value of approximately $23.3 million at
September 30, 1997. Fannie Mae also has provided warehouse funding to the
Company for its Title I Loans held for sale. At September 30, 1997, the
principal amount of the Company's obligations under this funding facility was
approximately $4.9 million for Title I Loans delivered and available for sale to
Fannie Mae.
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 AND DISPOSITION. Until October 1995, the Company's
principal source of liquidity was the sale of whole loans on a servicing
released basis. While this enabled the Company to meet its operating cash
requirements, it limited the Company's growth potential and
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the revenue generated from its loan originations. To remedy this situation, the
Company embarked on a strategy in fiscal 1996 that enabled the Company to retain
the excess interest spread from its loan originations and to consider other
disposition strategies for 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 expanded its warehouse
financing and raised additional capital in fiscal 1996 to support loan sales to
Fannie Mae.
In March 1997, the Company began selling Title I Loans to Fannie Mae
under the Fannie Mae Title I Mortgage-backed securities program. Under the
program, the Company exchanged its Title I Loans for Mortgage-backed securities
and simultaneously sold these Mortgage-backed securities for a premium through
Fannie Mae. In addition to the cash premium on sale, the Company also recorded
an Interest-only strip receivable derived from the excess interest spread that
ranged from 125 basis points to 250 basis points. While these "swap and sell"
transactions generated cash proceeds that in certain instances may be sufficient
to satisfy the current liquidity demands for the Company, these transactions
also generate current tax liability for federal income tax purposes attributable
to the net gain recognized from the sale of the related Title I Loans.
In May 1997, the Company modified its disposition strategy in
anticipation of a securitization of the Fannie Mae Mortgage-backed securities.
Rather than "swap and sell" transactions, the Company began to exchange its
Title I Loans for Fannie Mae Mortgage-backed securities and to hold the
Mortgage-backed securities for future securitization in "swap and hold"
transactions. The Company planned to securitize the majority of its Fannie Mae
Mortgage-backed securities in a transaction that would not be treated as a sale
for federal income tax purposes, and, therefore, would cause the deferral of
federal and state income tax liabilities, until the cash interest income
attributable to the retained interest in the Mortgage-backed securities is
received over the term of the securitization transaction.
During the fourth quarter of fiscal 1997, the Company completed its
first securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I, a Delaware business trust organized by Home, issued and
sold $47,154,000 of Asset Backed Bonds at 7.335% directly to an investor. The
Bonds are collateralized by $48,116,652 of Fannie Mae Mortgage-backed securities
with an average pass-through rate of 12.25%. The Company retained a residual
interest from the securitization which entitles it to the excess spread from the
interest received on the Fannie Mae Mortgage-backed securities over the interest
paid on the Bonds, as well as to any remaining balances in the Mortgage-backed
securities after the Bonds are paid in full. In addition, the Company earns an
interest spread from the FHA Title I Loans underlying these Mortgage-backed
securities. At September 30, 1997, Mortgage-backed securities with a fair value
of approximately $23.3 million are being held primarily for future
securitizations.
During the first quarter of fiscal 1998, the Company completed its
second securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I issued and sold $39,193,258 of Asset Backed Bonds at
7.261% directly to an investor. The Bonds are collateralized by $39,589,150 of
Fannie Mae Mortgage-backed securities with an average pass-through rate of
12.24%. The Company retained the residual interest from the securitization and
is entitled to the excess spread from the interest received on the Fannie Mae
Mortgage-backed
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securities over the interest paid on the Bonds, as well as any remaining
Mortgage-backed securities after the Bonds are paid in full. In addition, the
Company earns an interest spread from the FHA Title I Loans underlying these
Mortgage-backed securities. Also during the first quarter of fiscal year 1998,
the Company sold $6.9 million of Fannie Mae Mortgage-backed securities with an
average interest rate of approximately 9.7% for total sales proceeds of
approximately $7.5 million.
In summary, the Company disposes of its funded Title I Loans by whole
loan cash sales to investors, servicing released, whole loan sales to Fannie
Mae, servicing retained, and conversion of loans to Mortgage-backed securities
for securitization or for sale for cash. Conventional loans are sold servicing
released to specific investors for cash.
LOAN UNDERWRITING. With respect to the Title I Loans, the
underwriting standards of the Company generally place a greater emphasis on the
creditworthiness of the borrower than on the underlying collateral in evaluating
the likelihood that a borrower will be able to repay a Title I Loan. In
general, the Title I Loans originated or purchased by the Company will have been
made to borrowers that typically have limited access to consumer financing for a
variety of reasons, such as high levels of debt service-to-income, unfavorable
past credit experience, insufficient home equity value, lower income or a
limited credit history. The Company uses its own credit evaluation criteria to
classify the borrowers of loans by risk class as "A" through "D" grade credits.
These criteria include, as a significant component, the credit evaluation score
methodology (the "FICO Score") developed by Fair, Isaac and Company, a
consulting firm specializing in creating default predictive models through
scoring mechanisms. Additional criteria include the borrower's debt-to-income
ratio, mortgage credit history, consumer credit history, bankruptcies,
foreclosures, notice of defaults, deeds in lieu of foreclosure and
repossessions.
The Company's underwriting and credit policies include a number of
guidelines to assist underwriters in the credit review and decision process.
These underwriting guidelines provide for the evaluation of a loan applicant's
creditworthiness through the use of a consumer credit report, verification of
employment and a review of the debt service-to-income ratio of the applicant.
Income is verified through various means, including without limitation loan
applicant interview, written verifications with employers, review of pay stubs
or tax returns. The borrower must demonstrate sufficient levels of disposable
income to satisfy debt repayment requirements.
In response to changes and developments in the consumer finance area
and the secondary mortgage market, the Company's underwriting requirements for
certain types of Title I Loans may change from time to time, which in certain
instances may result in more stringent, and in other instances less stringent,
underwriting requirements. Depending upon when and the manner in which the
Title I Loans were produced by the Company, such Title I Loans may have been
originated or purchased by the Company under different underwriting
requirements, and, accordingly, certain Title I Loans may be of a different
credit quality and have different loan characteristics from other Title I Loans.
Furthermore, to the extent that certain Title I Loans were originated or
purchased by the Company under less stringent underwriting requirements, such
Title I Loans may be more likely to experience higher rates of delinquencies,
defaults and losses than those Title I Loans originated or purchased under more
stringent underwriting requirements.
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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 to Fannie Mae in June 1996. At September 30, 1997,
Home had a total loan servicing portfolio of approximately $234,748,000 of
which $174,265,000 was serviced for Fannie Mae and $60,483,000 for others. It
is the Company's strategy to retain interest-only residuals from future loan
sales which, accordingly, are expected to become an increasingly larger
component of earnings.
During fiscal 1997, the loan servicing portfolio increased by 153%
from $92,743,000 at September 30, 1996, to $234,748,000 at September 30, 1997.
The Company expects to increase the size of its servicing portfolio through
continuing increases in its loan production and loan sales, servicing retained.
The Company is a servicer of Title I Loans, including all of the Title
I Loans underlying Mortgage-backed securities created with Fannie Mae. As the
servicer, the Company is required to service the Title I Loans in conformity
with the applicable requirements and guidelines in the Fannie Mae Servicer
Guide, including the requirement that the Company remit on the Mortgage-backed
securities, the scheduled principal and interest payments and actual principal
and interest payments on Title I Loans, together with any principal prepayments.
The collection and remittance of scheduled loan payments on Title I Loans is
subject to various risks from the related borrowers, including without
limitation, the risk that a borrower will not satisfy the debt service payments,
including payments of interest and principal on the loan, and that the
realizable value of the related mortgaged property will not be sufficient to
repay the outstanding interest and principal owed on the loan. If the Company
fails to service its Title I Loans in conformity with the Fannie Mae Servicer
Guide, then Fannie Mae will have the right to terminate the Company's servicing
rights and transfer the servicing for these loans to another eligible servicer.
With respect to the Title I Loans underlying the Mortgage-backed securities, the
Company is entitled to receive an excess interest spread of at least 1.25% (125
basis points), but not more than 2.50% (250 basis points). Home has
subcontracted most of its servicing functions for the Title I Loans to third
parties who perform these functions for negotiated fees.
Since June 1996, the Company has substantially increased the volume of
the Title I Loans that it services. The Company has limited historical data
with respect to the delinquency, default and prepayment experience of the Title
I Loans included in its loan servicing portfolio. Accordingly, the delinquency
experience set forth below may not be indicative of the future performance of
the Title I Loans.
As of September 30, 1997, the aggregate outstanding principal balance
of all Title I Loans serviced by HOME totaled approximately $234,748,000,
representing 11,363 loans. The delinquency experience of the Company's loan
servicing portfolio at the respective dates is set forth below.
12
<PAGE>
<TABLE>
<CAPTION>
1997
Dec. 31 -------------------------------------------
DELINQUENCY DATA: 1996 March 31 June 30 September 30
-------- -------------------------------------------
<S> <C> <C> <C> <C>
Delinquencies in Serviced Loan Portfolio
(At period end):
31-60 days............................ 2.23% 2.89% 3.26% 5.52%
61-90 days............................ 1.21 1.22 1.36 2.58
91 days and over...................... 1.88 1.71 2.00 4.67
---- ---- ---- -----
Total 5.32% 5.82% 6.62% 12.77%
==== ==== ==== =====
Serviced Loan Portfolio
at period end (dollars in thousands) $126,194 $158,259 $186,889 $234,748
</TABLE>
The above delinquency data excludes loans that were pending the
submission of claims for reimbursement under the FHA Title I program, which at
September 30, 1997 included 361 loans with a principal balance of $7,826,900.
The Company calculates its delinquency rates by dividing the amount of
delinquent loans included in the loan servicing portfolio by the aggregate
outstanding principal of the loans in the servicing portfolio. The calculation
excludes the pending claims from the numerator and denominator.
Because the Company has been producing increasing volumes of new Title
I Loans that, due to their lack of seasoning, tend to have lower delinquency,
default and prepayment rates, the Company's overall delinquency, default and
prepayment rates may have remained lower than otherwise would have been
experienced with a static loan servicing portfolio. Because delinquencies and
defaults typically occur months or years after a loan is originated, data
relating to delinquencies and defaults as a percentage of the current loan
servicing portfolio can underestimate the risk of future delinquencies and
defaults. There is no assurance that the delinquency, default and prepayment
experience with respect to the Title I Loans will be comparable to the previous
experience for the loans serviced by the Company (including the delinquency
rates set forth above) or for the same type of loans serviced by any other
finance company. In addition, the rate of delinquencies and defaults with
respect to the Title I Loans will be affected by, among other things, interest
rate fluctuations and general and regional economic conditions.
Since the initiation of Title I Loan servicing in October 1995, the
Company has subcontracted with a non-affiliated company to provide all servicing
related activities such as payment collection and processing, investor
reporting, FHA claims filing administration, and workmanship complaint
monitoring. During fiscal 1997, the Company experienced an increase in
delinquencies of its loan portfolio, particularly in the fourth quarter, and
effective December 1, 1997, the Title I Loan servicing portfolio was transferred
to a new subservicer in an effort to improve the payment processing and
delinquent collection functions of its loans. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Summary."
13
<PAGE>
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 to approximately $181 billion in
the year 2000. Total loans insured under Title I aggregated approximately
$1.396 billion during the last HUD fiscal year. The home improvement 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. Home will also continue to pursue lending
opportunities through Direct Loans from home improvement contractors, corporate
alliances, and community development lending. Through both Correspondents and
Contractors the Company will offer Title I and Conventional Loan products.
REGULATION. All aspects of the operations of Home are subject to
federal and state 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 is an approved lender under
the Federal Housing Administration's Title I and Title II Programs. These
approvals are evidenced by the Company's Contract of Insurance issued by FHA,
which qualifies the Company for the origination, purchase and servicing of Title
I Property Improvement loans and Title I Manufactured Housing loans. Even though
Home has not chosen to do so as of yet, the Company is approved to originate and
service home purchase and purchase/rehab loans under the Title II Program.
Additionally, each of the Correspondents approved by Home must be sponsored by
the Company and approved by HUD to participate in FHA programs. Each contractor
that is approved by Home on an indirect basis must go through an approval
process specified by federal regulation and supervised on a continuing basis by
the Company.
Home is required to be licensed to conduct business in each state in
which it originates loans. As of December 15, 1997, Home was approved to do
business in 45 states.
In addition to state lending requirements, Home also operates under
laws and regulations such as 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 Fair Debt Collection Act.
14
<PAGE>
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 the Title I Loan
program 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 actions by the Congress of
the United States of the Administration, the ability of Home to participate in
Title I Loans could be substantially and adversely affected.
The Administration of the U.S. Department of Housing and Urban
Development proposed a change to the "Dealer" portion of the Title I program.
The proposed change would eliminate the indirect origination and funding of
loans through contractors. This proposal would not affect direct loan fundings
under the program. Home has very little loan volume from the "dealer/indirect"
loan program. Additionally, HUD has not continued with implementation of the
"dealer rule" and gives no indication of pursuing the effort to change the
"dealer/indirect" portion of the Title I program. Home believes the proposed
rule, if eventually implemented, would have no material adverse effect on its
ability to originate loans on a Correspondent or Direct basis.
FACILITIES AND EMPLOYEES. Home operates out of leased facilities in
its 12 branch offices and its home and executive offices at 6836 Austin Center
Blvd., Suite 280 in Austin, Texas 78731, telephone (512) 427-5200 and telefax
(512) 795-9815, which are shared with the Company. At December 15, 1997, Home
had 112 full-time employees, 2 part-time employees and 27 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.
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 13 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.
Except for routine litigation that is incidental to its business (none
of which is material), the Company is not a party to, nor is any of its property
subject to, any material pending legal proceedings.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders of the Company was duly called and
held on September 25, 1997 ("1997 Annual Meeting"). In connection with the
Annual Meeting, the Company filed and distributed to its stockholders a Proxy
Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended (the "1997 Proxy Statement"). The following matters were voted upon at
the Annual Meeting:
(a) The election of the following persons to serve on the Board of
Directors of the Company: John W. Ballard, E. Jeff Bomer, J. Rolfe Johnson,
Larry D. Meyers, Robert R. Neyland, Peter A. Pyhrr and Walter W. Stoepplewerth.
(b) The approval of an amendment to the HomeCapital Investment
Corporation 1996 Stock Option Plan ("Stock Option Plan") to increase from
500,000 to 1,000,000 the number of shares of Common Stock that may be issued
upon exercise of options granted under the Stock Option Plan.
(c) The approval of the HomeCapital Investment Corporation
Non-Employee Director Compensation Plan ("Director Plan") providing a $10,000
annual retainer and $1,000 per meeting cash compensation, and an option to
purchase 15,000 shares of Common Stock upon initial election as a director and
an additional option to purchase 3,000 shares of Common Stock upon reelection as
a director for each non-employee director of the Company and Home. All stock
options under the Director Plan are exerciseable at the market price of the
Common Stock on the date of grant and vest 20% per year.
(d) The approval of an amendment to the Articles of Incorporation of
the Company to adopt a provision eliminating the personal liability of directors
and officers to the Company and its stockholders under certain circumstances in
accordance with the corporate law of Nevada.
(e) The approval of an amendment to the By-Laws of the Company to
provide for indemnification of officers, directors and other agents of the
Company and its subsidiaries against certain litigation costs under certain
circumstances.
(f) The ratification of the appointment of Coopers & Lybrand L.L.P. as
independent accountants and auditors of the Company for the 1997 fiscal year.
16
<PAGE>
Each of the nominees was elected to the Board of Directors, and each
of the other propositions was approved and passed by the necessary vote at the
1997 Annual Meeting. The following table sets forth the number of votes cast
for, against or withheld, and abstentions and broker non-votes in the election
of each director and each of the other propositions:
<TABLE>
<CAPTION>
For Against Abstain/1/
Directors
<S> <C> <C> <C>
Mr. Ballard 7,682,591 __ 1,490,227
Mr. Bomer 7,686,218 __ 1,486,600
Mr. Johnson 7,361,516 __ 1,810,653
Mr. Meyers 7,686,217 __ 1,489,934
Mr. Neyland 7,686,218 __ 1,486,600
Mr. Pyhrr 7,682,591 __ 1,490,227
Mr. Stoeppelwerth 7,686,217 __ 1,486,601
Stock Option Plan 6,148,883 2,153,700 42,967/2/
Director Plan 7,139,970 2,131,359 4,746
Articles Amendment 7,462,160 1,680,825 133,090
By-Laws Amendment 7,419,723 1,810,053 46,300/2/
Accountants 9,272,328 8 3,739
</TABLE>
- -----------------------------
/1/ Votes withheld in Election of Directors
/2/ Includes 41,556 broker non-votes
17
<PAGE>
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
Company's Common Stock were approved for listing on the NASDAQ SmallCap Market
and began trading on this market on July 17, 1997. On September 18, 1997, the
Common Stock of the Company was also listed for trading on the Pacific Exchange
under the symbol HCI.
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.
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
Year ended September 30, 1997 High Low
---- ---
First Quarter $ 8.25 $5.00
Second Quarter 13.25 7.25
Third Quarter 11.25 8.00
Fourth Quarter 9.375 6.50
On December 15, 1997, the bid price per share for the Company's Common
Stock as reported by the NASD was $4.625.
(b) Stockholders. As of December 15, 1997, the approximate number of
holders of record of the Company's Common Stock was 985, not including
beneficial holders of shares held in street name.
(c) Dividends. 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
18
<PAGE>
Stock until all accrued dividends on the Series A Preferred Stock have been paid
or funds set aside therefor. At September 30, 1997, the Company had accrued and
unpaid dividends on its Series A Preferred Stock of $76,932. During fiscal 1997,
cash dividends totaling $270,000 were paid on the Series A Preferred Stock.
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. Home was organized in 1993 to originate, purchase,
sell and service home improvement loans and other second mortgage loans secured
by residential property. Home primarily finances Title I home improvement loans
and conventional consumer and home equity loans that fund a variety of borrower
needs. Loans originated or purchased by Home are financed through warehouse
credit lines and then sold to or exchanged with Fannie Mae, secondary market
mortgage investors and other financial institutions or exchanged for Mortgage-
backed securities. Home originates and purchases its loans through two primary
sources: wholesale (i.e. "Correspondent Loans"), and retail (i.e. "Direct
Loans"). Home purchases Correspondent Loans through a national network of
mortgage loan correspondents ("Correspondents"). Home originates Direct Loans
through direct mail solicitation of individual homeowners, through referrals
from home improvement contractors, located principally in the Southwestern and
Western regions of the United States, and through special marketing efforts such
as Corporate Alliances and Community Development initiatives.
During the fiscal year ended September 30, 1997, the Company
originated or purchased in excess of $181,800,000 in loans, resulting in net
income of $5,178,737 on revenues of $23,968,818. The Company experienced
negative cash flow from operations of approximately $40.7 million during fiscal
1997 principally due to retaining interest-only strip receivables on the sale of
loans and Mortgage-backed securities and retaining a residual interest of
$962,652 in a securitization transaction. However, the Company expects to
continue funding its increased loan production and operational needs by
obtaining additional financing through continued asset-backed securitization
transactions and increased warehouse lines of credit and working capital lines
of credit.
The Company recognizes revenue primarily from the gain on sale of
loans and Mortgage-backed securities, net unrealized gain on valuation of
investment securities, loan interest income, and investment interest income.
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 then warehouse lender on a servicing
retained basis. Subsequently, the Company was approved as a Seller/Servicer
with Fannie Mae to sell
19
<PAGE>
Title I Loans to Fannie Mae, and in June 1996, began selling the majority of its
Title I Loans to Fannie Mae for cash on a servicing retained basis. In March
1997, the Company began exchanging the majority of its Title I Loans for Fannie
Mae Mortgage-backed securities and, until May 1997, the Company simultaneously
sold these Mortgage-backed securities through Fannie Mae to secondary market
investors. In May 1997, the Company began to retain these Fannie Mae Mortgage-
backed securities for planned securitization transactions.
During the fourth quarter of fiscal 1997, the Company completed its
first securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I, a Delaware business trust, issued and sold $47,154,000
of Asset Backed Bonds, Series 1997-1, at 7.335% directly to an investor. The
Bonds are collateralized by $48,116,652 of Fannie Mae Mortgage-backed securities
with an average pass-through rate of 12.25%. The Company retained and recorded
an interest-only strip receivable from the securitization which entitles it to
the excess spread from the interest received on the Fannie Mae Mortgage-backed
securities over the interest paid on the Bonds, as well as a residual interest
that entitles it to any remaining balances in the Mortgage-backed securities
after the Bonds are paid in full. In addition, the Company recorded an
interest-only strip receivable from the excess servicing fee interest spread
from the Title I Loans underlying these Mortgage-backed securities.
The following is a summary of Title I Loans and Mortgage-backed
securities sold or created during the fiscal years ended September 30, 1997 and
1996:
<TABLE>
<CAPTION>
Title I Loans Sold: 1997 1996
------------------------------------------------------------ -------------
<S> <C> <C> <C>
Servicing released $ 5,215,068 $ 3,411,890
Servicing retained:
Financial institutions 61,318,895
Fannie Mae - Whole loan sales 57,349,489 29,711,453
Fannie Mae - Mortgage-backed
securities sold 26,988,493 --
Fannie Mae - Loans exchanged
for Mortgage-backed securities 21,021,928 --
Asset-backed Securitizations 48,116,662 --
------------- -------------
153,476,572 91,030,348
------------- -------------
Total Title I Loans Sold $ 158,691,640 $ 94,442,238
============= =============
</TABLE>
Gain on sale of loans and Mortgage-backed securities are recognized
upon the sale of loans or Mortgage-backed securities to investors. Loans are
deemed not to have been sold if they have been exchanged for Fannie Mae
Mortgage-backed securities, which have been retained by the Company. The gain
on sale of loans and Mortgage-backed securities is calculated based upon the
difference between the net proceeds from the sale, including the value of an
Interest-only strip receivable derived from the excess interest spread on the
loans, and the allocated carrying values of loans or Mortgage-backed securities
sold. The allocated carrying values are based upon the relative fair value of
loans or Mortgage-backed securities sold and the Interest-only strip
receivables.
Net unrealized gain on valuation of investment securities includes the
unrealized gain on the outstanding Fannie Mae Mortgage-backed securities and
Interest-only strip receivables that are classified as trading securities. The
unrealized gain on Mortgage-backed
20
<PAGE>
securities and Interest-only strip receivables represents the excess of fair
value over the net carrying value of the securities. The fair value of the
Mortgage-backed securities is determined based upon independent market quotes.
The fair value of the Interest-only strip receivables is calculated based upon
the present value of the estimated future excess interest spread after
considering the effects of estimated prepayments, defaults and future expenses.
The discount rate utilized is based upon assumptions that market participants
would use for similar financial instruments subject to prepayments, defaults,
collateral value and interest rate risks. As of September 30, 1997, the
Interest-only strip receivable totaled $21.7 million.
The Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125)
as of January 1, 1997. SFAS No. 125 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.
As a result of adopting the SFAS No. 125, the Excess servicing
receivables previously shown on the Balance Sheet as of December 31, 1996, have
been renamed as Interest-only strip receivables, and are classified as available
for sale securities. In addition, in the event of a securitization, the
resultant Interest-only strip receivable is divided into two components. The
first component is related to the excess servicing fee on the loans, is
classified as available for sale and is derived from the excess of the weighted
average interest rate on the underlying loans over the interest rate on the
Mortgage-backed securities, plus the quarterly fee and net costs of servicing.
The second component is represented by a certificated residual interest in the
Mortgage-backed securities, is classified as a trading security and is derived
from the excess of the weighted average interest rate on the Mortgage-backed
securities over the interest rate on the related series of Asset Backed Bonds
plus the trustee and bond administration fees. The Company periodically reviews
the fair value of the Interest-only strip receivables. The difference between
the fair value and allocated carrying values for securities classified as
available for sale is included as a component of stockholders' equity, while
such differences for Interest-only strip receivables accounted for as trading
securities are included as a component of net income.
For loans and Mortgage-backed securities sold during fiscal 1997, the
estimated fair value of cash flows were discounted using rates ranging from 11%
to 12 1/2% and were determined using annual prepayment assumptions (inclusive of
principal reductions from loan defaults) that included constant prepayment rates
("CPR") at either a level rate of 5% CPR for the first year and 15% CPR
thereafter or a ramp up rate starting at 3% CPR in month one and increasing to
15% in month thirteen and 15% CPR thereafter. 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
fair value of expected cash flows, management considers economic conditions at
the date of sale.
The Company periodically reviews the Interest-only strip receivables,
classified as available for sale, for impairment. This review is performed on a
disaggregated, pool-by-pool basis to determine whether a decline in fair value
below the carrying value of these assets is other than temporary. The loans
underlying the Interest-only strip receivables are affected primarily by the
related prepayment speeds of the loans and the actual default and delinquency
rates. Impairment in the carrying value of Interest-only strip receivables is
charged to operations for the period of impairment.
21
<PAGE>
The Company records a Retained interest in securitization transactions
in which the Company transfers to the indenture trustee Mortgage-backed
securities having a principal balance in excess of the principal amount of the
related series of Asset Backed Bonds issued and sold by the Company. This
overcapitalization is realized by the Company in the form of principal and
interest payments subsequent to the full repayment of principal to the
bondholders. The Retained interest also is represented by the certificated
residual interest in the Mortgage-backed securities and is classified as a
trading security.
There can be no assurance that the Company's estimates used to
determine the fair value of Interest-only strip receivables will remain
appropriate for the life of the loans. If based on actual rates of loan
prepayments and defaults, or in the case of Interest-only strip receivables
derived from loan excess servicing fee spread, loan delinquencies, the Company
determines that its current expectation of future rates of loan prepayments or
defaults, or in those cases, loan delinquencies, exceed the Company's previous
estimates of such rates, then the carrying value of the Company's Interest-only
strip receivable, classified as available for sale, 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.
Net income for fiscal 1997 includes a pre-tax charge of $508,021
relating to an impairment loss on Interest-only strip receivables. The
impairment loss on Interest-only strip receivables resulted from increased rates
of principal prepayments and defaults on certain loan pools serviced by the
Company.
The principal balance of loans and Mortgage-backed securities serviced
at September 30, 1997 totaled approximately $234,748,000, representing 11,363
underlying Title I Loans. The Company began servicing loans in October 1995.
The servicing function is performed by a non-affiliate of Home at a negotiated
fee. The following table summarizes the delinquency experience of the Title I
Loan portfolio serviced by Home:
<TABLE>
<CAPTION>
Dec. 31 Mar. 31 June 30 Sep. 30
Delinquency Data: 1996 1997 1997 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delinquencies in Serviced Loan
Portfolio (at period end):
31-60 days........................ 2.23% 2.89% 3.26% 5.52%
61-90 days........................ 1.21 1.22 1.36 2.58
91 days and over.................. 1.88 1.71 2.00 4.67
---- ---- ---- -----
Total 5.32% 5.82% 6.62% 12.77%
==== ==== ==== =====
Serviced Loan Portfolio at period
end (dollars in thousands) $126,194 $158,259 $186,889 $234,748
</TABLE>
The above delinquency information excludes loans that are in the
claims pending status. At September 30, 1997, claims were pending on 361 loans
with an approximate balance of $7,826,900.
22
<PAGE>
During fiscal 1997 the Company has been experiencing an increase in
the delinquencies of its serviced loan portfolio, while this loan portfolio has
been increasing. In particular, there was a significant increase in the
delinquencies at the end of the fourth quarter in comparison to the third
quarter. Accordingly, the Company considered various options to improve the
servicing of its loan portfolio, including the delinquency performance, and
decided to assume the FHA claims filing administration and workmanship complaint
monitoring activities in house. A loan servicing department of the Company has
been established for these activities. In addition, the Company decided to
engage a collection agency to separately perform the delinquent collection
services for all loans that are five days or more delinquent, and during August
the Company transferred these collection services from its existing subservicer
to the collection agency. Management believes that the complexity of
transferring these collection services from the existing subservicer to the
collection agency, including the transfer of relevant computer data for
borrowers, contributed to an increase in delinquencies during the forth quarter
of fiscal 1997. In addition, management believes that the separation of the
normal payment collection and processing functions from the delinquent
collection functions also contributed to an increase in delinquencies during the
forth quarter of fiscal 1997.
During the first quarter of fiscal 1998, the Company reevaluated the
separation of the payment processing and delinquent collection functions and
concluded that a new subservicer should be located to perform both these
functions to improve the delinquency performance of the loan portfolio.
Effective December 1, 1997, the Company transferred a majority of its serviced
loan portfolio to a new subservicer to perform these loan servicing functions.
The Company believes that because this new subservicer has significant
experience in collecting delinquent loans, as well as a sophisticated and
automated collection process, improvement in collection results should begin to
occur during the second quarter of fiscal 1998.
Because delinquencies and losses typically occur months or years after
a loan is originated, data relating to delinquencies and losses as a percentage
of the current portfolio can understate the risk of future delinquencies, losses
or defaults. There is no assurance that the delinquency, default and loss
experience with respect to any of the loans serviced will be comparable to the
experience reflected above for assets originated and serviced by Home. The rate
of delinquencies, defaults and losses with respect to the loans will also be
affected by, among other things, interest rate fluctuations and national and
regional economic conditions.
Interest-loans represents interest received on loans in the Company's
portfolio prior to their sale. Interest-investments represents the excess
interest spread from Interest-only strip receivables and other ancillary fees
received for servicing loans. 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. These costs
have increased in fiscal 1997 with the increase in the loan production, increase
in personnel, and increase in the costs related to opening new branch locations.
23
<PAGE>
The Company continues to implement its business growth strategy
through both product line and geographic diversification. Home continues to
expand its Correspondent operation, its direct sales marketing operations,
Corporate Alliance relationships and pursue Community Development Lending
initiatives, in an effort to increase both loan production volume and loan
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 Interest-only strip receivables, and has been funded primarily
through increased borrowings. While this growth has increased the Company's
revenues through increased gain on sale of loans, interest 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 produced and
serviced. Increases in the Company's servicing portfolio and earnings are
contingent upon production volumes continuing to exceed pay downs of loans
serviced. Additionally, the fair value of Interest-only strip receivables owned
by the Company may be adversely affected by changes in delinquency rates and 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.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
The Company originated or purchased $181.8 million of loans during
fiscal 1997 compared to $100.2 million of loans during fiscal 1996, an increase
of 81%. The increase is a result of the overall growth in the Company's
business, including an increase in the number of active Correspondents and an
increase in the number of Conventional Loans originated through direct sales
marketing. At September 30, 1997, the Company had approximately 128 active
Correspondents compared to approximately 80 active Correspondents at September
30, 1996. Of the $181.8 million of loans originated in fiscal 1997, $163.1
million were Title I Loans and $18.7 were Conventional Loans.
24
<PAGE>
The following table sets forth certain data regarding loans originated
and purchased by the Company during fiscal 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996
---------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Principal amount of loans:
Correspondents - Title I $ 146,229,810/1/ 80.4% $ 76,020,078 75.9%
Dealers - Title I 4,882,974 2.7% 15,440,132 15.4%
Direct - Title I 11,979,462 6.6% 5,606,397 5.6%
Conventional 18,718,072 10.3% 3,105,374 3.1%
------------- ------ ------------- ------
Total $ 181,810,318 100.0% $ 100,171,981 100.0%
============= ====== ============= ======
Number of loans:
Correspondents - Title I 6,307 78.5% 3,399 68.2%
Dealers - Title I 378 4.7% 1,124 22.5%
Direct - Title I 684 8.5% 312 6.3%
Conventional 665 8.3% 152 3.0%
------------- ------ ------------- ------
Total 8,034 100.0% 4,987 100.0%
============= ====== ============= ======
</TABLE>
Total revenues increased 169% to $23,968,818 for fiscal 1997 from
$8,913,603 for fiscal 1996. The increase was primarily the result of the
increased volume of loans originated and the sale of such loans.
- ------------
/1/Included bulk purchases of $15,852,112.
25
<PAGE>
The following table sets forth the principal balance of loans sold and
related gain on sale data for fiscal 1997 and 1996.
Year Ended September 30
1997 1996
------------- ------------
Principal amount of loans sold:
Title I $ 158,691,640 $ 94,442,238
Conventional 17,960,979 3,053,912
------------- ------------
Total $ 176,652,619 $ 97,495,150
============= ============
Gain on sale of Loans and
Mortgage-backed securities:
Cash $ 3,239,290 $ 4,475,183
Interest-only strip gain 16,382,185 5,169,521
------------- ------------
Sub Total 19,621,475 9,644,704
Premiums, net (7,184,567) (2,424,552)
Origination fees 2,706,391 556,024
Transaction costs (15,128) (22,669)
------------- ------------
Gain on sale of Loans and
Mortgage-backed securities $ 15,128,171 $ 7,753,507
============= ============
Gain on sale of Loans and
Mortgage-backed securities as a
percentage of principal balance of 8.6% 8.0%
loans sold
Gain on sale of loans, as a percentage of the principal balance of
loans sold, increased in fiscal 1997 over fiscal 1996, primarily due to increase
in the interest-only strip receivable component of the gain in fiscal 1997. The
gain on sale of loans increased from $7,753,507 in fiscal 1996 to $15,128,171 in
fiscal 1997 or 95%. The Interest-only strip component of the gain totaled
$16,382,185 in fiscal 1997 to $5,169,521 in fiscal 1997.
Net unrealized gain on valuation of investment securities increased
form zero in fiscal 1996 to $3,829,945 in fiscal 1997. The amount for fiscal
1997 represents the mark to market gain related to Mortgage-backed securities
and certain Interest-only strip receivables, classified as trading securities as
of September 30, 1997. Also included in the net unrealized gain is a $508,021
charge for an impairment loss on Interest-only strip receivables.
As a result of the adoption of SFAS No. 125, amounts previously
reported as loan servicing income were reported as Interest-investments
beginning January 1, 1997. The investment interest income reflects the accrued
income associated with the Interest-only strip receivable and the interest
income associated with Mortgage-backed securities owned during fiscal 1997.
Interest-investments increased to $2,626,882 in the fiscal 1997 primarily due to
the increase in Interest-only strip receivables and Mortgage-backed securities.
26
<PAGE>
Interest income on loans held for sale increased 164% to $1,656,978
during fiscal 1997 from $627,365 during fiscal 1996. 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 $220,000 in fiscal 1996
to $1,075,000 in fiscal 1997. 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 1997. Presently, upon sale of loans by Home, the
purchaser assumes all credit risk except for first payment defaults, 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 loans
longer in the portfolio, then the provision for credit losses as a percentage of
loans originated can be expected to increase. For example, future changes to
its loan disposition strategy that my subsequently increase Home's credit risk
could include the following possibilities: Home may elect or may be required to
retain the risk of loss on the uninsured portion of Title I Loans exchanged for
Fannie Mae Mortgage-backed securities; Home may securitize its loans other than
through the exchange of loans for Fannie Mae Mortgage-backed securities; or Home
may retain its loans in portfolio for a longer period prior to their
securitization.
Salaries and employee benefits increased 174% to $6,061,278 for the
1997 fiscal from $2,211,579 for the fiscal 1996, primarily as a result of an
increase in the pay rates of employees and the increase in hiring professionals
required for growth. During the fiscal 1997, in order to provide adequate
infrastructure for anticipated future growth, the Company increased the number
of new hire professional staff relative to clerical staff hirings. This
decision to increase the hiring of senior professionals resulted in increased
employment costs as compared to fiscal 1996 when new hires were predominately
clerical personnel. At the end of 1997, the Company had 117 employees as
compared to 48 at the end of 1996.
Servicing costs consists primarily of the costs related to servicing
the portfolio of Loans sold on a servicing retained basis. The servicing
function is performed by a no-affiliate of the Company at a negotiated fee.
Servicing costs increased 298% from $265,546 in the fiscal 1996 to $1,056,307 in
the 1997. The increase was a result of increased loans serviced from 4,659 at
September 30, 1996 to 11,363 at September 30, 1997.
Loan costs, consisting primarily of costs for credit reports, flood
reports, title reports, inspection fees, and the provision for credit losses,
increased 231% to 1,699,285 for the 1997 fiscal from $513,404 for the fiscal
1996 due primarily to the provision for credit losses of $1,075,000, as well as
the increase in loan production of $81.6 million for fiscal 1997.
Total general and administrative expenses increased 145% to $4,023,523
for the fiscal 1997 from $1,643,852 for fiscal 1996. 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
27
<PAGE>
primarily attributable to the increased volume of loan originations, loans
serviced, and the new offices opened.
Occupancy costs increased to $637,758 in fiscal 1997 from $336,894 in
the fiscal 1996 period, or 89.3%, due primarily to the expansion of lease space
at the corporate offices, opening of the new branch offices, and the expansion
of the office space related to the direct mail marketing operations.
Interest expense increased 317% to $1,925,434 for the fiscal 1997 from
$462,064 for fiscal 1996. The increase was the direct result of increased loan
originations, the corresponding increase in the average outstanding balance of
the warehouse credit lines, and the financing of the Interest-only strip
receivables and Mortgage-backed securities.
Other expense increased from zero in fiscal 1996 to $391,500 in fiscal
1997. The amount represents the fair value of stock warrants issued to non-
employees during fiscal 1997.
The provision for income taxes in fiscal 1997 was $2,994,996 as
compared to $914,041 for fiscal 1996. For the year ended September 30, 1997,
the Company had income before income taxes of $8,173,733 as compared to
$3,480,264 for the year ended September 30, 1996.
The effective income tax provision for the fiscal 1997 was 37%. This
percentage differs from the federal statutory rate of 34% due primarily to the
effect of state income taxes.
As a result of the foregoing, net income increased to $5,178,737, $.57
per common share for fiscal 1997, from $2,566,223, ($.073) per common share for
fiscal 1996.
FINANCIAL CONDITION
SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
Cash decreased to $4,202 at September 30, 1997 from $343,484 at
September 30, 1996, primarily as a result of the timing of loan originations,
loan sales, borrowings and proceeds from the exercise of common stock warrants
and investment in furniture fixtures and equipment. As a result of a bank
overdraft of $543,522 at September 30, 1997, cash decreased by $339,282 for the
year ended September 30, 1997.
Restricted cash deposits increased 130% to $1,623,782 at September 30,
1997 from $705,754 at September 30, 1996, due to the increase in loan servicing
activities during fiscal 1997.
Loans held for sale, net, increased 107% to $9,254,970 at September
30, 1997 from $4,479,550 at September 30, 1996 primarily as a result of
increased loan origination's from $100.2 million for fiscal 1996 to $181.8
million for fiscal 1997, and the timing of loan sales.
28
<PAGE>
Mortgage-backed securities increased to $23,279,895 at September 30,
1997, from zero at September 30, 1996, due to the commencement of participation
in the Fannie Mae FHA Title I Mortgage-backed securities program in March 1997.
Interest-only strip receivables increased 328% to $21,720,249 at
September 30, 1997 from $5,078,584 at September 30, 1996, due to the Company
increasing the disposition of loans with the retention of residual interests.
Retained interest in securitized assets increased 100% to $962,652 at
September 30, 1997, due to the Company commencing the securitization of
Mortgage-backed securities in the fourth quarter of fiscal 1997.
Prepaid expenses and other assets increased 947% to $2,520,567 at
September 30, 1997, from $240,681 at September 30, 1996, primarily due to
increases in prepaid FHA insurance premiums and amounts due from investors
related to loan sales and loan servicing.
Furniture, fixtures and equipment, net, increased 111% to $1,365,686
at September 30, 1997 from $646,082 at September 30, 1996 due to increased
purchases of office equipment related to facility expansion, and the expenditure
of $180,000 for the continued development of the Company's proprietary loan
system.
Revolving lines of credit increased 746% to $34,392,583 at September
30, 1997 from $4,064,180 at September 30, 1996 due to the increase in loans held
for sale, Mortgage-backed securities, Interest-only strip receivables and
retained interest in securitized assets at the end of fiscal 1997.
Amounts payable under securities loan agreement increased 100% to
$7,673,000 at September 30, 1997, due to the financing of Mortgage-backed
securities at the end of fiscal 1997.
Accrued expenses and other liabilities increased to $3,310,943 at
September 30, 1997 from $1,264,766 at September 30, 1996, primarily as a result
of increases in accrued interest and other accrued operating costs, and the
increase in the liability for unremitted funds relating to restricted cash
deposits.
The allowance for credit losses on loans sold increased 425% to
$919,315 at September 30, 1997, from $175,000 at September 30, 1996, due
primarily to the increase in estimated losses for future loan repurchases from
the increase in loan production and loan sales.
Income taxes payable decreased 63% to $410,694 at September 30, 1997,
from $1,104,543 at September 30, 1996, due primarily to the payment of state and
federal income taxes of $1,204,563 during fiscal 1997, and the deferral of
taxable income during fiscal 1997 related to unrealized gains from
securitization transactions.
Deferred tax liabilities increased 100% to $1,903,102 at September 30,
1997, in connection with the unrealized gains from the securitization
transaction.
29
<PAGE>
Stockholders' equity increased to $11,488,831 at September 30, 1997,
from $4,903,457 at September 30, 1996, primarily due to net income of $5,178,737
and the exercise of Series A warrants for $1,911,918.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require continued access to financing
sources. The Company's primary operating cash requirements arise from the cost
of loan originations and payments of operating expenses, interest and income
taxes. Loan originations are initially funded principally through the Company's
warehouse lines of credit or repurchase facilities pending the sale of loans in
the secondary market or pending the securitization of Mortgage-backed
securities. Substantially all of the loans originated by the Company are sold.
Net cash used in the Company's operating activities for the year ended September
30, 1997 and 1996 was approximately $40,700,000 and $3,900,000, respectively.
The net cash from the Company's operating activities resulted primarily from the
proceeds from the sale of loans totaling $152.4 million and $100.0 million for
the years ended September 30, 1997 and 1996, respectively.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans or Mortgage-backed securities in the
secondary market, are essential for the continuation of the Company's loan
origination operations. At September 30, 1997, the Company had a $20 million
warehouse line of credit with a commercial bank (the "Warehouse Line"). The
Warehouse Line matures June 30, 1998. At September 30, 1997, approximately $2.9
million was outstanding under the Warehouse Line and $17.1 million was
available. The Warehouse Line bears interest at 300 base points over the
federal funds rate and is collateralized by loans pledged under the Warehouse
Line. The agreement with the lender requires the Company to maintain a minimum
adjusted tangible net worth of $7.4 million. The Company also has a working
capital line of credit with the same lender for up to $16.7 million, which
matures June 30, 1998, and had an outstanding balance of $11.7 million at
September 30, 1997. At September 30, 1997, the interest rates on the two
components of the working capital line ranged from 9.375% (30 day LIBOR plus 375
basis points) to 10.125% (30 day LIBOR plus 450 basis points). The weighted
average interest rate for this facility at September 30, 1997, was 9.53%. While
the Company believes that it will be able to maintain its existing credit
facilities and renew or obtain replacement financing as its credit arrangements
mature and obtain additional financing for its operations, if necessary, there
can be no assurance that such financing will be available on favorable terms, or
at all.
In connection with the arrangement with Fannie Mae to exchange Title I
Loans for Mortgage-backed securities, Fannie Mae has provided short-term
repurchase funding to Home, on an uncommitted basis, for Title I Loans and
Mortgage-backed securities exchanged for such loans. Generally the repurchase
facilities with Fannie Mae require repayment with a cost of funds based on a 30-
day LIBOR rate plus 30 to 90 basis points, depending upon whether the funding is
provided for Title I Loans or Mortgage-backed securities. At September 30,
1997, the principal amount of the Company's obligations to Fannie Mae under
these repurchase facilities was approximately $7.7 million for Mortgage-backed
securities that have been issued by Fannie Mae and registered under
30
<PAGE>
the Federal Reserve book entry system and was approximately $14.9 million for
Mortgage-backed securities that have been issued with Fannie Mae but not
registered under the Federal Reserve book entry system. These repayment
obligations of the Company are secured by Mortgage-backed securities with a fair
value of approximately $23.3 million at September 30, 1997. Fannie Mae also has
provided repurchase funding to the Company for its Title I Loans that are held
for sale and intended for sale to Fannie Mae. At September 30, 1997, the
principal amount of the Company's obligations under this repurchase facility was
approximately $4.9 million for Title I Loans delivered and available for sale to
Fannie Mae.
Until October 1995, the Company's principal source of liquidity was
the sale of whole loans on a servicing released basis. While this enabled the
Company to meet its operating cash requirements, it limited the Company's growth
potential and the revenue generated from its loan originations. To remedy this
situation, the Company embarked on a strategy in fiscal 1996 that enabled the
Company to retain the servicing rights and the related servicing fee interest-
only spread from its Title I Loans produced and to consider other disposition
strategies for 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 expanded its warehouse financing and raised
additional capital to support loan sales to Fannie Mae.
In March 1997, the Company began selling Title I Loans to Fannie Mae
under the Fannie Mae Title I Mortgage-backed securities program. Under the
program, the Company sold its Title I Loans to Fannie Mae in exchange for
Mortgage-backed securities and simultaneously sold these Mortgage-backed
securities for a premium through Fannie Mae. In addition to the cash premium on
sale, the Company also recorded an Interest-only strip receivable derived from
the excess interest spread from the loan servicing fee that ranged from 125
basis points to 250 basis points. While these "swap and sell" transactions
generated cash proceeds that in certain instances may be sufficient to satisfy
the current liquidity demands for the Company, these transactions also generated
current tax liability for federal income tax purposes attributable to the net
gain recognized from the sale of the related Title I Loans.
In May 1997, the Company changed its disposition strategy in
anticipation of a resecuritization of the Fannie Mae Mortgage-backed securities.
Rather than "swap and sell" transactions, the Company began to exchange its
Title I Loans for Fannie Mae Mortgage-backed securities and hold the Mortgage-
backed securities for future resecuritization transactions. The Company planned
to resecuritize the majority of its Fannie Mae Mortgage-backed securities in a
transaction that would not be treated as a sale for federal income tax purposes,
and therefore, would cause the deferral of federal and state income tax
liability, until the cash interest income attributable to the retained interest
in the Mortgage-backed securities is received over the term of the
resecuritization transaction.
During the fourth quarter of fiscal 1997, the Company completed its
first securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I, a Delaware business trust, issued and sold $47,154,000
of Asset Backed Bonds, Series 1997-1, at 7.335% directly to an investor. The
Bonds are collateralized by $48,116,652 of Fannie Mae Mortgage-backed securities
with an average pass-through rate of 12.25%. The Company retained and recorded
an interest-only strip receivable from the securitization which entitles it to
the excess spread from the interest received on the Fannie Mae Mortgage-backed
securities over the interest
31
<PAGE>
paid on the Bonds, as well as a retained interest that entitles it to any
remaining balances in the Mortgage-backed securities after the Bonds are paid in
full. In addition, the Company recorded an interest-only strip receivable from
the excess servicing fee interest spread from the Title I Loans underlying these
Mortgage-backed securities. At September 30, 1997, Mortgage-backed securities
with a fair value of approximately $23.3 million are being held primarily for
future securitizations.
During the first quarter of fiscal 1998, the Company completed its
second securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I issued and sold $39,193,258 of Asset Backed Bonds, Series
1997-2, at 7.261% directly to an investor. The bonds are collateralized by
$39,589,150 of Fannie Mae Mortgage-backed securities with an average pass-
through rate of 12.24%. The Company retained and recorded an interest-only
strip receivable from the securitization which entitles it to the excess spread
from the interest received on the Fannie Mae Mortgage-backed securities over the
interest paid on the Bonds, as well as a retained interest that entitles it to
any remaining balances in the Mortgage-backed securities after the Bonds are
paid in full. In addition, the Company recorded an Interest-only strip
receivable from the excess servicing fee interest spread from the Title I Loans
underlying these Mortgage-backed securities.
Also during the first quarter of fiscal year 1998, the Company sold
$6.9 million of Fannie Mae Mortgage-backed securities with an average interest
rate of approximately 9.7% for total sales proceeds of approximately $7.5
million.
While the increase in its Warehouse Line, Working Capital Line, Fannie
Mae funding facilities, and additional capital have enabled the Company to
significantly increase its loan production and loan sales and Mortgage-backed
securities transactions to Fannie Mae, such transactions, with the retention of
the Interest-only strip receivable, create additional short-term cash
requirements. Loan sales and "swap and sell" Mortgage-backed securities
transactions, as described above, generate current federal and state tax
liability from the net gain on sale for income tax purposes, even though the
cash interest income from the related Interest-only strip receivable will be
received over the life of the Loans. Accordingly, in order for the Company to
continue the growth of its loan production and servicing portfolio, the Company
may require additional capital through the sale of debt and/or equity securities
to fund its operating cash requirements.
Although the Mortgage-backed securities currently held by the Company
represent readily marketable securities, the retention of these securities until
they can be resecuritized will increase the short-term liquidity demands on the
Company. The Company is receiving funding under its repurchase facilities with
Fannie Mae that generally exceeds the par value of the Mortgage-backed
securities, but these financing proceeds are less than the total value that
would otherwise be received from the current sale of these Mortgage-backed
securities. In addition, it retains interest-rate risk which may affect the
ultimate gain on disposition from a resecuritization transaction, as well as the
risk associated with a potential margin call on the financing of the Mortgage-
backed securities.
32
<PAGE>
During the year ended September 30, 1997, the Company used $963,830 in
funds for investing activities for furniture, fixtures and equipment, including
180,000 for the further development of the Company's proprietary computer
software and provided funds from investing activities of $1,193,982 from
payments received on Interest-only strip receivables and provided $40.2 million
in funds from its financing activities through increased usage of its revolving
lines of credit payables under securities loan agreements, and the issuance of
Common Stock through the exercise of warrants. The Company expects to spend
approximately $1,000,000 for furniture, fixtures and equipment for fiscal 1998
for the expansion of its lending network, and approximately $100,000 for
additional upgrades and enhancements to its computer system.
There can be no assurance that the Company will continue to have
access to current and future financing facilities and other sources of funding
that will provide the Company with sufficient funding to continue its loan
origination operations and loan disposition strategies. The failure of the
Company to have access to, or to obtain sufficient funding from, these financing
and other funding sources will in all likelihood impair the Company's ability to
grow its business and implement its business strategy, 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 February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
SFAS No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997 thus the Company will adopt SFAS No. 128 in the
first quarter of fiscal 1998. Previously reported earnings per share will be
restated at that time to conform to SFAS No. 128. This adoption is not expected
to have a material impact on earnings per share as currently presented by the
Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS NO. 130, which is effective for fiscal years
beginning after December 15, 1997, establishes disclosure standards for
reporting comprehensive income in a full set of general-purpose financial
statements. As SFAS No. 130 contains disclosure requirements only, its adoption
is not expected to have an impact on the Company's financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") which is
effective for periods beginning
33
<PAGE>
after December 15, 1997. SFAS No. 131 establishes standards for the way that
public business enterprises report selected information about operating segments
in interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. As SFAS No. 131 contains disclosure requirements only, its
adoption is not expected to have an impact on the Company's financial position
or results of operations.
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 external improvements. 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 volumes are not impacted by seasonal
climate changes and, with the exclusion of the holiday season, tend to be stable
throughout the year.
SAFE HARBOR STATEMENT
Some of the statements contained in this document that are not historical facts
are forward looking statements. Actual results and transactions may differ
materially from those projected or anticipated in the forward looking
statements. These forward looking statements involve risks and uncertainties,
including but not limited to the following risks: changes in the performance of
the financial markets, in the demand for and market acceptance of the Company's
loan products, and in general economic conditions, including interest rates; the
presence of competitors with greater financial resources and the impact of
competitive products and pricing; the effect of the Company's policies; and the
continued availability to the Company of adequate funding sources . Investors
are also directed to risks discussed elsewhere in this document and in other
documents filed by the Company with the Securities and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and exhibits are listed at Item 13 "Exhibits
and Reports on Form 8-K."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
34
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required to be furnished by this Item is hereby
incorporated by reference to the same information provided under the caption
"ELECTION OF DIRECTORS," in the proxy statement of the Company prepared in
accordance with Schedule A pursuant to Rule 14a-101 under the Securities
Exchange Act of 1934 to be filed with the Securities and Exchange Commission
("SEC") in connection with the 1998 annual meeting of stockholders of the
Company, and which shall be distributed to stockholders of the Company
accompanied by a copy of this report ("Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION.
The information required to be furnished by this Item is hereby
incorporated by reference to the same information provided under the caption,
"ELECTION OF DIRECTORS," in the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required to be furnished by this Item is hereby
incorporated by reference to the same information provided under the caption,
"ELECTION OF DIRECTORS," in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required to be furnished by this Item is hereby
incorporated by reference to the same information provided under the caption,
"ELECTION OF DIRECTORS," in the Proxy Statement.
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 Consolidated Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets at F-3
September 30, 1997 and September 30, 1996
35
<PAGE>
Consolidated Statements of Operations F-4
for the Years Ended September 30, 1997 and 1996
Consolidated Statements of Changes in Stockholders' F-5
Equity for the Years Ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows F-6
for the Years Ended September 30, 1997 and 1996
Notes to Financial Statements F-7
(2) Exhibits
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company, Inc., *
filed with the State of Nevada on September 30, 1997.
3.1a Certificate of Designations, Preferences and Rights of (5)
Preferred Stock, Series A, of the Company, filed with
the State of Nevada on June 14, 1996.
3.1b Amendments to Certificate of Designation of Preferred (4)
Stock, Series A, of the Company, filed with the
State of Nevada on December 19, 1996.
3.2 Bylaws of the Company (Restated) *
10.1 Option Agreement, dated August 26, 1994, (1)
between the Company and John W. Ballard.
10.2 Employment Agreement, dated June 21, 1993, (1)
between John W. Ballard and Home.
10.3 Loan Agreement, dated October 5, 1994, (1)
between the Company and Horizon Bank
and Trust, SSB.
10.4 Adoption Agreement, effective January 1, 1995, (2)
as amended, between Home and the trustees,
John W. Ballard and Anna Walker, of the 401(k)
Profit Sharing Plan of Home.
36
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
10.5 Mortgage Selling and Servicing Contract, dated (3)
March 1, 1996, between Home and the Federal
National Mortgage Association.
10.6 Master Agreement No. MD01694, effective as of *
February 11, 1997, between Home and the Federal National
Mortgage Association.
10.6a First Amendment to Master Agreement No. MD01694, *
effective as of April 11 , 1997, between Home and the
Federal National Mortgage Association.
10.6b Second Amendment to Master Agreement No. MD01694, *
effective as of September 23, 1997, between Home and the
Federal National Mortgage Association.
10.7 Employment Agreement, dated as of June 1, 1996, between (4)
Home and Tommy M. Parker .
10.8 HomeCapital Investment Corporation 1996 Stock (4)
Option Plan.
10.9 First Amended and Restated Warehouse Loan Agreement, *
dated as of September 24, 1997, among Home, the Company
and Guaranty Federal Bank, F.S.B ("Guaranty Federal").
10.9a Warehouse Promissory Note of Home, dated as of *
September 24, 1997, payable to Guaranty Federal
In the amount of $20,000,000.
10.9b Unconditional Guaranty of the Company, dated as of *
September 24, 1997, in favor of Guaranty Federal.
10.9c Security Agreement, dated as of June 1, 1996, between *
Home and Guaranty Federal.
10.9d Pledge Agreement, dated as of April 2, 1997, between Home *
and Guaranty Federal.
10.9e Bailment Agreement, dated as of April 2, 1997, among Home, *
Guaranty Federal and Frost National Bank.
37
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
10.10 First Amended and Restated Working Capital Line of Credit *
and Security Agreement, dated as of September 24, 1997,
between Home and Guaranty Federal.
10.10a Promissory Note of Home, dated as of September 24,1997, *
payable to Guaranty Federal in the amount of $16,666,600.
10.10b Unconditional Guaranty of the Company, dated as of *
September 24, 1997, in favor of Guaranty Federal.
10.11 Preferred Stock Purchase Agreement, dated May 3, 1996, (5)
between the Company and HCI Equity Partners, L.P.,
including form of Registration Agreement.
10.12 Form of Subscription Agreement for Preferred Stock (4)
Series A.
10.13 License Agreement, dated November 27, 1996, between (4)
Home and Builders Square, Inc.
10.14 HomeCapital Investment Corporation Non-Employee (6)
Compensation Plan effective September 25, 1997.
10.15 Employment Agreement, dated as of April 8, 1997, *
between Home and Michael B. Thimmig.
10.16 Employment Agreement, dated as of July 1, 1997, *
between Home and Thomas L. Perritte.
10.17 Employment Agreement, dated April 1, 1997, between *
Home and Gene V. Morrison.
10.18 Master Agreement No. MD01724, effective as of *
April 1, 1997, between Home and the Federal
National Mortgage Association.
10.18a First Amendment to Master Agreement No. *
MD01724, effective as of August 5, 1997,
between Home and the Federal National
Mortgage Association.
10.18b Second Amendment to Master Agreement *
No. MD01724, effective as of September 17,
1997, between Home and the Federal National
Mortgage Association.
38
<PAGE>
Exhibit No. Description of Document (Reference)
- --------------------------------------------------------------------------------
11 Statement of Computation of Earnings Per Share *
21 Subsidiaries of the Company *
27 Financial Data Schedule (Electronic Filing Only) *
__________________
Reference Notes:
* Filed herewith.
(1) Exhibits 10.1, 10.2 and 10.3 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.
(2) Exhibit 10.4 was filed as an Exhibit to Registrant's Annual Report
on Form 10-KSB for the fiscal year ended September 30, 1995, and is hereby
incorporated herein by this reference.
(3) Exhibit 10.5 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 this reference.
(4) Exhibits 3.1b, 10.7, 10.8, 10.12 and 10.13 were filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended September
30, 1996, and each is hereby incorporated herein by this reference.
(5) Exhibits 3.1a and 10.11 were filed as Exhibits to Registrant's
Quarterly Report on Form 10-QSB for the three months ended June 30, 1996, and
each is hereby incorporated herein by this reference.
(6) Exhibit 10.14 was filed as an Exhibit to Registrant's Proxy
Statement on Schedule 14A, dated September 3, 1997, and is hereby 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,
1997.
39
<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 29, 1997 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 29, 1997 By: /s/ JOHN W. BALLARD
-----------------------------------
JOHN W. BALLARD, President,
Chief Executive Officer,
Chief Financial Officer and
Chairman of the Board of Directors
Date: December 29, 1997 By: /s/ TOMMY M. PARKER
-----------------------------------
TOMMY M. PARKER,
Principal Accounting Officer
Date: December 29, 1997 By: /s/ E. JEFF BOMER
-----------------------------------
E. JEFF BOMER, Secretary
and Director
Date: December 29, 1997 By: /s/ PETER A. PYHRR
-----------------------------------
PETER A. PYHRR, Director
Date: December 29, 1997 By: /s/ LARRY MEYERS
-----------------------------------
LARRY MEYERS, Director
Date: December 29, 1997 By: /s/ ROBERT R. NEYLAND
-----------------------------------
ROBERT R. NEYLAND, Director
40
<PAGE>
Date: December 29, 1997 By: /s/ WALTER W. STOEPPELWERTH
-----------------------------------
WALTER W. STOEPPELWERTH, Director
Date: December 29, 1997 By: /s/ J. ROLFE JOHNSON
-----------------------------------
J. ROLFE JOHNSON, General Counsel
and Director
41
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants F-2
Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1997 and 1996 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997 and 1996 F-6
Notes to Financial Statements F-7
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, 1997 and 1996 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated 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, 1997 and
1996 and the consolidated results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
As described in Note 2, the Company implemented Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" as of January 1, 1997.
Coopers & Lybrand L.L.P.
Austin, Texas
December 12, 1997
F-2
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------------- -------------
<S> <C> <C>
Cash $ 4,202 $ 343,484
Cash deposits, restricted 1,623,782 705,754
Loans held for sale, net 9,254,970 4,479,550
Mortgage-backed securities 23,279,895 --
Interest-only strip receivables 21,720,249 5,078,584
Retained interest in securitized assets 962,652 --
Prepaid expenses and other assets 2,520,567 240,681
Furniture, fixtures and equipment, net 1,365,686 646,082
Deferred tax assets -- 190,502
-------------- -------------
Total assets $ 60,732,003 $ 11,684,637
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdraft $ 543,522 $ --
Note payable 50,010 158,339
Revolving lines of credit 34,392,583 4,064,180
Payable under securities loan agreements 7,673,000 --
Capital lease obligations 40,453 14,352
Accrued expenses and other liabilities 3,310,493 1,264,766
Allowance for credit losses on loans sold 919,315 175,000
Income taxes payable 410,694 1,104,543
Deferred tax liabilities 1,903,102 --
-------------- -------------
Total liabilities 49,243,172 6,781,180
-------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; 1,500,000 shares of cumulative convertible
Series A stock issued and outstanding(liquidation value
of $2,250,000) 15,000 15,000
Common stock, $.01 par value; 100,000,000 shares
authorized; 8,226,860 and 7,292,711 shares issued and
outstanding 82,269 72,927
Additional paid-in capital 6,133,709 3,688,433
Retained earnings 6,093,085 1,184,348
Valuation of securities available for sale, net of tax (779,732) --
Notes receivable for stock issued (55,500) (57,251)
-------------- -------------
Total stockholders' equity 11,488,831 4,903,457
-------------- -------------
Total liabilities and stockholders' equity $ 60,732,003 $ 11,684,637
============== =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Revenues:
Gain on sale of loans and mortgage-backed securities $ 15,128,171 $ 7,753,507
Net unrealized gain on valuation of investment
securities 3,829,945 --
Interest - loans 1,656,978 627,365
Interest - investments 2,626,882 6,827
Loan servicing income 422,483 390,571
Other income 304,359 135,333
-------------- -------------
Total revenues 23,968,818 8,913,603
-------------- -------------
Costs and Expenses:
Salaries and employee benefits 6,061,278 2,211,579
Servicing costs 1,056,307 265,546
Loan costs 1,699,285 513,404
General and administrative 4,023,523 1,643,852
Occupancy 637,758 336,894
Interest 1,925,434 462,064
Other expense 391,500 --
-------------- -------------
Total costs and expenses 15,795,085 5,433,339
-------------- -------------
Income before income taxes 8,173,733 3,480,264
Provision for income taxes 2,994,996 914,041
-------------- -------------
Net income $ 5,178,737 $ 2,566,223
============== =============
Income (loss) per common and common equivalent share:
Primary:
Earnings (loss) per common share $ .57 $ (.073)
============== =============
Weighted average number of common and common
equivalent shares outstanding 8,655,251 7,010,884
============== =============
Fully diluted:
Earnings (loss) per common share $ .51 $ (.073)
============== =============
Weighted average number of fully diluted common
shares outstanding 10,153,639 7,010,884
============== =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1997 and 1996
Valuation
of
Common Stock Preferred Stock Additional Retained Securities Notes
----------------- ---------------- Paid-In Earnings Available Receivables Stockholders'
Shares Dollars Shares Dollars Capital (Deficit) for Sale For Stock Equity
------- ------- ------ ------- ------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1995 6,887,975 $68,879 2,000 $ 20 $1,325,201 $(1,301,585) -- $ (64,256) $ 28,259
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 -- -- -- 2,110,790
Exercise of Series A warrants 67,028 670 -- -- 267,442 -- -- -- 268,112
Write-off of notes receivable -- -- -- -- -- -- -- 7,005 7,005
Preferred stock dividends -- -- -- -- -- (76,932) -- -- (76,932)
Net Income -- -- -- -- -- 2,566,223 -- -- 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) 4,903,457
--------- ------- --------- ------- ---------- ---------- --------- -------- -----------
Exercise of Series A warrants 477,979 4,780 -- -- 1,907,138 -- -- -- 1,911,918
Exercise of other warrants 456,170 4,562 -- -- 88,138 -- -- -- 92,700
Issuance of warrants and options -- -- -- -- 450,000 -- -- -- 450,000
Repayment of Notes -- -- -- -- -- -- -- 1,751 1,751
Preferred stock dividends -- -- -- -- -- (270,000) -- -- (270,000)
Change in value of investment -- -- -- -- -- -- (779,732) -- (779,732)
securities, net of tax
Net Income -- -- -- -- -- 5,178,737 -- -- 5,178,737
--------- ------- --------- ------- ---------- ---------- --------- -------- -----------
Balance, September 30, 1997 8,226,860 $82,269 1,500,000 $15,000 $6,133,709 $6,093,085 $(779,732) $(55,500) $11,488,831
========= ======= ========= ======= ========== ========== ========= ======== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,178,737 $ 2,566,223
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 356,705 210,796
Deferred tax (benefit) provision 2,495,284 (190,502)
Provision for credit losses 1,075,000 220,000
Write-off of notes receivable -- 7,005
Issuance of warrants and options 450,000 --
Gain on sales of loans and mortgage-backed securities (15,128,171) (7,753,507)
Unrealized gain from valuation of trading account securities (4,337,945) --
Loss on impairment of interest-only strip receivables 508,021 --
Proceeds from sales of loans and mortgage-backed securities 152,402,702 99,981,699
Purchase and origination of loans (181,810,318) (100,304,528)
Change in operating assets and liabilities:
Increase in cash deposits, restricted (918,028) (705,754)
Increase in accrued interest receivable (192,601) --
Increase in prepaid and other assets (2,154,324) (189,088)
Increase in accrued expenses and other liabilities 1,351,876 2,247,196
-------------- -------------
Net cash used in operating activities (40,723,062) (3,910,460)
-------------- -------------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (963,830) (387,408)
Payments received on interest-only strip receivables 1,193,982 --
-------------- -------------
Net cash provided (used) in investing activities 230,152 (387,408)
-------------- -------------
Cash flows from financing activities:
Increase in revolving lines of credit 30,328,403 2,566,123
Increase in payable under securities loan agreements 7,673,000 --
Proceeds from note payable -- 200,000
Payments on note payable (108,329) (174,995)
Proceeds from exercise of Series A warrants 1,911,918 268,112
Proceeds from exercise of other warrants 92,700 --
Bank overdraft 543,522 --
Proceeds from sale of preferred stock -- 1,860,790
Payments on capital lease obligations (17,586) (27,462)
Preferred stock dividends (270,000) (76,932)
-------------- -------------
Net cash provided by financing activities 40,153,628 4,615,636
-------------- -------------
Increase (decrease) in cash (339,282) 317,768
Cash, beginning of year 343,484 25,716
-------------- -------------
Cash, end of year $ 4,202 $ 343,484
============== =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-6
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
THE COMPANY AND SUBSIDIARY
The consolidated financial statements include the accounts of HomeCapital
Investment Corporation, a public holding company, ("HomeCapital"),
incorporated in the state of Nevada on October 8, 1980 and its wholly owned
subsidiary HomeOwners Mortgage & Equity, Inc. ("Home"), collectively, the
"Company".
DESCRIPTION OF OPERATIONS
The Company, through wholesale and retail sources, originates and purchases
home improvement loans, and other second lien mortgage loans ("Loans") and
disposes of such Loans through direct sale, securitization or conversion to
Mortgage-backed securities. The Company is an approved lender under the
Department of Housing and Urban Development ("HUD") Federal Housing
Administration ("FHA") Title I Program, which provides FHA insurance
against losses on eligible property improvement and manufactured housing
loans ("Title I Loans"). As an FHA approved lender, the Company is subject
to regulation and examination by HUD. Under the program, the FHA insures
90% of the principal balance of each Title I Loan and certain interest
costs, subject to the amount of insurance available in the Company's
reserve account maintained by the FHA. The Company also holds approval
from HUD under the FHA Title II Program; however the Company had not
originated any Loans pursuant to that Program as of September 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH DEPOSITS, RESTRICTED
Restricted cash represents funds received in connection with the servicing
of Loans sold on a servicing retained basis that have not been remitted to
the purchasers of such Loans as of September 30, 1997. The liability for
these unremitted funds is included in the Balance Sheets 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. Purchase premiums, discounts, loan origination fees and related
direct origination costs are included in the carrying value of Loans held
for sale, and are deferred until the related Loans are sold.
F-7
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist entirely of Federal National Mortgage
Association ("Fannie Mae") Mortgage-backed securities that have been
created and issued by Fannie Mae in exchange for Home's Title I Loans.
These Mortgage-backed securities represent interest-bearing, marketable
obligations of Fannie Mae, which are carried at market value and accounted
for as trading securities pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 65, "Accounting for Certain Mortgage Banking
Activities."
REVENUE RECOGNITION
Gain on sale of Loans and Mortgage-backed securities is recognized upon
the sale of Loans or Mortgage-backed securities to investors. Loans are
deemed not to have been sold if they have been exchanged for Fannie Mae
Mortgage-backed securities which have been retained by the Company. The
gain on sale of Loans and Mortgage-backed securities is calculated based
upon the difference between the net proceeds from the sale, including the
value of an Interest-only strip receivable derived from the excess interest
spread on the Loans, and the allocated carrying values of Loans or
Mortgage-backed securities sold. The allocated carrying values are based
upon the relative fair value of Loans or Mortgage-backed securities sold
and the Interest-only strip receivables.
Net unrealized gain on valuation of investment securities in the statement
of operations includes the unrealized gain on the outstanding Fannie Mae
Mortgage-backed securities and Interest-only strip receivables that are
classified as trading securities. The unrealized gain on Mortgage-backed
securities held for sale and Interest-only strip receivables represents the
excess of fair value over the net carrying value of the securities. The
fair value of the Mortgage-backed securities is determined based upon
independent market quotes. The fair value of the Interest-only strip
receivables is calculated based upon the present value of the estimated
future excess interest spread after considering the effects of estimated
prepayments, defaults and future expenses. The discount rate utilized is
based upon assumptions that market participants would use for similar
financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.
INTEREST-ONLY STRIP RECEIVABLES
The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125) as
of January 1, 1997. SFAS No. 125 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.
F-8
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INTEREST-ONLY STRIP RECEIVABLES, CONTINUED
As a result of adopting the SFAS No. 125, the Excess servicing receivables
previously shown on the Balance Sheet as of December 31, 1996, have been
renamed as Interest-only strip receivables, and are classified as available
for sale securities. In addition, in the event of a securitization, the
resultant Interest-only strip receivable is divided into two components.
The component related to the difference between the weighted average
interest rate on the underlying Loans and the Mortgage-backed securities is
classified as available for sale, while the remaining portion of the
Interest-only strip receivable represents a certificated debt security and
is classified as a trading security. The Company periodically reviews the
fair value of the Interest-only strip receivables. The difference between
the fair value and allocated carrying values for securities classified as
available for sale is included as a component of stockholders' equity,
while such differences for Interest-only strip receivables accounted for as
trading securities are included as a component of net income.
For Loans and Mortgage-backed securities sold during fiscal 1997, the
estimated fair value of cash flows were discounted using rates ranging from
11% to 12 1/2%. 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 fair value
of expected cash flows, management considers economic conditions at the
date of sale.
The Company periodically reviews the Interest-only strip receivables
classified as available for sale for impairment. This review is performed
on a disaggregated, pool by pool basis to determine whether a decline in
fair value below the carrying value of these assets is other than
temporary. The Loans underlying the Interest-only strip receivables are
affected primarily by the related prepayment speeds of the Loans and the
actual default and delinquency rates. Impairment in the carrying value of
Interest-only strip receivables is charged to operations for the period of
impairment. See Note 5.
RETAINED INTEREST
The Company records a Retained interest in securitization transactions in
which the Company transfers loans to the trustee in excess of the bond
proceeds received. This overcapitalization is realized by the Company in
the form of principal and interest payments subsequent to the full
repayment of principal to the bondholders. The Retained interest is
classified as a trading security.
F-9
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ALLOWANCE FOR CREDIT LOSSES ON LOANS SOLD
Loans sold by the Company are sold with limited recourse, generally related
to normal representations and warranties. The Company provides an estimate
for credit losses related to this recourse provision. Such amounts are
incurred over the period subject to recourse. 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 with recourse
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 and is shown separately as a
liability on the Company's Balance Sheet.
Certain of the Company's Loans are held for sale in its portfolio as such
loans may not qualify for sale to Fannie Mae or other investors. Provision
for credit losses relating to such 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
gives effect to estimated FHA insurance recoveries on Title I Loans.
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
Prior to fiscal 1997, the Company and Home filed separate Federal and State
income tax returns. For the year ended September 30, 1997, the Company and
Home will file consolidated 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 AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ADVERTISING
Advertising costs are expensed as incurred. Costs related to prepaid
supplies are capitalized, then expensed as used. During the years ended
September 30, 1997 and 1996, the Company recorded advertising expenses of
$1,031,152 and $355,197, respectively.
CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, Loans held for
sale, Mortgage-backed securities, Retained interest, and Interest-only
strip receivables. Concentration of credit risk and mitigating factors
regarding Loans, Mortgage-backed securities, Retained interest, and
Interest-only strip receivables are described above. The Company places
its cash in various major financial institutions thereby limiting the
exposure of the Company's cash to concentrations of credit risk. See Note
21.
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, 1997, the Company had outstanding
commitments to extend credit or purchase loans in the amounts of
approximately $37,313,000.
Credit concentrations of the Company's loans serviced which give rise to
Interest-only strip receivables are discussed in Note 21.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective October 1, 1996 the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of". SFAS No. 121 prescribes that an impairment loss is recognized in the
event that facts and circumstances indicate that the carrying amount of an
asset may not be recoverable, and an estimate of future undiscounted cash
flows is less than the carrying amount of the asset. Impairment is recorded
based on an estimate of future discounted cash flows as identified at the
lowest level for which there are identifiable cash flows for a particular
group of assets. No impairment of long-lived assets was recorded on the
financial statements for the year ended September 30, 1997.
F-11
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB") 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 continues to account for stock-based compensation to employees
as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Required disclosures prescribed by SFAS
No. 123 for the proforma effect on the results of operations for fiscal
1997 are included in Note 16.
EARNINGS (LOSS) PER SHARE
The computation of primary earnings (loss) per share is based on the
weighted average number of common shares outstanding during the period
plus, when dilutive, common equivalent shares, which includes stock options
and stock warrants (see Notes 15 and 16) using the treasury stock method.
Net earnings used in the computation of primary earnings per share are
reduced by preferred stock dividend requirements. Fully diluted earnings
per share assumes conversion of the Company's 1,500,000 outstanding shares
of Preferred Stock, Series A.
Net earnings used in the computation of earnings (loss) per share for the
year ended September 30, 1996, have been reduced by the intrinsic value of
the beneficial conversion feature on Preferred Stock, which is defined as
the difference between the conversion price and the market value of the
common shares on the date of issuance. On June 18, 1996, the issuance date
of the preferred stock, the market value of the Company's common stock was
$3.50 per share. The conversion price of the Preferred Stock is $1.50 per
share. The Preferred Stock was convertible into the Company's common stock
at the date of issuance. Thus the intrinsic value of the beneficial
conversion feature on the 1,500,000 shares of Preferred Stock, which
amounts to $3,000,000 in total, has been deducted from net earnings
available for common shareholders in the calculation of earnings (loss) per
common share for the year ended September 30, 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997, thus the Company will adopt SFAS No. 128 in
the first quarter of fiscal 1998. Previously reported earnings per share
will be restated at that time to conform to SFAS No. 128. This adoption is
not expected to have a material impact on earnings per share as currently
presented by the Company.
F-12
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130, which is effective for fiscal
years beginning after December 15, 1997, establishes disclosure standards
for reporting comprehensive income in a full set of general-purpose
financial statements. As SFAS No. 130 contains disclosure requirements
only, its adoption is not expected to have an impact on the Company's
financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131") which is effective
for periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. As SFAS No.
131 contains disclosure requirements only, its adoption is not expected to
have an impact on the Company's financial position or results of
operations.
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.
RISKS AND UNCERTAINTIES
The Company's Interest-only strip receivables are based upon estimates of
future cash flows, which consider assumptions as to rates of prepayment and
defaults of Title I Loans. It is at least reasonably possible that changes
in the value of the Interest-only strip receivables could occur in the
short-term and that the changes could be material to the Company's
financial statements.
F-13
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RECLASSIFICATIONS
Certain accounts and balances in the financial statements for the year
ended September 30, 1996, have been reclassified to be consistent with the
1997 account classifications.
3. LOANS HELD FOR SALE
Loans held for sale consisted of the following at September 30:
1997 1996
----------- -----------
Title I Loans $ 8,264,335 $ 4,387,460
Conventional loans 800,545 52,462
Commercial loans -- 51,620
Capitalized loan origination fees and
costs, net 440,090 113,008
----------- -----------
9,504,970 4,604,550
Allowance for credit losses (250,000) (125,000)
----------- -----------
Total $ 9,254,970 $ 4,479,550
=========== ===========
4. ALLOWANCE FOR CREDIT LOSSES
Combined changes in the allowance for credit losses for Loans held for sale
and Loans sold consisted of the following:
1997 1996
----------- -----------
Balance at beginning of year $ 300,000 $ 80,000
Provisions for credit losses 1,075,000 220,000
Charge-offs (205,685) --
----------- -----------
Balance at end of year $ 1,169,315 $ 300,000
=========== ===========
Components of the allowance at
September 30:
Allowance for credit losses on Loans
held for sale $ 250,000 $ 125,000
Allowance for credit losses on Loans
sold 919,315 175,000
----------- -----------
$ 1,169,315 $ 300,000
=========== ===========
F-14
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INTEREST-ONLY STRIP RECEIVABLES
The activity in Interest-only strip receivables is summarized as follows
for the years ended September 30:
1997 1996
----------- -----------
Balance, October 1 $ 5,078,584 $ --
Additions 16,382,185 5,169,521
Amortization and payments (1,193,984) (90,937)
Unrealized gains on trading securities 3,142,898 --
Write-down for impairment (508,021) --
Valuation allowance on available for
sale securities (1,181,413) --
----------- -----------
Balance, September 30 $21,720,249 $ 5,078,584
=========== ===========
The components of Interest-only strip receivables at September 30, 1997,
are classified as follows:
1997
---------------
Available for sale securities $ 13,670,755
Trading securities 8,049,494
---------------
Total $ 21,720,249
===============
Net income for fiscal 1997 includes a pre-tax charge of $508,021 relating
to an impairment loss on Interest-only strip receivables. The impairment
loss on Interest-only strip receivables resulted from increased rates of
principal prepayments and defaults on certain loan pools serviced by the
Company.
Upon implementation of SFAS No. 125, the Company initially classified the
Interest-only strip receivables arising from sale of Loans, including Loans
sold on a whole loan basis or through the sale of Mortgage-backed
securities, as trading securities. The Company has reclassified these
Interest-only strip receivables at September 30, 1997, from trading to
available for sale. The Company intended to resecuritize the Interest-only
strip receivables during the third and fourth quarters of fiscal 1997;
however, the Company elected to securitize only Mortgage-backed securities
in the fourth quarter of fiscal 1997 and has deemed it impracticable to
resecuritize the Interest-only strip receivables in the short term.
Accordingly, securities totaling $2,889,152 have been transferred to the
available for sale category at September 30, 1997. The Company had
recognized a net unrealized gain of $83,087 prior to the transfer.
The serviced Loan portfolio, which includes Loans sold to investors on a
servicing retained basis and Loans retained by the Company, aggregated
approximately $234,748,000 at September 30, 1997.
F-15
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consisted of the following at September
30:
1997 1996
---------- ----------
Furniture and fixtures $ 494,085 $ 207,704
Equipment 816,406 324,886
Leasehold improvements 58,588 12,569
Software cost 473,395 293,395
---------- ----------
1,842,474 838,554
Accumulated depreciation (476,788) (192,472)
---------- ----------
$1,365,686 $ 646,082
========== ==========
At September 30, 1997, and 1996, furniture and fixtures includes $101,345
and $55,523, respectively, of assets under capital lease with an associated
accumulated depreciation of $34,614 and $23,656, respectively.
7. NOTE PAYABLE
Note payable consisted of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
--------------- -------------
<S> <C> <C>
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 (8.50% at
September 30, 1997) plus 2%; monthly payments of
$8,333 thereafter $ 50,010 $ 158,339
================= ===============
</TABLE>
F-16
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. REVOLVING LINES OF CREDIT
The Company finances certain of its Loans held for sale through a
$20,000,000 revolving line of credit agreement, which matures June 30,
1998, and had an outstanding balance of $2,861,304 at September 30, 1997.
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 300 basis points over the
Federal Funds rate (5.81% at September 30, 1997) 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 funds the bank directly and the collateral is
released.
The Company also has a working capital line of credit (servicing
collateralized) for up to $16,666,600 which matures June 30, 1998, and had
an outstanding balance of $11,674,181 at September 30, 1997. At September
30, 1997, the interest rates on the two components of the working capital
line ranged from 9.375% (30 day LIBOR plus 375 basis points) to 10.125% (30
day LIBOR plus 450 basis points). The weighted average interest rate for
this facility at September 30, 1997, was 9.53%.
In connection with both borrowings, Home 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.
As part of the arrangement to exchange Title I Loans for Fannie Mae
Mortgage-backed securities, Fannie Mae has provided short-term warehouse
funding to Home, on an uncommitted basis, for its Title I Loans and
Mortgage-backed securities exchanged for such Loans. Generally the funding
facilities require repayment with a cost of funds based on 30 day LIBOR
rate, plus 30 basis points to 90 basis points, depending upon whether the
funding is provided for Title I Loans or Mortgage-backed securities.
The composition of the revolving lines of credit was as follows at
September 30, 1997:
Payable to financial institution, warehouse line $ 2,861,304
Payable to Fannie Mae, funding facilities 19,857,098
Payable to financial institution, working capital line 11,674,181
--------------
$ 34,392,583
==============
F-17
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. LOANS SOLD UNDER AGREEMENTS TO REPURCHASE
Amounts payable under repurchase agreements represent secured borrowings
used to finance certain Fannie Mae Mortgage-backed securities held by the
Company. At September 30, 1997, the agreements were scheduled to mature in
24 days with the ability to renew for another 30 days at the option of the
secured lender. The interest rate for the financing is variable based upon
LIBOR. At September 30, 1997 the borrowing rate was 5.93%. These
borrowings were collateralized by Mortgage-backed securities having an
aggregate market value of $23,279,895 as of September 30, 1997.
10. PREFERRED 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. A total of 166,667 shares of the Series A
Preferred Stock were issued in 1996 in payment and discharge of an
aggregate $250,000 principal amount of loans payable to certain
stockholders of the Company.
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. 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 the option
of the Company at par plus accrued, unpaid dividends, 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.
F-18
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES
The provision for income taxes for the years ended September 30, 1997 and
1996 is comprised of the following:
1997 1996
----------- -----------
Current:
Federal $ 81,375 $ 1,080,832
State 418,337 23,711
----------- -----------
499,712 1,104,543
Deferred (benefit) provision 2,495,284 (190,502)
----------- -----------
Provision for income taxes $ 2,994,996 $ 914,041
=========== ===========
The components of deferred tax assets and liabilities were as follows at
September 30:
1997 1996
----------- -----------
Deferred tax liabilities:
Unrealized gains $ (2,461,264) $ --
Depreciation and amortization (64,309) (39,075)
----------- -----------
Total deferred tax liabilities (2,525,573) (39,075)
----------- -----------
Deferred tax assets:
Net operating loss carryforwards 73,230 73,230
Allowance for credit losses 397,567 102,000
Deferred compensation 151,674 --
Unrealized gains -- 127,577
----------- -----------
Total deferred tax assets 622,471 302,807
Valuation allowance -- (73,230)
----------- -----------
622,471 229,577
----------- -----------
Net deferred tax assets
(liabilities) (1,903,102) 190,502
----------- -----------
Less amount related to equity (401,685) --
----------- -----------
$ (2,304,787) $ 190,502
=========== ===========
F-19
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
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 for the years ended
September 30:
1997 1996
----------- ----------
Federal tax at statutory rate of 34% $ 2,779,069 $ 1,183,290
State income taxes, net of federal tax benefit 276,102 15,649
Expenses not deductible for tax purposes 13,055 9,003
----------- ----------
Tax expense (benefit) before change in
valuation allowance 3,068,226 1,207,942
----------- ----------
Decrease in valuation allowance (73,230) (293,901)
----------- ----------
Total income tax provision $ 2,994,996 $ 914,041
=========== ==========
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 than not that 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:
1997 1996
----------- ----------
Gain on sale of Loans and Mortgage-backed
securities:
Cash $ 3,239,290 $ 4,475,183
Interest-only strip gains 16,382,185 5,169,521
----------- -----------
19,621,475 9,644,704
Premiums, net (7,184,567) (2,424,552)
Origination fees 2,706,391 556,024
Transaction costs (15,128) (22,669)
----------- ----------
Gain on sale of Loans and Mortgage-backed
securities $15,128,171 $ 7,753,507
=========== ===========
F-20
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. GAIN ON SALE OF LOANS, CONTINUED
During the fourth quarter of fiscal 1997, the Company completed its first
securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I, a Delaware business trust, issued and sold
$47,154,000 of Asset Backed Bonds at 7.335% directly to an investor. The
Bonds are collateralized by $48,116,652 of Fannie Mae Mortgage-backed
securities with an average pass-through rate of 12.25%. The Company
retained a residual interest from the securitization which entitles it to
the excess spread from the interest received on the Fannie Mae Mortgage-
backed securities over the interest paid on the Bonds, as well as to any
remaining balances in the Mortgage-backed securities after the Bonds are
paid in full. In addition, the Company earns an interest spread from the
FHA Title I loans underlying these Mortgage-backed securities.
13. SUPPLEMENTAL CASH FLOW DISCLOSURE
1997 1996
----------- ----------
Cash paid for interest $ 1,888,001 $ 419,491
Cash dividends paid 270,000 --
Income taxes paid 1,204,563 --
Noncash financing and investing activities:
Change in Preferred stock dividend accrual -- 76,932
Conversion of debt to equity -- 250,000
Issuance of options and warrants 450,000 --
Retention of interest in Mortgage-backed
securities 962,652 --
Issuance of Mortgage-backed securities 20,059,276 --
Creation of Interest-only strip receivables 16,382,185 --
14. COMMITMENTS AND CONTINGENCIES
The Company leases its office space at its corporate headquarters and 13
branch offices through operating leases expiring through 2001. Rent
expense for the years ended September 30, 1997 and 1996 totaled $466,542
and $270,670, respectively.
F-21
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. COMMITMENTS AND CONTINGENCIES, CONTINUED
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. Certain other
equipment is leased under operating leases. Required minimum rental
payments for the remaining terms of the leases are as follows:
Years Ending Capital Leases Operating Leases
------------ -------------- ----------------
1998 $ 32,376 $ 575,045
1999 12,393 541,708
2000 -- 538,500
2001 -- 410,001
2002 -- 164,351
Less amount representing interest (4,316) --
-------------- ---------------
$ 40,453 $ 2,229,605
============== ===============
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, 1997, Home had adjusted net worth
of $11,176,542.
The Company and its subsidiary are taking actions to provide that their
computer systems are capable of processing for the periods in the year 2000
and beyond. The costs associated with this are not expected to
significantly affect operating cash flow; however, there is no assurance
that the Company's actions in this regard will be successful.
F-22
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
15. STOCK WARRANTS
In May 1997, the Board of Directors authorized the issuance of warrants to
acquire 150,000 shares of common stock of the Company at a price of $9.50
per share. The stock warrants were issued to affiliates of an investment-
banking firm in connection with the termination by the Company of its
service relationship with the investment-banking firm. The warrants are
exercisable upon issuance and expire in May 2002. The fair value of these
stock warrants was determined by application of the Black-Scholes option-
pricing model. The fair value of these stock warrants, $391,500, was
charged to operations for fiscal 1997, and classified as Other expense in
the accompanying Consolidated Statements of Operations.
16. STOCK OPTIONS
HomeCapital issued options to an employee in June 1993 to purchase 409,668
shares of HomeCapital stock at $0.16 per share. The options, which are
fully exercisable as of September 30, 1997, expire in the year 2001. None
of these options 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 1996 Stock Option Plan
was amended in September 1997, to increase the number of shares reserved
for issuance under the Plan. The Stock Option Plan provides that up to
1,000,000 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,
1997, options to purchase an aggregate of 475,000 shares of Common Stock
had been granted and are outstanding under the Stock Option Plan. Exercise
prices per share range from $3.50 to $11.00. No options have been
exercised. Subsequent to September 30, 1997, options to purchase an
aggregate 404,500 shares of Common Stock were granted to certain officers
and employees of the Company.
F-23
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. STOCK OPTIONS
Under the 1996 Stock Option Plan, the Company may grant incentive and non-
qualified options to eligible participants that vest in accordance with a
vesting schedule, as determined in the sole discretion of the Compensation
Committee of the Company's Board of Directors. The 1996 Stock Option Plan
provides for a term of 10 years. All of the options have an exercise price
equal to or greater than the fair market value of the stock at grant date.
The options granted in fiscal 1996 and 1997 vest ratably over a period of
either three or four years beginning on the first anniversary of the date
of grant. A summary of the Company's 1996 Stock Option Plan as of
September 30, 1997 and 1996, and changes during the years then ended are as
follows:
Option Option
Shares Price Range
------------ --------------
1996
Outstanding at beginning of year -- $ --
Granted 200,000 3.50
Exercised -- --
Forfeited -- --
------------ --------------
Outstanding at end of year 200,000 $ 3.50
============ ==============
1997
Outstanding at beginning of year 200,000 3.50
Granted 302,500 5.625 - 11.00
Exercised -- --
Forfeited (27,500) 5.625 - 6.125
------------ --------------
Outstanding at end of year 475,000 $ 3.50 - 11.00
============ ==============
The number of options exercisable at September 30, 1997 and 1996, was
66,667 and zero, respectively. The weighted-average fair value of options
granted during 1997 and 1996 was $2.39 and $1.35, respectively.
F-24
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. STOCK OPTIONS, CONTINUED
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for grants in fiscal 1996 and 1997: a dividend yield of 0%; a
risk-free interest rate range of 6.16% to 6.79%; an expected life of 10
years for all grants; and a volatility range of 44% to 53%.
Options outstanding as of September 30, 1997 are summarized below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------- --------------------------
Range Weighted Weighted Weighted
of Number Average Average Number Average
Exercise Out- Remaining Exercise Exer- Exercise
Prices standing Contractual Life Price cisable Price
- -------------------- -------------- ---------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
$3.50 to $5.63 397,500 8.84 $4.56 66,667 $3.50
$6.13 to $11.00 77,500 9.56 $9.65 0 NA
- --------------- ------- ----- ----- ------- -----
$3.50 to $11.00 475,000 8.95 $5.39 66,667 $3.50
=============== ======= ===== ===== ======= =====
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Plans.
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's pro forma net
income and pro forma net income per common share for the years ended
September 30, 1997 and 1996 would approximate the amounts below:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
---------------------------- ----------------------------
As Reported Pro Forma As Reported Pro Forma
---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Net income $5,178,737 $4,720,672 $2,566,223 $2,395,156
Net income (loss)
per common share $.57 $.51 $(0.07) $(0.10)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards granted
prior to the 1996 fiscal year.
F-25
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. STOCK OPTIONS, CONTINUED
In addition to the employee stock options described above, the Company
granted 250,000 stock options to nonemployees rendering financial advisory
services to the Company. The options vested upon issuance, have a five-
year term, an exercise price of $8.125, and are outstanding as of September
30, 1997. The fair value of the stock options of $655,000 was determined
under the Black-Scholes option-pricing model and will be amortized into
expense in equal monthly installments over a two-year period. During
fiscal 1997, a total of $58,500 was charged to operations.
In addition to the 1996 Stock Option Plan, in September 1997, the Company
established the Non-Employee Director Compensation Plan ("Director Plan").
The Director Plan provides cash compensation and options to purchase Common
Stock of the Company for persons who serve as members of the Board of
Directors of either or both of the Company and HOME ("Directors") and who
are not otherwise employed by the Company or HOME ("Participants"). The
Director Plan provides for an annual retainer of $10,000 payable each year
immediately following the annual election of a Participant as a Director,
or upon the initial election of the Participant as a Director, if not at an
annual meeting of stockholders. Participants will also receive a fee of
$1,000 and reimbursement for accountable expenses in connection with each
meeting of the board of directors attended.
The Director Plan also provides for the granting of non-qualified stock
options to each Participant. The Director Plan authorizes the issuance of
options to purchase 15,000 shares of Common Stock of the Company to each
Participant as of the date of election to the Board of Directors and an
annual award of options to purchase 3,000 shares of Common Stock
immediately following the election of each Participant as a Director on the
date of the annual meeting of stockholders.
Options granted under the Director Plan have an exercise price equal to the
fair market value of the Common Stock on the date that the options are
granted. The Director Plan contains provisions for adjustment of the
number of shares available for options and subject to unexercised options
under the Director Plan in the event of stock splits, dividends payable in
Common Stock, business combinations or certain other events. The Board of
Directors has initially reserved up to 250,000 shares of Common Stock for
issuance under the Director Plan.
Each option granted under the Director Plan is exercisable as to 20% of the
shares subject to the option each year for five (5) consecutive years
following the date of grant. Unexercised options shall expire ten (10)
years after the date of grant, and within 180 days after termination of
service as a Director, disability or death of the Participant.
At September 30, 1997, no options have been granted under this Plan.
F-26
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. RELATED PARTY TRANSACTIONS
The Company paid consulting fees and expenses of approximately $377,744 and
$74,252 to certain directors of the Company for the years ended September
30, 1997 and 1996, respectively. In addition, the Company incurred $90,000
related to legal services provided by a board member.
During the years ended September 30, 1997 and 1996, the Company paid
inspection fees totaling $145,380 and $69,715, respectively, to a company
controlled by a relative of the President of the Company.
18. 401(K) PROFIT SHARING PLAN
Home sponsors a savings and investment plan (the "Plan") intended to
qualify under Section 401(k) 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, 1997.
19. 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-27
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
19. FAIR VALUE 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, 1997
are set forth below.
Carrying Estimated Fair
Value Value
------------ ------------
Financial Assets:
Cash Overdraft (a) $ (543,522) $ (543,522)
Loans held for sale (b) 9,254,970 9,475,271
Mortgage-backed securities (c) 23,279,895 23,279,895
Interest-only strip receivables (d):
Trading securities 8,049,494 8,049,494
Available for sale securities 13,670,755 13,670,755
Retained interest 962,652 962,652
Financial Liabilities:
Debt obligations (e) 42,156,046 42,156,046
___________
(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 based on quotes from independent market sources.
(d) The fair value is estimated by discounting expected future cash flows
(as adjusted for Loan delinquencies, defaults and prepayments) using
rates available for instruments with similar risks, terms and remaining
maturities.
(e) The debt obligations are primarily adjustable rate instruments and
indexed to the prime rate, LIBOR or Federal Funds rate; therefore,
carrying value is a reasonable estimate of fair value. Capitalized
equipment leases have implicit fixed interest rates ranging from 12.4%
to 18.9%, which approximate fair value in the aggregate.
The fair value estimates made at September 30, 1997 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 a single sale of 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-28
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
20. SELECTED QUARTERLY DATA (UNAUDITED)
The following financial data summarizes quarterly results for the Company
for the years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
December 31 March 31 June 30 September 30
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fiscal 1997
Revenues $ 5,612,349 $ 5,189,962 $ 4,390,356 $ 8,776,151
Net income 2,244,160 1,544,693 210,352 1,179,532
Income per common share
- fully diluted .23 .15 .02 .11
Fiscal 1996
Revenues 1,526,098 1,345,414 1,803,760 4,238,331
Net income 443,862 201,680 166,876 1,753,805
Income (loss) per common share
- fully diluted .059 .025 (.397) .21
</TABLE>
21. CONCENTRATIONS
For the years ended September 30,1997 and 1996, the Company recognized gain
on sale of loans and Mortgage-based securities to Fannie Mae in the amount
of approximately $11,700,000 and $13,100,000, respectively, which
represents 77.6% and 86.6%, respectively, of total gain on sale of loans
and Mortgage-backed securities.
For the years ended September 30, 1997 and 1996, Title I Loan origination
and production (exclusive of paydowns and repurchases) is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
Source of Loan Production Amount % Amount %
----------------------------- -------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Correspondent Loans $ 130,377,698 79.9% $ 76,020,078 78.3%
Dealer Loans 4,882,974 3.0 15,440,132 15.9
Direct Loans 11,979,462 7.4 5,606,397 5.8
Bulk Purchases 15,852,112 9.7 -- 0.0
------------- ---- ------------- ----
$ 163,092,246 100% $ 97,066,607 100%
Total Title I Loans ============= ==== ============= ====
</TABLE>
Of the Title I Loans originated in fiscal 1997 and 1996, seven Loan
Correspondents and five Loan Correspondents accounted for 39.3% and 36.8%,
respectively, of total Title I Loan production. Each of these Loan
Correspondents individually accounted for more than 3.7% of total Title I
Loan production.
F-29
<PAGE>
21. CONCENTRATIONS, CONTINUED
The following table sets forth the states that represent the geographic
location of Loan originations greater than 2.0% of total Title I Loans for
the years ended September 30, 1997 and 1996:
State 1997 1996
----- ---- ----
California 71.5% 67.3%
Texas 7.0 17.9
Florida 10.5 4.0
Arizona 2.0 --
Nevada -- 4.3
---- ----
91.0% 93.5%
==== ====
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 1997 and 1996 were
$18,718,072 and $3,105,374, respectively. At September 30, 1997 and 1996,
$800,545 and $52,462, respectively, of conventional loans were held for
sale under firm purchase commitments.
22. SUBSEQUENT EVENTS (UNAUDITED)
During the first quarter of fiscal 1998, the Company completed its second
securitization of Fannie Mae Mortgage-backed securities. HOME
Securitization Trust I, a Delaware business trust, issued and sold
$39,193,258 of Asset Backed Bonds at 7.261% directly to an investor. The
Bonds are collateralized by $39,589,150 of Fannie Mae Mortgage-backed
securities with an average pass-through rate of 12.24%. The Company
retained the residual interest from the securitization and is entitled to
the excess spread from the interest received on the Fannie Mae Mortgage-
backed securities over the interest paid on the Bonds, as well as any
remaining Mortgage-backed securities after the Bonds are paid in full. In
addition, the Company earns an interest spread from the FHA Title I loans
underlying these Mortgage-backed securities.
Also during the first quarter of fiscal year 1998, the Company sold $6.9
million of Fannie Mae Mortgage-backed securities with an average interest
rate of approximately 9.7% for total sales proceeds of approximately $7.5
million.
F-30
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
HOMECAPITAL INVESTMENT CORPORATION
FIRST. The name of the corporation is HomeCapital Investment Corporation.
SECOND. Its principal office in the State of Nevada is located at One East
First Street, Reno, Washoe County, Nevada 89501. The name and address of its
resident agent is the Corporation Trust Company of Nevada, One East First
Street, Reno, Nevada 89501.
THIRD. The nature of the business, or objects or purposes proposed to be
transacted, promoted or carried on are:
To engage in any lawful activity and to manufacture, purchase or otherwise
acquire, invest in, own, mortgage, pledge, sell, assign and transfer or
otherwise dispose of, trade, deal in and deal with goods, wares and merchandise
and personal property of every class and description.
To hold, purchase and convey real and personal estate and to mortgage or
lease any such real and personal estate with its franchises and to take the same
by devise or bequest.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant license in respect of,
mortgage, or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trademarks and trade names, relating to
or useful in connection with any business of this corporation.
To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge or
otherwise dispose of the shares of the capital stock of or any bonds, securities
or evidences of the indebtedness created by any other corporation or
corporations of this state, or any other state or government, and, while owner
of such stock, bonds, securities or evidences of indebtedness, to exercise all
the rights, powers and privileges of ownership, including the right to vote, if
any.
To borrow money and contract debts when necessary for the transaction of
its business, or for the exercise of its corporate rights, privileges or
franchises, or for any other lawful purpose of its incorporation; to issue
bonds, promissory notes, bills of exchange, debentures, and other obligations
and evidences of indebtedness, payable at specified time or times, or payable
upon the happening of a specified event or events, whether secured by mortgage,
pledge, or otherwise, or unsecured, for money borrowed, or in payment for
property purchased, or acquired, or for any other lawful objects.
<PAGE>
To purchase, hold, sell and transfer shares of its own capital stock, and
use therefor its capital, capital surplus, surplus, or other property or funds;
provided it shall not use its funds or property for the purchase of its own
shares of capital stock when such use would cause any impairment of its capital;
and provided further, that shares of its own capital stock belonging to it shall
not be voted upon, directly or indirectly, nor counted as outstanding, for the
purpose of computing any stockholders' quorum or vote.
To conduct business, have one or more offices, and hold, purchase, mortgage
and convey real and personal property in this state, and in any of the several
states, territories, possessions and dependencies of the United States, the
District of Columbia, and in any foreign countries.
To do all and everything necessary and proper for the accomplishment of the
objects hereinbefore enumerated or necessary or incidental to the protection and
benefit of the corporation, and, in general, to carry on any lawful business
necessary or incidental to the attainment of the objects of the corporation,
whether or not such business is similar in nature to the objects hereinbefore
set forth.
The objects and purposes specified in its foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other clauses in these Articles of
Incorporation, but the objects and purposes specified in each of the foregoing
clauses of this article shall be regarded as independent objects and purposes.
FOURTH: The amount of the authorized capital stock the corporation is
100,000,000 common shares with a par value of one cent ($.01) per share and
10,000,000 preferred shares with a par value of one cent ($.01) per share.
The shares of preferred stock authorized hereby may, when authorized for
issuance by the Board of Directors of this corporation, be issued in series
having such designations, powers, preferences, rights and limitations, and on
such terms and conditions as the Board of Directors may from time to time
determine, including the rights, if any, of the holders thereof with respect to
voting, dividends, redemption, liquidation and conversion.
FIFTH: The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the by-laws of this
corporation, provided that the number of directors shall not be reduced to less
than three (3), except that in cases where all the shares of the corporation are
owned beneficially and of record by either one or two stockholders, the number
of directors may be less than three (3) but not less than the number of
stockholders.
The initial number of stockholders shall be one (1).
2
<PAGE>
The names and post office addresses of the present board of directors,
which are seven (7) in number, are as follows:
NAMES POST OFFICE ADDRESSES
John W. Ballard HomeCapital Investment Corporation
6836 Austin Center Blvd., Suite 280
Austin, Texas 78731
E. Jeff Bomer Synermark
5929 Balcones Drive
Austin, Texas 78731
J. Rolfe Johnson J. Rolfe Johnson, P.C.
1900 West Loop South, Suite 1175
Houston, Texas 77027
Larry D. Meyers Larry Meyers & Associates
The Capital Hill Office Bldg.
412 First Street, S.E.
Suite 1, Lobby Level
Washington, D.C. 20003
Robert R. Neyland 3330 Oakwell Court
San Antonio, Texas 78218
Peter A. Pyhrr Magnetic Ticket & Label Corp.
8719 Diplomacy Row
Dallas, Texas 75247
Walter W. Stoeppelwerth HomeTech Information Systems, Inc.
5161 River Road
Bethesda, Maryland 20816
SIXTH. The capital stock, after the amount of the subscription price or
par value has been paid in, shall not be subject to assessment to pay the debts
of the corporation.
SEVENTH. The name and post office address of each of the incorporators
signing the Articles of Incorporation have been omitted.
EIGHTH. The corporation is to have perpetual existence.
NINTH. In furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
3
<PAGE>
Subject to the by-laws, if any, adopted by the stockholders, to make, alter
or amend the by-laws of the corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in; to authorize and cause to be executed mortgages and liens
upon the real and personal property of this corporation.
By resolution passed by a majority of the whole board, to designate one (1)
or more committees, each committee to consist of one (1) or more of the
directors of the corporation, which, to the extent provided in the resolutions
or in the by-laws of the corporation, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be stated in the by-laws of the corporation or as may be
determined from time to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a stockholders' meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the board of directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of directors deems expedient and for the best
interests of the corporation.
TENTH. Meetings of stockholders may be held outside the State of Nevada,
if the by-laws so provide. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Nevada at such
place or places as may be designated from time to time by the board of directors
or in the by-laws of the corporation.
ELEVENTH. This corporation reserves the right to amend, alter, change or
repeal any provision contained in the Articles of Incorporation, in the manner
now or hereafter prescribed by statute or by the Articles of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
TWELFTH. No stockholder of this corporation shall by reason of his holding
shares of any class have any preemptive or preferential right to purchase or
subscribe to any shares of any class of this corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the board of directors, in its discretion from time to time may grant, and at
such price as the board of directors in its discretion may fix; and the board of
directors may issue shares of any class
4
<PAGE>
of this corporation, or any notes, debentures, bonds or other securities
convertible into or carrying options or warrants to purchase shares of any
class, without offering any such shares of any class, either in whole or in
part, to the existing stockholders of any class.
THIRTEENTH. No director or officer of the corporation shall be personally
liable to the corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director or officer, except that this Article does
not eliminate or limit the liability of a director or officer for: (i) an act
or omission that involves intentional misconduct, fraud or a knowing violation
of the law; (ii) an act or omission for which the liability of a director or
officer is expressly provided for by an applicable statute, including the
liability for payment of distributions in violation of Section 78.300 of the
Nevada Revised Statutes; or (iii) any other act, omission, transaction or breach
of duty as to which any applicable statute, rule or regulation provides that the
liability of directors or officers may not be eliminated or limited. If the
Nevada Revised Statutes or other applicable laws (collectively, "Laws")
hereafter are amended to authorize the further elimination or limitation of the
liability of directors or officers, then the liability of a director or officer
of the corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Laws.
No amendment to or repeal of this article shall apply to or have any effect on
the liability or alleged liability of any director or officer of the corporation
for or with respect to any acts or omissions of such director or officer
occurring prior to such amendment or repeal.
5
<PAGE>
EXHIBIT 3.2
BY-LAWS
of
HOMECAPITAL INVESTMENT CORPORATION
ARTICLE I - OFFICES
1. REGISTERED OFFICE.
The registered office shall be the offices of the registered agent of the
Company, The Corporation Trust Company of Nevada, One East First Street, Reno,
Nevada, 89501.
2. OTHER OFFICES.
The corporation may have other offices, either within or without the State
of Nevada, at such place or places as the board of director may from time-to-
time appoint or as the business of the corporation may require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of the
corporation or at such place within or without the State of Nevada as the board
of directors shall authorize.
2. ANNUAL MEETING.
Annual meetings of stockholders for the election of directors and for such
other business as may be stated in the notice of the meeting, shall be held at
such place, either within or without the State of Nevada, and at such time and
date as the board of directors, by resolution, shall determine and as set forth
in the notice of meeting. In the event the board of directors fails to so
determine the time, date and place of meeting, the annual meeting of
stockholders shall be held at 10:00 a.m., on the first Tuesday of each February,
at the principal office of the corporation.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a board of directors and
may transact such other corporate business as shall be stated in the notice of
the meeting.
3. OTHER MEETINGS.
Meetings of stockholders for any purpose other than the election of
directors may be held at such time and place, within or without the State of
Nevada, as shall be stated in the notice of the meeting.
<PAGE>
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of, or
to vote at, any meeting of shareholders, or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
board of directors shall fix, in advance of such meeting or other action, a date
as the record date for any such determination of shareholders. Such date shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If no record
date is fixed, it shall be determined in accordance with the provisions of law.
A Determination of stockholders of record entitled to vote at a meeting shall
apply to any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
5. STOCKHOLDER LIST.
Upon the request of any stockholder, the officer who has charge of the
stock ledger of the corporation shall at least ten (10) days before each meeting
of stockholders prepare a complete alphabetical address list of the stockholders
entitled to vote at the ensuing meeting, with the number of shares held by each.
Said list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall be available for inspection at the meeting.
6. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may be called by
the Chairman of the Board, the President or Secretary and shall be called by the
President or Secretary at the request in writing of: (a) a majority of the
directors; or, (b) of any stockholder who holds more than twenty (20%) percent
of the shares entitled to vote thereat. Such request shall state the purpose of
the proposed meeting.
7. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose or
purposes for which the meeting is called, the place, date and hour of the
meeting and, unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons requesting the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten (10) nor more than sixty (60) days
before the date of the meeting. If action is proposed to be taken that might
entitle shareholders to payment for their shares, the notice shall include a
statement to that effect. If mailed, the notice shall be deemed to be effective
and given when deposited in the United
2
<PAGE>
States mail, with postage thereon prepaid, directed to the shareholder at his
address as it appears on the record of shareholders, or, if he shall have filed
with the secretary a written request that notices to him be mailed to some other
address, then directed to him at such other address.
8. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a waiver
of notice, in person or by proxy, whether before or after the meeting. The
attendance of any shareholders at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting shall constitute a waiver of notice by him.
9. BUSINESS TRANSACTED.
No business other than that stated in the notice shall be transacted at any
meeting without the unanimous consent of all the stockholders entitled to vote
thereat.
10. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the presence,
in person or by proxy, of the holders of a majority of the shares entitled to
vote thereat shall constitute a quorum at a meeting of shareholders for the
transaction of any business, provided that when a specified item of business is
required to be voted on by a class or classes, the holders of a majority of the
shares of such class or classes shall constitute a quorum for the transaction of
such specified item of business.
When a quorum is once present to organize a meeting, it shall not be
terminated by the subsequent withdrawal of any shareholders for attendance
thereat. The shareholders present may adjourn the meeting despite the absence
of a quorum.
11. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy. Every proxy must be signed by the shareholder
or his attorney-in-fact. No proxy shall be valid after expiration of eleven
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
as otherwise provided by law.
12. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders, unless otherwise provided in the certificate of incorporation.
3
<PAGE>
13. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation;
(a) directors shall be elected by a majority of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election;
(b) all other corporate action shall be authorized by a majority of the
votes cast.
14. WRITTEN CONSENT OF SHAREHOLDERS.
Except as otherwise provided by the Certificate of Incorporation, whenever
the vote of stockholders at a meeting thereof is required or permitted to be
taken in connection with any corporate action by any provisions of the statutes
or the Certificate of Incorporation or of these By-laws, the meeting and vote of
stockholders may be dispensed with, and action may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such cation at a meeting at which all shares entitled to vote thereon
were present and voted, such consent to be dated and delivered to the
corporation within sixty (60) days of the date of the earliest consent delivered
to the corporation.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation the business
of the corporation shall be managed by its board of directors, each of whom
shall be at least 18 years of age.
2. NUMBER OF DIRECTORS.
The number of directors shall be a minimum of seven (7) and a maximum of as
many as either the directors by resolution duly adopted or the stockholders, by
resolution duly adopted by a majority of shares entitled to vote, shall
determine. When all of the shares are owned by less than three (3)
shareholders, the number of directors may be less than three but not less than
the number of shareholders.
3. ELECTION AND TERM OF DIRECTORS.
At each annual meeting of shareholders, the shareholders shall elect
directors to hold office until the next annual meeting. Each director shall
hold office until the expiration of the term for which he is elected and until
his successor has been elected and qualified, or until his prior resignation or
removal.
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4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board of directors for any reason,
except the removal of directors without cause, may be filled by a vote of
majority of the directors then in office, although less than a quorum exists,
unless otherwise provided in the certificate of incorporation. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the shareholders, unless otherwise provided in the certificate of
incorporation. A director elected to fill a vacancy cause by resignation, death
or removal shall be elected to hold office for the unexpired term of his
predecessor.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
shareholders or by action of the board of directors. Directors may be removed
without cause only by vote of the shareholders.
6. RESIGNATION.
A director may resign at any time by giving written notice to the board of
directors, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board of directors or such officer, and the acceptance of such
resignation shall not be necessary to make it effective.
7. QUORUM OF DIRECTORS.
Unless otherwise provided in the certificate of incorporation, a majority
of the entire board of directors shall constitute a quorum for the transaction
of business or of any specified item of business.
8. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority of the directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the board of directors.
9. PLACE AND TIME OF BOARD MEETING.
The board of directors may hold its meetings at the office of the
corporation or at such other places, either within or without the State of
Nevada, as it may from time to time determine.
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10. REGULAR ANNUAL MEETING.
A regular annual meeting of the board of directors shall be held
immediately following the annual meeting of shareholders at the place of such
annual meeting of shareholders.
11. NOTICE OF MEETINGS OF THE BOARD; ADJOURNMENT.
(a) Special meetings of the board of directors shall be held upon notice to
the directors and may be called by the president upon three days notice to each
director either personally or by mail, telegram, telex or telecopier; special
meetings shall be called by the president or by the secretary in a like manner
on written request of two directors. Notice of a meeting need not be given to
any director who submits a waiver of notice whether before or after the meeting
or who attends the meeting without protesting prior thereto, or at its
commencement, the lack of notice to him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and/or place. Notice of the
adjournment shall be given to all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
12. CHAIRMAN.
At all meetings of the board of directors, the Chairman of the Board, or in
his absence, the Vice-Chairman of the Board, shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
The board of directors, by resolution adopted by a majority of the entire
board of directors, may designate from among its members an executive committee
and other committees, each consisting of two or more directors. Each such
committee shall serve at the pleasure of the board of directors.
14. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board of directors a fixed sum and expenses for actual
attendance, at each regular or special meeting of the board of directors, may be
authorized. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
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15. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board of directors, or
by any committee thereof, may be taken without a meeting, if all members of the
board of directors, or the committee as the case may be, consent in writing to
the adoption of a resolution authorizing the action. The resolution and the
written consents thereto shall be filed with the minutes of proceedings of the
board of directors or committee.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the certificate of incorporation,
the board of directors may elect or appoint a president, one or more vice-
presidents, a secretary and a treasurer, and such other officers, including
chief executive officer, chief operating officer and chief financial
officer, as it may determine, who shall have such duties, powers and
functions as hereinafter provided.
(b) All officers shall be elected or appointed to hold office until
the meeting of the board of directors following the annual meeting of
shareholders.
(c) Each officer shall hold office for the term for which he is
elected or appointed and until his successor has been elected or appointed
and qualified.
2. REMOVAL, RESIGNATION, SALARY, ETC.
(a) Any officer elected or appointed by the board of directors may be
removed by the board of directors with or without cause.
(b) In the event of the death, resignation or removal of an officer,
the board of directors in its discretion may elect or appoint a successor
to fill the unexpired term.
(c) Any two or more offices may be held by the same person, except the
offices of president and secretary. When all of the issued and outstanding
stock of the corporation is owned by one person, such person may hold all
or any combination of offices.
(d) The salaries of all officers shall be fixed by the board of
directors.
(e) The directors may require any officer to give security for the
faithful performance of his duties.
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3. PRESIDENT.
The president shall manage the business of the corporation and have the
general powers and duties of supervision and management usually vested in the
office of President of a corporation, and shall take such action as may be
necessary to implement all orders and resolutions of the board of directors.
4. VICE-PRESIDENTS.
During the absence or disability of the president, the vice-president, or
if there are more than one, the executive vice-president, shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board of directors shall prescribe.
5. SECRETARY.
The secretary shall:
(a) attend all meetings of the board of directors and of the
shareholders;
(b) record all votes and minutes of all proceedings in a book to be
kept for that purpose;
(c) give or cause to be given notice of all meetings of shareholders
and of special meetings of the board of directors;
(d) keep in safe custody the seal of the corporation and affix it to
any instrument when authorized by the board of directors;
(e) when required, prepare or cause to be prepared and available at
each meeting of shareholders a certified list in alphabetical order of the
names of shareholders entitled to vote thereat, indicating the number of
shares of each respective class held by each;
(f) keep all the documents and records of the corporation as required
by law or otherwise in a proper and safe manner.
(g) perform such other duties as may be prescribed by the board of
directors.
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6. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the assistant-secretary,
or if there are more than one, the one so designated by the secretary or by the
board of directors, shall have all the powers and functions of the secretary.
7. TREASURER.
The treasurer officer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements in
the corporate books;
(c) deposit all money and other valuables in the name and to the
credit of the corporation in such depositories as may be designated by the
board of directors;
(d) disburse the funds of the corporation as may be ordered or
authorized by the board of directors and preserve proper vouchers for such
disbursements;
(e) render to the president and board of directors at the regular
meetings of the board of directors, or whenever they require it, an account
of all his transactions as treasurer and of the financial condition of the
corporation;
(f) render a full financial report at the annual meeting of the
shareholders if so requested;
(g) be furnished by all corporate officers and agents at his request,
with such reports and statements as he may require as to all financial
transactions of the corporation; and
(h) perform such other duties as are given to him by these by-laws or
as from time to time are assigned to him by the board of directors or the
president.
8. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the assistant-treasurer,
or if there are more than one, the one so designated by the secretary or by the
board of directors, shall have all the powers and functions of the treasurer.
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9. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the board of
directors and shall perform such other duties as the board of directors shall
prescribe.
10. VICE-CHAIRMAN OF THE BOARD.
During the absence or disability of the Chairman of the Board, the Vice-
Chairman of the Board shall have all the powers and functions of the Chairman of
the Board.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CERTIFICATES.
Every holder of stock in the corporation shall be entitled to have a
certificate, signed by, or in the name of the corporation by, the Chairman or
Vice-Chairman of the board of directors, or the President or a Vice-President
and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by him in
the corporation. If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the front or back of the certificate which the corporation shall
issue to represent such class of series of stock, provided that, except as
otherwise may be required by law, in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the corporation
shall issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitation or restrictions of such preferences and/or rights. Where a
certificate is countersigned (1) by a transfer agent other than the corporation
or its employee, or (2) by a registrar other than the corporation or its
employee, the signatures of such officers may be facsimiles.
2. LOST OR DESTROYED CERTIFICATES.
The board of directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum and with such
surety or sureties as it may direct as
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indemnity against any claim that may be made against the corporation with
respect tot he certificate alleged to have been lost or destroyed.
3. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it
shall be the duty of the corporation to issue a new certificate to the
person entitled thereto, and cancel the old certificate; every such
transfer shall be entered on the transfer book of the corporation which
shall be dept at its principal office. No transfer shall be made within
ten (10) days next preceding the annual meeting of shareholders.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not the Corporation shall
have express or other notice thereof, except as expressly provided by the
laws of Nevada.
ARTICLE VI - DIVIDENDS
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding share of the corporation may be
declared in such amounts and at such time or times as the board of directors may
determine.
ARTICLE VII - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name of
the corporation, the year of its organization and the words "Corporate Seal,
Nevada." The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive substance affixed thereto.
The seal on the certificate for shares or on any corporate obligation for the
payment of money may be a facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or countersigned,
executed, verified or acknowledged by such officer or officers or other person
or persons as the board of directors may from time to time designate.
ARTICLE IX - FISCAL YEAR
The fiscal year of the corporation shall be determined by resolution of the
board of directors.
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ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
References to the certificate of incorporation in these by-laws shall
include all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XI - BY-LAW CHANGES
1. AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.
(a) Except as otherwise provided in the certificate of incorporation, the
by-laws may be amended, repealed or adopted by vote of the holders of the shares
at the time entitled to vote for the election of any directors. By-laws may
also be amended, repealed or adopted by the board of directors, but any by-law
adopted by the board of directors may be amended by the shareholders entitled to
vote thereon as hereinabove provided.
(b) If any by-law regulating an impending election of directors is adopted,
amended or repealed by the board of directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the by-
laws so adopted, amended or repealed, together with a concise statement of the
changes made.
ARTICLE XII - MISCELLANEOUS PROVISIONS
1. WAIVER OF NEVADA CONTROL SHARE ACQUISITION ACT.
The provisions of the Nevada Control Share Acquisition Act, Nevada Revised
Statutes Sections 78.378 to 78.3793, shall not apply to the Corporation or to
any person acquiring shares of the capital stock of the Corporation.
2. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Indemnification Coverage. To the fullest extent permitted by law, the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal to such an action, suit or proceeding and any inquiry or investigation
that could lead to such an action, suit or proceeding (collectively, such
actions, suits, proceedings, appeals, inquiries and investigations are referred
to collectively as "Proceedings" and individually as "Proceeding"), by reason of
the fact that such person either is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another domestic or foreign corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, penalties
(including excise and similar taxes), fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such
Proceeding, if it is determined that such
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person acted in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful; provided, however, that indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the Company or for amounts paid in settlement to the Company, unless and only
to the extent that the court in which the Proceeding was brought or other court
of competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper. The termination of any
Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Company and that,
with respect to any criminal Proceeding, such person had reasonable cause to
believe that his conduct was unlawful.
(b) Eligibility Determination. Any indemnification under subsection (a),
unless ordered by a court or advanced pursuant to subsection (d), must be made
by the Company only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made: (i) by the stockholders; or
(ii) by the board of directors by a majority vote of a quorum consisting of
directors who at the time of the vote are not named defendants or respondents in
the Proceeding; or (iii) if a majority of such a quorum so orders, by written
opinion of independent legal counsel; or (iv) if such a quorum cannot be
obtained, by written opinion of independent legal counsel.
(c) Mandatory Indemnification. To the extent that a director, officer,
employee or agent of the Company has been successful on the merits or otherwise
in defense of any Proceeding referred to in subsection (a) of this Section, or
in defense of any claim, issue or matter therein, such person shall be
indemnified by the Company against expenses (including court costs and
attorneys' fees) actually and reasonably incurred by him in connection with the
defense of the Proceeding.
(d) Expenses Advance. The reasonable expenses incurred by a director or
officer in defending a Proceeding shall be paid by the Company as they are
incurred in advance of the final disposition of such Proceeding and without any
of the determinations specified in subsection (b) of this Section, upon receipt
by the Company of a written undertaking by or on behalf of the director or
officer to repay such amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the Company
as authorized in this Section. The Company may, to the extent authorized from
time to time by the board of directors, grant rights to the advancement of
expenses to any employee or agent of the Company to the fullest extent of the
provisions of this Section with respect to the advancement of expenses of
directors and officers of the Company.
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(e) Non-Exclusive. The right to indemnification conferred in this Section
shall be a contract right. The indemnification provided by this Section shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any other law, by-law, agreement, vote of stockholders or
disinterested directors, or otherwise, either as to action in an official
capacity or an action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
(f) Insurance. The Company may purchase and maintain insurance or make
any other financial arrangement on behalf of any person who is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
any liability and expenses incurred by him in any such capacity, or arising out
of his status as such, whether or not the Company would have the authority to
indemnify him against such liability and expenses; provided, however, that no
financial arrangement made pursuant to this subsection may provide protection
for a person adjudged by a court of competent jurisdiction, after exhaustion of
all appeals therefrom, to be liable for intentional misconduct, fraud or a
knowing violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court. The insurance or other arrangement may be
procured, maintained or established within the Company or with any insurer or
other person deemed appropriate by the board of directors regardless of whether
all or part of the stock or other securities of the insurer or other person is
owned in whole or part by the Company. In the absence of fraud, the judgment of
the board of directors as to the terms and conditions of the insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive and the insurance or arrangement shall not be
voidable and shall not subject the directors approving the insurance or
arrangement to liability, on any ground, regardless of whether directors
participating in the approval are beneficiaries of the insurance or arrangement.
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EXHIBIT 10.6
MASTER AGREEMENT NO. MD01694
February 11, 1997
Mr. John Ballard
Home, Inc.
6836 Austin Center Blvd.
Austin, TX 78731
Dear Mr. Ballard:
This letter shall constitute the master agreement ("Master Agreement") between
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. However, should Fannie Mae decline to
enforce payment of this fee, such action will not imply a waiver of its right to
collect a similar fee at a subsequent time. Fannie Mae's right to receive such
a 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.
<PAGE>
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. If the Agreed Amount, as adjusted by the minus 5.00%
delivery tolerance, is not sold to Fannie Mae prior to the Expiration Date of
the Master Agreement, Lender shall be in breach of the provisions of the 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:
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
Master No. MD01694
MA - 2
<PAGE>
(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,
FANNIE MAE
By: /s/ Jerome Brister
----------------------------------
Jerome Brister
Regional Vice President
Agreed, acknowledged, and accepted this 12th day of February, 1997.
HOME, INC.
By: /s/ John W. Ballard
--------------------------------
Name: John W. Ballard
--------------------------------
Title: President/CEO
--------------------------------
Master No. MD01694
MA - 3
<PAGE>
EXHIBIT 1
Master Agreement Number: MD01694
Effective Date: FEBRUARY 1, 1997
Expiration Date: JANUARY 30, 1998
Parties to Agreement: HOME, INC. AND FANNIE MAE
Lender Number: 23772-000-8
Agreed Amount: $-0- PLUS OR MINUS 5.00% (MANDATORY)
$15,000,000.00 (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.
Master No. MD01694
MA - 4
<PAGE>
HOUSING IMPACT
These Housing Impact Terms and Conditions are attached to and made a part of the
Master Agreement referenced above (the "Agreement"). The terms and conditions
for mortgages originated pursuant to Fannie Mae's Enhanced FannieNeighbors(R)
model or the Community Home Buyer's Program model have been incorporated into
the Selling Guide. The Lender and Fannie Mae agree that, except as provided
below, all other requirements of the Fannie Mae Selling and Servicing Guides
shall be followed. Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreement.
Housing Impact Programs
Under this Master Agreement, Lender may deliver Mortgages originated pursuant to
the programs described on the Attachments listed on the attached Housing Impact
Program Schedule.
Special Feature Codes
On the "Schedule of Mortgages" for MBS deliveries or the Loan Schedule for cash
deliveries, in the box labeled "Special Features" enter the codes designated in
the applicable addendum attached to the Housing Impact Program Schedule or in
the Selling Guide.
Eligible Products
Please refer to the terms of the applicable attachments to the Housing Impact
Program Schedule or in the Selling Guide to determine product eligibility.
Master No. MD01694
HI - 1
<PAGE>
HOUSING IMPACT PROGRAM SCHEDULE
Note: If the Expiration Date of this Master Agreement extends beyond the stated
expiration date for any program listed below, then Lender must request
verification from Fannie Mae that such program has been extended past the stated
expiration date in order to deliver Mortgages under such program for the
remainder of the Master Agreement Term
ATTACHMENT DESCRIPTION/TITLE
Attachment "A" FHA Title 1 Home Improvement Loan program
Master No. MD01694
HI - 2
<PAGE>
ATTACHMENT "A"
FHA TITLE 1 HOME IMPROVEMENT LOAN PROGRAM
PROGRAM VARIANCES
Loans may be originated pursuant to the FHA Title 1 Home Improvement Loan
Program as described in the Selling Guide, with the following variance(s)
("Title I Loans"):
1. Title 1 Loans may be secured by manufactured housing, provided that:
a. such manufactured housing must comply with all requirements of the
Selling Guide applicable to manufactured housing, including without
limitation the requirements contained in Part V, Section 225 of the
Selling Guide, except as follows: single-width manufactured housing
units may not be located in a Fannie Mae-approved project;
b. all such Loans must have been originated pursuant to the "Texas Home
Improvement Loan Program;" and
c. all such Loans must be sold to Fannie Mae for cash.
2. The original term of such Loans may be 5, 7, 10, 15 or 20 years.
3. Pricing Characteristics:
a) Lender should call Lender's regional Fannie Mae customer account
representative to obtain the required net yield for Title I Loans
delivered pursuant to this Agreement. The yield will be determined by
taking the required net yield associated with the lowest pass-through
rate indicated by Fannie Mae for Title I discount/premium pricing on
the day the mandatory commitment for the delivery of the Title I Loans
is obtained. The purchase price will be calculated using this yield
and a prepayment assumption equal to the original term of the Title I
Loan. All Title I Loans will have a pass-through rate of 4.00% and a
term of 5, 7, 10, 15 or 20 years.
b) Minimum servicing fee for the Title I Loans is .50%.
c) Maximum interest rate charged by the Lender for the Title I Loans
shall not exceed 500 basis points above the Fannie Mae posted yield
(for par pricing) for the desired delivery period; or the pass-through
rate (for premium discount pricing) at which the Loans will be
delivered to Fannie Mae.
4. Lender must enter the following on Form 1068: Special Feature Codes "089"
(Rehab. Loan); "001" for all Title I Loans; "235" (manufactured housing
Title I Loans) and "211" for dealer and correspondent Title I Loans; and X-
Code 104 (Rehab Title I).
Master No. MD01694
FHA Title 1 - 1
<PAGE>
EXHIBIT 10.6a
April 11, 1997
Home, Inc.
6836 Austin Center Blvd.
Austin, TX 78731
Attention: Mr. John Ballard
Subject: Master Agreement Number: MD01694
Amendment: FIRST
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.
The amended terms and conditions are set forth below. If applicable, the Lender
and Fannie Mae shall rely also on any attached pages for a complete description
of the amended terms and conditions.
The amended terms and conditions:
1. AMENDED TERM: amend certain provisions of Attachment "A" FHA Title 1 Home
Improvement Loan program in the "Housing Impact" section of your Master
Agreement binder.
INSTRUCTIONS: (1) Replace ATTACHMENT "A" in the "Housing Impact" section
of your Master Agreement binder with the enclosed ATTACHMENT
"A."
(2) All replaced pages, along with this letter, should be
inserted under the "Amendment History" tab.
<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,
FANNIE MAE
By: /s/ Jerome Brister
--------------------------------------------------
(Authorized Signature)
Name: Jerome Brister, Regional Vice President
--------------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this 11th day of April, 1997.
HOME, INC.
By: /s/ Tommy M. Parker
--------------------------------------------------
(Authorized Signature)
Name: Executive Vice President
--------------------------------------------------
(Name and Title)
Master No. MD01694 - Amd. 1
<PAGE>
ATTACHMENT "A"
FHA TITLE 1 HOME IMPROVEMENT LOAN PROGRAM
PROGRAM VARIANCES
Loans may be originated pursuant to the FHA Title 1 Home Improvement Loan
Program as described in the Selling Guide, with the following variance(s)
("Title I Loans"):
1. Title 1 Loans may be secured by manufactured housing, provided that:
a. such manufactured housing must comply with all requirements of the
Selling Guide applicable to manufactured housing, including without
limitation the requirements contained in Part V, Section 225 of the
Selling Guide, except as follows: single-width manufactured housing
units may not be located in a Fannie Mae-approved project;
b. all such Loans must have been originated pursuant to the "Texas Home
Improvement Loan Program;" and
c. all such Loans must be sold to Fannie Mae for cash.
2. The original term of such Loans may be 5, 7, 10, 15 or 20 years.
3. Pricing Characteristics:
a) Lender should call Lender's regional Fannie Mae customer account
representative to obtain the required net yield for Title I Loans
delivered pursuant to this Agreement. The yield will be determined by
taking the required net yield associated with the lowest pass-through
rate indicated by Fannie Mae for Title I discount/premium pricing on
the day the mandatory commitment for the delivery of the Title I Loans
is obtained. The purchase price will be calculated using this yield
and a prepayment assumption equal to the original term of the Title I
Loan. All Title I Loans will have a pass-through rate of 4.00% and a
term of 5, 7, 10, 15 or 20 years.
b) Minimum servicing fee for the Title I Loans is .50%.
c) Maximum interest rate charged by the Lender for the Title I Loans shall
not exceed 500 basis points above the Fannie Mae posted yield (for par
pricing) for the desired delivery period; or the pass-through rate
(for premium discount pricing) at which the Loans will be delivered to
Fannie Mae.
4. Lender must enter the following on Form 1068: Special Feature Codes "089"
(Rehab. Loan); "001" for all Title I Loans; "235" (manufactured housing
Title I Loans) and "211" for dealer and correspondent Title I Loans; and X-
Code 104 (Rehab Title I).
5. Notwithstanding anything herein to the contrary, the aggregate unpaid
principal balance of all Title 1 Loans secured by manufactured housing
which are sold and delivered to Fannie Mae shall not exceed 25.00% of the
aggregate unpaid principal amount of all Mortgages sold and delivered to
Fannie Mae under this Agreement.
Master No. MD01694 - Amd. 1
FHA Title 1 - 1
<PAGE>
EXHIBIT 10.6b
September 23, 1997
Home, Inc.
6836 Austin Center Blvd.
Austin, TX 78731
Attention: Mr. John Ballard
Subject: Master Agreement Number: MD01694
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.
The amended terms and conditions are set forth below. If applicable, the Lender
and Fannie Mae shall rely also on any attached pages for a complete description
of the amended terms and conditions.
The amended terms and conditions:
1. AMENDED TERM: amend certain provisions of Attachment "A" FHA Title 1 Home
Improvement Loan program in the "Housing Impact" section of your Master
Agreement binder.
INSTRUCTIONS: (1) Replace ATTACHMENT "A" in the "Housing Impact" section
of your Master Agreement binder with the enclosed ATTACHMENT
"A."
(2) All replaced pages, along with this letter, should
be inserted under the "Amendment History" tab.
<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,
FANNIE MAE
By: /s/ Jerome Brister
--------------------------------------------------
(Authorized Signature)
Name: Jerome Brister, Regional Vice President
--------------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this 23rd day of September, 1997.
HOME, INC.
By: /s/ Tommy M. Parker
--------------------------------------------------
(Authorized Signature)
Name: Tommy M. Parker, Executive Vice President
--------------------------------------------------
(Name and Title)
Master No. MD01694 - Amd. 2
2
<PAGE>
ATTACHMENT "A"
FHA TITLE 1 HOME IMPROVEMENT LOAN PROGRAM
PROGRAM VARIANCES
Loans may be originated pursuant to the FHA Title 1 Home Improvement Loan
Program as described in the Selling Guide, with the following variance(s)
("Title I Loans"):
1. Title 1 Loans may be secured by manufactured housing, provided that:
a. such manufactured housing must comply with all requirements of the
Selling Guide applicable to manufactured housing, including without
limitation the requirements contained in Part V, Section 225 of the
Selling Guide, except as follows: single-width manufactured housing
units may not be located in a Fannie Mae-approved project;
b. all such Loans must have been originated pursuant to the "Texas Home
Improvement Loan Program;" and
c. all such Loans must be sold to Fannie Mae for cash.
2. The original term of such Loans may be 5, 7, 10, 15 or 20 years.
3. Pricing Characteristics:
a) Lender should call Lender's regional Fannie Mae customer account
representative to obtain the required net yield for Title I Loans
delivered pursuant to this Agreement. The yield will be determined by
taking the required net yield associated with the lowest pass-through
rate indicated by Fannie Mae for Title I discount/premium pricing on
the day the mandatory commitment for the delivery of the Title I Loans
is obtained. The purchase price will be calculated using this yield
and a prepayment assumption equal to the original term of the Title I
Loan. All Title I Loans will have a pass-through rates ranging from
(i) a minimum rate of 4.00% to (ii) a maximum rate equal to .125% (125
basis points) below the lowest posted pass through rate, and a term of
5, 7, 10, 15 or 20 years.
b) Minimum servicing fee for the Title I Loans is .50%.
c) Maximum interest rate charged by the Lender for the Title I Loans
shall not exceed 500 basis points above the Fannie Mae posted yield
(for par pricing) for the desired delivery period; or the pass-through
rate (for premium discount pricing) at which the Loans will be
delivered to Fannie Mae.
4. Lender must enter the following on Form 1068: Special Feature Codes "089"
(Rehab. Loan); "001" for all Title I Loans; "235" (manufactured housing
Title I Loans) and "211" for dealer and correspondent Title I Loans; and X-
Code 104 (Rehab Title I).
5. Notwithstanding anything herein to the contrary, the aggregate unpaid
principal balance of all Title 1 Loans secured by manufactured housing
which are sold and delivered to Fannie Mae shall not exceed 25.00% of the
aggregate unpaid principal amount of all Mortgages sold and delivered to
Fannie Mae under this Agreement.
Master No. MD01694 - Amd 2
FHA Title 1 - 1
<PAGE>
EXHIBIT 10.9
FIRST AMENDED AND RESTATED
WAREHOUSE LOAN AGREEMENT
THIS FIRST AMENDED AND RESTATED WAREHOUSE LOAN AGREEMENT ("AGREEMENT") is
made and entered into as of the 24TH DAY OF SEPTEMBER, 1997, 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") 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") and 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") together with all documents or
instruments representing, evidencing or securing the Loan (the "LOAN
DOCUMENTS");
WHEREAS, (i) 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; (ii) effective as of SEPTEMBER 17, 1996 Bank and
Borrower entered into that certain SECOND AMENDMENT to Loan Agreement; (iii)
Bank, Borrower and Guarantor, effective as of OCTOBER 15, 1996 entered into that
certain THIRD AMENDMENT to Loan Agreement whereby the loan amount was increased
to $15,000,000.00; (iv) Bank, Borrower and Guarantor, effective as of JANUARY
31, 1997, entered into that certain FOURTH AMENDMENT to the Loan Agreement
whereby the maturity date of the loan was extended to FEBRUARY 28, 1997; (v)
Bank, Borrower and Guarantor, effective as of JANUARY 1, 1997, entered into that
certain FIFTH AMENDMENT to the Loan Agreement modifying certain terms of the
Loan Documents; (vi) Bank, Borrower and Guarantor, effective as of MAY 15, 1997,
entered into that certain SIXTH AMENDMENT to the Loan Agreement modifying terms
of the Loan Documents; (vii) Bank, Borrower and Guarantor, effective as of
AUGUST 13, 1997, entered into that certain SEVENTH AMENDMENT to the Loan
Agreement modifying terms of the Loan Documents;
WHEREAS, Bank, Borrower and Guarantor desire through execution of this
Agreement to integrate all prior amendments into this Agreement and modify
certain other provisions of this Agreement and the Loan Documents;
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
GENERAL TERMS
SECTION 1.1 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 GAAP 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
<PAGE>
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.
"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.
"AUSTIN CONTROLLED DISBURSEMENT ACCOUNT" shall mean that certain controlled
disbursement account at Frost National Bank, Austin, Texas, ABA No. 114000093,
Credit Home, Inc. Austin Controlled Disbursement Account-Wires No. 294018508
used by Borrower to fund Mortgage Loans by means of checks (prior to the earlier
to occur of (a) Borrower's utilization of the Austin Funding Account - Checks
and the Austin Funding Account - Wires together with absence of any Advance
proceeds in the Austin Controlled Disbursement Account or (b) December 31, 1997
(such earlier date is hereinafter called, the "CONVERSION DATE")). Until the
Conversion Date, the account shall be pledged to Lender and Frost National Bank
shall waive any security interests and all said rights in such account.
"AUSTIN EXISTING ACCOUNTS" shall mean the Austin Controlled Disbursement
Account and the Austin Operating Account.
2
<PAGE>
"AUSTIN FUNDING ACCOUNT - WIRES" shall mean a certain account established
by Borrower by December 31, 1997 at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Funding Account - Wires No. 591055526, to be
used solely for the deposit of proceeds of Advances and such additional sums
needed for the funding of Mortgage Notes by wire transfer by Borrower. The
account shall be pledged at all times to Lender and Frost National Bank shall
waive any security interests and offset rights in such account.
"AUSTIN FUNDING ACCOUNT - CHECKS" shall mean a certain controlled
disbursement account, established by Borrower by December 31, 1997 at Frost
National Bank, Austin, Texas, ABA No. 114000093, Credit Home, Inc. Austin
Funding Account - Wires No. 294038096, to be used solely for the deposit of
proceeds of Advances and such additional funds needed for the funding of
Mortgage Notes by checks by Borrower. The account shall be pledged at all times
to Lender and Frost National Bank shall waive any security interests and offset
rights in such account.
"AUSTIN FUNDING ACCOUNTS" shall mean the Austin Funding Account - Wires and
the Austin Funding Account - Checks.
"AUSTIN OPERATING ACCOUNT" shall mean a certain account established by
Borrower at Frost National Bank, Austin, Texas, ABA No. 114000093, Credit Home,
Inc. Austin Operating Account - Wires No. 591044583. Until the Conversion Date,
the account shall be pledged to Lender and Frost National Bank shall waive any
security interests and offset rights in such account.
"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.
"BASE TITLE I LOAN" shall mean a Title I Loan which is (a) a Single Family
Property Improvement Loan including THILP Loans (b) secured by a mortgage or
deed of trust (c) has an original principal balance not exceeding $25,000 and
(d) is a Covered Mortgage Loan.
3
<PAGE>
"BORROWER" shall have the meaning assigned to such term in the preamble
hereof.
"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 4.2 hereof.
"COLLATERAL VALUE" shall mean as of any date of determination, an amount
equal to (A) with respect to BASE TITLE I LOANS NINETY-EIGHT PERCENT (98%), (B)
with respect to OTHER TITLE I LOANS NINETY-SEVEN PERCENT (97%), (C) with respect
to COVERED NON-TITLE I LOANS NINETY-FIVE PERCENT (95%) and (D) with respect to
NON-TITLE I LOANS NINETY PERCENT (90%), 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 Mortgage
Loan evidenced by such Mortgage Note), or (II) the TAKE-OUT VALUE of such item
of Mortgage Collateral or (III) at the option of the Bank, the MARKET VALUE of
such Mortgage Note; or (IV) with respect to Covered Non-Title I Loans and Non-
Title I Loans, the unpaid principal balance; 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 Loan 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 COVERED NON-TITLE I LOAN OR NON-TITLE I LOAN shall be utilized in the
computation of 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 at any time attributable
to OTHER TITLE I LOANS shall be limited to $1,000,000.00, (F) the cumulative
Collateral Value at any time attributable to UNSECURED LOANS shall be limited to
$1,000,000.00, (G) the cumulative Collateral Value at any time attributable to
NON-TITLE I LOANS shall be limited to $10,000,000.00, (H) no Pending Loan shall
be utilized in the calculation of Collateral Value
4
<PAGE>
until such Mortgage Loan qualifies as a Warehoused Loan, and (I) THE CUMULATIVE
COLLATERAL VALUE ATTRIBUTABLE TO THILP LOANS SHALL BE LIMITED TO $15,000,000.00.
"COMMITMENT" as to Bank shall mean the obligation of Bank to make Advances
to Borrower pursuant to SECTION 2.1 hereof in an aggregate amount not to exceed
at any one time outstanding the amount of $20,000,000.00.
"COMMITMENT TERMINATION DATE" (or Maturity Date of the Loan) shall mean
JUNE 30, 1998 or such earlier date on which the Commitment terminates as
provided in this Agreement.
"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 "J" 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" shall mean a Base Title I Loan, Other Title I Loan
and Non-Title I Loan, with respect to which Borrower has a Take-Out Commitment
(excluding Take-Out Commitments issued by an Affiliate of Borrower).
"COVERED NON-TITLE I LOAN" shall mean a Non-Title I Loan which qualifies as
a Covered Mortgage Loan by virtue of a loan-specific takeout commitment issued
by an Investor approved by Lender, which is reasonably satisfactory to Lender.
"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 10.3 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.
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"DEFAULT" shall mean any of the events specified in SECTION 8.1 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 shall deliver to Bank pursuant to the terms
hereof with respect to Pending Loans only.
"DETERMINATION DATE" means January 1, April 1, July 1, and October 1 of
each year.
(a) "DIVIDENDS" in respect of any corporation, shall mean:
(1) 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
(2) 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.
"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 8.1
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 INTEREST CERTIFICATES" shall mean with respect to a series of HOME
Asset Backed Bonds (the "BONDS") the Certificated Securities issued by HOME
SECURITIZATION TRUST I (the "TRUST") which qualify under Rule 144A of the
Securities Act of 1933 and which represent (a) the right to monthly interest
payments which are attributable to the difference between the interest rate
paid on such series of Bonds, including without limitation, Series 1997-1 Bonds
and the interest rate paid on the FNMA Securities that have been pledged to back
such series of Bonds and the related Excess Interest Certificates, and (b) the
right to any remaining principal and interest from the FNMA Securities for such
series of Bonds after the payment in full of such series of Bonds. A further
description of such Excess Interest Certificates shall be set forth in a pro
forma Excess Interest Certificate and the private placement memorandum relating
to the private sale of such Excess Interest Certificates is attached to the
related Advance Request in connection with the Working Capital Line.
"EXCESS SERVICING RECEIVABLES" means an amount capitalized on Borrower's
balance sheet in accordance with GAAP which reflects the present value of future
cash flows estimated to be received by Borrower subsequent to loan sales to
FNMA. The cash flow streams that are discounted are based upon the difference
between (A) the gross note rate of the Mortgage Loans sold to FNMA and which is
being serviced by Borrower under the Servicing Agreement with FNMA and (B) the
sum of (i) the rate paid with respect to such Mortgage Loan to FNMA under such
Servicing Agreement plus (ii) the subservicing fee payable to the applicable
Subservicer.
"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
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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.
"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 percent
(3.0%) 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
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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.
"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 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.
"GUARANTOR" shall mean HOMECAPITAL INVESTMENT CORP., A NEVADA CORPORATION,
the parent corporation of Borrower.
"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
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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
OCTOBER 10, 1997, and (ii) any day on which past due interest or principal is
owed hereunder and is unpaid.
"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.
"LIEN" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or 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).
"LIQUIDITY" shall mean the sum of the following: (a) Borrower's
unrestricted cash and Cash Equivalents plus (b) Net Collateral Surplus."
"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.
"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.
"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
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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.
"MAXIMUM LOAN AMOUNT" MEANS, AT ANY TIME, THE SUM OF $20,000,000.00.
"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 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.
"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 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: Base Title I Loan, Other Title I Loan or a
Non-Title I Loan.
"MORTGAGE DOCUMENTS" means, for any Mortgage Loan, the Principle Mortgage
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 (except in the case of a Title I Loan
which
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is not secured by real property), 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 Base Title I
Loan, Other Title I Loan or a Non-Title I Loan or a Covered Non-Title I Loan or
a THILP 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.
"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 BUT IS A COVERED MORTGAGE LOAN AND IS ACCEPTABLE TO BANK.
"NOTE" means the Warehouse Promissory Note delivered by the Borrower to the
Bank pursuant to SECTION 2.2 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 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 the Working Capital Line 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.
"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.
"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 3.2 (other than the Principle Mortgage Documents).
"OTHER TITLE I LOAN" shall mean a Title I Loan which is not a Base Title I
Loan but is a Covered Mortgage Loan AND WHICH MAY OR MAY NOT BE SECURED BY A
MORTGAGE.
"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.
"PENDING LOAN" shall mean a Mortgage Loan to be FUNDED PURSUANT TO A CHECK
drawn on the Austin Funding Account - Checks (on or after the Conversion Date)
or the Austin Controlled Disbursement Account (prior to the Conversion Date)
from the time of the delivery to Bank of the Mortgage Loan Documents (required
pursuant to SECTIONS 2.3 and 3.2 hereof) accompanied by a Delivery Commitment
Certificate relating to such Mortgage Loan until such time as (i) such check has
been PRESENTED by the payee to Frost National Bank for payment, (ii) the
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requested Advance related to such check has been FUNDED by Bank to such account
and (iii) such check has been HONORED by Frost National Bank.
"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.
"PRINCIPAL MORTGAGE DOCUMENTS" shall mean those documents listed in SECTION
3.2(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.
"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.
"REPURCHASE FACILITY" or "REPO FACILITY" shall mean facility provided by a
third party under which Borrower may purchase and originate Mortgage Loans
pursuant to a written agreement with such third party defining Borrower's
requirement to sell such Mortgage Loans to such third party and ultimately
repurchase such Mortgage Loans from such third party at a later date.
"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.
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"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.
"RESIDUAL FINANCING" shall mean committed or uncommitted agreements between
Borrower and a third party providing for the financing of certain assets
("Residual Assets") created by the process of converting Mortgage Loans into
securities and which represent Borrower's right to receive subsequent cash flows
from such securities subject to the senior rights of the ultimate owners of such
securities.
"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.
"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.
"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.
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"SINGLE FAMILY PROPERTY IMPROVEMENT LOAN" shall mean a loan to finance
alterations, repairs and improvements to or in connection with an existing
structure used or to be used as a single family residence (excluding
manufactured homes) and is a Covered Mortgage Loan.
"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" for COVERED NON-TITLE I LOANS shall mean a current,
valid, binding and enforceable commitment to purchase that SPECIFIC Covered
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 NON-TITLE I LOANS, Take-Out Commitment shall
mean a current, valid, binding and enforceable Master Take-Out Commitment which
provides sufficient unused coverage for such Non-Title I Loan committing such
Investor to purchase Non-Title I Loans 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 Master Take-Out Commitment which provides sufficient unused coverage
for such Title I Loan committing such Investor to purchase Title I Loans within
a period of not more than ONE HUNDRED TWENTY (120) DAYS from the date of such
Title I Loan, 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 GAAP Net Worth, minus (ii)
the value of all assets of Borrower that would be characterized as Intangible
Assets.
"THILP LOANS" shall mean a Title I Loan which are (i) FNMA eligible loans
underwritten under the Texas Home Improvement Loan program which operates in
conjunction with the Texas Department of Housing and Community Alliance and (ii)
which would qualify as (a) Single Family Property Improvement Loans and (b)
Phase Title I Loans, except for the fact that they are for manufactured housing.
"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.
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"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 BY THE FHA UNDER TITLE I.
"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.
"UNSECURED LOAN" shall mean a Title I Loan which is unsecured but is a
Covered Mortgage Loan.
"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 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 2.1(B).
"WAREHOUSED LOAN" shall mean a Mortgage Loan funded by the Bank through
means of an Advance to (prior to the Conversion Date) the Austin Operating
Account or (on or after the Conversion Date) the Austin Funding Account - Checks
which shall not occur until Borrower's check relating to the funding of such
Mortgage Loan has actually been presented for payment to and honored by Frost
National Bank and Bank has made an Advance to such respective account but
subject to the conditions subsequent that Bank shall receive (1) a "BATCH
REPORT" by 5 p.m. on the day of the Advance for such account and check and (2) A
DETAILED REPORT for such account no later than 9:00 a.m. the morning after
Bank's Advance showing the honoring by Frost National Bank of such check drawn
on such account and containing sufficient information to allow Bank to verify
the funding of such Mortgage Loan and confirm Bank's receipt of and security
interest in such Mortgage Loan Documents. If either of such conditions
subsequent are not satisfied for a Mortgage Loan by such deadlines, then such
Mortgage Loan shall be given a COLLATERAL VALUE OF ZERO and Borrower shall be
required to repay immediately that portion of the Advance related to such
Mortgage Loan pursuant to the provisions contained herein.
"WAREHOUSE PROMISSORY NOTE" means the promissory note delivered by the
Borrower to the Bank pursuant to the first sentence of SECTION 2.2 in the form
attached hereto as EXHIBIT "C" and all renewals, extensions, modifications and
rearrangements thereof."
"WORKING CAPITAL LINE" shall mean the loans from Banks to Borrower
evidencing by that certain First Amended and Restated Working Capital Line of
Credit and Security Agreement (Servicing Secured) executed by Borrower, and the
Bank dated SEPTEMBER 24, 1997, together with all modifications, amendments and
renewals thereto and all documents representing, evidencing or securing such
loans.
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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. Defined terms not specifically defined
in the preceding provisions shall have the meaning specified in the Security
Agreement.
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
AMOUNT AND TERMS OF CREDITS
SECTION 2.1. COMMITMENT.
2.1(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 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.
2.1(b) WAREHOUSE ADVANCES. Each Borrowing under this SECTION 2.1(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 2.6 and reborrow under this SECTION 2.1(b).
SECTION 2.2. NOTE. The Warehouse Advances made by Bank pursuant to
SECTION 2.1(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.
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SECTION 2.3. 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
4.2 hereof and (iii) original documents required pursuant to SECTION 3.2.
The Bank will make such funds available to the Borrower in accordance with
SECTION 3.6.
SECTION 2.4. INTEREST.
2.4(a) Subject to SECTION 2.4(c), interest shall accrue on the
principal balance of the Loan outstanding from day to day at the rate per annum
equal to the sum of (i) the Federal Funds Rate and (ii) three percent (3%).
2.4(b) The Bank shall CALCULATE THE INTEREST owed by Borrower under
its Note and submit to Borrower on the FIFTH (5TH) 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.
2.4(c) PRIOR TO A DEFAULT, interest shall accrue on the outstanding
principal balance of THE NOTE at the Fixed Rate for such month; provided,
however, that to the extent SUCH BANK'S AVERAGE ADVANCES exceeds SUCH 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 percent (3.0%) or (b) the Maximum Rate.
In the event that at any time any of the rates set forth in this
SUBPARAGRAPH 2.4(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.
2.4(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 2.5 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 2.6 hereof.
SECTION 2.6(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.
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2.6(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 6.5; third, to the payment of fees due and payable under
SECTIONS 2.7, 2.8 and 2.9; FOURTH, to the payment of interest then due and
payable under the Note; and FIFTH, to the payment of principal of the Note.
Section 2.7 COMMITMENT FEES. Borrower shall pay to 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 2.8 NON-USE FEE. Borrower shall pay to the Bank a Non-Use 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 quarter of one percent (0.25%) of the product of (a)
the Bank's Commitment, minus (b) the outstanding principal balance of the Note,
calculated on a daily basis payable quarterly in arrears on the first day of
each calendar quarter.
SECTION 2.9 CUSTODIAN FEES. Borrower shall pay to Bank Custodian Fees
(herein so called) of $10.00 per Mortgage Loan.
SECTION 2.10 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 2.11 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
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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 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:
3.1(a) This Agreement constitutes the "Loan Agreement" as defined in
the Security Agreement; and
3.1(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 3.2 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 attributed
to each such item at the time of delivery thereof, as required by SECTION 4.2
hereof, Borrower shall deliver to Bank the following items with respect to the
Mortgage Notes thereby offered as security:
3.2(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: "
3.2(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;
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3.2(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)];"
3.2(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
3.2(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 6.6 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.
SECTION 3.3 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 3.3 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 3.3 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.
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SECTION 3.4 REDEMPTION OF MORTGAGE COLLATERAL.
3.4(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 2.5. 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.
3.4(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.
3.4(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:
(1) 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 3.2 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 3.4(c)(iii);
(2) Borrower shall, as agent for the Bank, deliver to such Investor
the items held by Borrower pursuant to SECTION 3.2 hereof; and
(3) 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 3.4(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 3.4(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.
3.4(d) CONTINUATION OF LIEN. The security interest granted to the
Bank in all Mortgage Collateral transmitted pursuant to SUBSECTION 3.4(c) shall
continue in effect until such time as the Bank shall have received the payment
described in SUBSECTION 3.4(c)(iii).
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3.4(e) APPLICATION OF PROCEEDS; NO DUTY. Subject to the next sentence
of this SUBSECTION 3.4(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 3.4(c) above, until the Bank has
actually received immediately available funds for such Mortgage Collateral in
the amount required pursuant to SUBSECTION 3.4(c)(iii). Any funds so received
will be treated as payments under and processed and applied in accordance with
SECTION 2.6. 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.
3.4(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:
3.4(f)(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 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
3.4(f)(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, 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
3.4(f)(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
3.4(f)(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
3.4(f)(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,
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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
3.4(f)(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
3.4(f)(7) Any Mortgage Loan ceases to be subject to the related Take-
Out Commitment; or
3.4(f)(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.
3.4(g) SUBSEQUENT TO AN EVENT OF DEFAULT, references made to SECTIONS
8.2 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 3.4, the Other Provisions
shall be controlling.
SECTION 3.5 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 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 3.6 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
10.12. Further, it is expressly agreed that:
3.6(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;
3.6(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;
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3.6(c) nothing other than proceeds of Borrowings shall be deposited
in the Funding Account;
3.6(d) 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;
3.6(e) proceeds of Advances shall be wired directly from the Funding
Account to Borrower's (A) Austin Operating Account prior to the Conversion Date
and (B) on or after the Conversion Date to Borrower's Austin Funding Account -
Wires or Austin Funding Account - Checks and the following procedures shall be
followed in connection with the wiring of funds from the Funding Account to the
Austin Operating Account and the Austin Funding Accounts: (i) each Austin
Funding Account shall only contain funds which have been wired from the Funding
Account to that Austin Funding Account together with such additional funds of
Borrower's (other than Loan proceeds) which are required to fully fund Mortgage
Loans (i.e. 98% Loan Advance plus 2% of Borrower's funds), (ii) the Austin
Funding Accounts and the Austin Existing Accounts shall be pledged to Lender
pursuant to a certain Pledge Agreement attached hereto as EXHIBIT "I" and shall
be subject to no other pledge or security interest of any third party, (iii)
Frost National Bank shall waive all security interests and offset rights in the
Austin Funding Accounts and the Austin Existing Accounts and agree to act as
bailee for the sole and exclusive benefit of Bank to enable Bank to perfect its
security interest in such accounts and the monies contained therein, (iv) wire
transfer requests for wires from the Funding Account to the Austin Operating
Account or the Austin Funding Account - Wires for Mortgage Loans funded by wires
shall specify the Mortgage Loans that are being purchased or originated with
such Advance and contain the name of the originator and the amount of the wire
to such originator together with the wiring instructions, (v) Lender shall not
be required to wire funds for an Advance related to Mortgage Loans funded by
checks to the Austin Funding Account - Checks (on or after the Conversion Date)
or the Austin Operating Account (prior to the Conversion Date) until those
checks have actually been presented for payment to such account and honored by
Frost National Bank, (vi) a Mortgage Loan funded by a check shall be classified
as a "PENDING LOAN" upon receipt by Bank of a Delivery Commitment Certificate
for such Mortgage Loan but shall have no Collateral Value until (A) achievement
of the condition precedent that such Advance has been funded by Bank to such
account and the check has been received and honored by Frost National Bank and
(B) subject to the condition subsequent that Bank receive a "batch report" by 5
p.m. on the day of the Advance for such account and a detailed report for such
account (to be received no later than 9:00 a.m. the following morning)
indicating that such checks have been honored and containing sufficient
information to allow Bank to verify funding of each Mortgage Loan for which Bank
has received the Mortgage Loan Documents and if either of such conditions
subsequent are not satisfied for a Mortgage Loan by such deadlines, then such
Mortgage Loan shall be given a Collateral Value of zero and Borrower shall be
required to repay that portion of the Advance related to such Mortgage Loan
pursuant to the provisions contained herein; (vii) upon fulfillment of condition
(A) in the preceding clause, each Mortgage Loan related to such Advances shall
be reclassified from a "PENDING LOAN" to "WAREHOUSED LOAN" and shall be included
in the Borrowing Base, (viii) the Credit Requests and Delivery Commitment
Certificates shall each specify the Mortgage Loan that is being purchased or
originated with such Advance with the name of the originator and the amount of
the wire or check to such originator together with the check number or wiring
instructions.
3.6(f) proceeds from the redemption of Mortgage Collateral shall be
deposited in the Settlement Account.
SECTION 3.7 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:
3.7(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
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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, (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;
3.7(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;
3.7(c) such Mortgage Note is "covered," within the meaning of Section
6.18, by a Take-Out Commitment and was underwritten in compliance with the
requirements of the Investor under such Take-Out Commitment;
3.7(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;
3.7(e) the Mortgage Loan qualifies under the definition of Mortgage
Loan; and
3.7(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 3.7(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 8.1(b) hereof. With respect to a misrepresentation and
breach of warranty under SECTION 3.7(b), such misrepresentation shall be an
Event of Default under SECTION 8.1(b) hereof without any notice and opportunity
to cure period.
SECTION 3.8 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.
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.
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SECTION 4.1 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 4.2 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):
4.1(a) executed counterparts of this Agreement and of all
instruments, certificates and opinions referred to in this ARTICLE IV not
theretofore delivered;
4.1(b) the Note;
4.1(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;
4.1(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;
4.1(e) such other documents and submissions as Bank may reasonably
request at any time at or prior to the date of the initial Advance hereunder;
4.1(f) the Commitment Fees referred to in SECTION 2.7; and
4.1(g) the Custodian Fees referred to in SECTION 2.9.
SECTION 4.2 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:
4.2(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;
4.2(b) along with each Credit Request, Borrower shall telecopy or
Federal Express for receipt prior to the deadline stated in SECTION 4.2(a)(ii)
to the Bank a COLLATERAL SCHEDULE, identifying the Mortgage Notes offered
pursuant to such Credit Request as security for the Obligations;
4.2(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 3.2;
4.2(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;
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4.2(e) NO DEFAULT OR EVENT OF DEFAULT shall have occurred and be
continuing as of the date of such Advance;
4.2(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;
4.2(g) the Funding Account and the Settlement Account shall be
established and in existence; and
4.2(h) 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 4.2(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 5.1 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 5.2 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 5.3 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 5.4 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 5.5 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, perfected
and first
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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 5.6 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 5.7 FINANCIAL CONDITION. Borrower has delivered to the Bank
copies of the balance sheets of Borrower dated JULY 31, 1997 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 5.8 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 5.7 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 5.9 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.
5.13(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.
5.13(b) No Prohibited Transaction or Reportable Event has occurred
with respect to any Plan.
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5.13(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.
5.13(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.
5.13(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.
5.13(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.
5.13(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.
5.13(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.
5.13(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.
5.13(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 other than Home Securities One L.L.C. and Home Securitization Trust
I. As of the date hereof, Borrower does not own, directly or indirectly, any
interest in any Person, other than Home Securities One L.L.C. and Home
Securitization Trust I which are special purpose entities created and owned by
Borrower in connection with the securitization or financing of the Borrower's
assets.
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.
5.17(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.
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5.17(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.
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. 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:
5.23(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).
5.23(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.
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5.23(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 5.24 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 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. or Home Improvement Mortgage, Inc.
SECTION 5.29. 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 6.1 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.
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SECTION 6.2 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;
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 ONE HUNDRED
TWENTY (120) DAYS after the close of each FISCAL YEAR OF GUARANTOR, copies of
the consolidated and consolidating balance sheet of Guarantor as of the close of
such fiscal year and consolidated statements of income and retained earnings,
cash flow statements and changes in shareholders' 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 Guarantor) by COOPERS & LYBRAND LLP or by independent
certified public accountants selected by Guarantor 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(c) As soon as available and in any event within FORTY-FIVE (45)
DAYS after the end of each calendar quarter, a report in form and detail
acceptable to Bank, prepared as of the end of such month, setting forth the
prepayments of Mortgage Loans underlying all Agency Servicing Rights and Excess
Interest Certificates;
6.2(d) 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(e) 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(f) 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,
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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, run off experience, investor type, geographic mix, weighted average
coupon, weighted average maturity, cost of servicing, the NUMBER AND AMOUNT OF
claims filed, paid and rejected, (iv) THE MOST RECENTLY QUARTERLY PREPAYMENT
SCHEDULE FOR ALL AGENCY SERVICING RIGHTS AND EXCESS INTEREST CERTIFICATES AND
(v) A PRODUCTION REPORT SHOWING BORROWER'S MONTHLY AND YEAR-TO-DATE PRODUCTION
ORGANIZED BY AND SHOWING EACH PRODUCTION SOURCE;
6.2(g) 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;
6.2(h) 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(i) 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 FEDERAL INCOME TAX RETURNS filed
by Borrower;
6.2(j) 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(k) 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 AND FORM 10-QSB reports for HOMECAPITAL INVESTMENT CORPORATION, the
parent corporation of Borrower;
6.2(l) 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;
6.2(m) Within THIRTY (30) DAYS of the end of each calendar QUARTER, a
third party APPRAISAL of the market value of the Collateral securing the Working
Capital Line; and
6.2(n) 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 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
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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 6.3 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 6.4 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 6.5 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 6.6 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 6.7 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 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.
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SECTION 6.8 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 6.9 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 6.10 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 6.11 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.
SECTION 6.12 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 6.13 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 6.14 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.
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SECTION 6.15 OPERATIONS AND PROPERTIES. Borrower shall act prudently and
in accordance with customary industry standards in managing and operating its
Property.
SECTION 6.16 ERISA AND PLANS. Borrower shall promptly furnish to the
Bank:
6.16(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;
6.16(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;
6.16(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;
6.16(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
6.16(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 6.17 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 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.
SECTION 6.18 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.
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SECTION 6.19 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 6.20 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 6.21 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 6.22 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 6.23 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 6.24 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.
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 7.1 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 AND PROPOSED
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
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obligations) which have been incurred in the ordinary course of business and (v)
the 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 (collectively, "INVESTMENT"), or otherwise
acquire any interest in, or control of, another Person, except for the
following:
7.6(a) Cash Equivalents;
7.6(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;
7.6(c) Mortgage Backed Securities acquired in the ordinary course of
Borrower's business; and
7.6(d) Owned real estate and Mortgage Loans, required to be
repurchased by Investors, not to exceed at any TIME FIVE PERCENT (5%) OF
BORROWER'S GAAP NET WORTH.
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 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
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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:
7.8(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;
7.8(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
7.8(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 MINIMUM GAAP NET WORTH. Borrower's GAAP Net Worth shall be
NOT LESS THAN THE SUM OF (A) GAAP NET WORTH as reflected in the most recent
ANNUAL financial statements delivered to Bank pursuant to SECTION 6.2(a) PLUS,
(B) 80% of each SUBSEQUENT FISCAL QUARTERS POSITIVE NET INCOME on a CUMULATIVE
basis since the report referenced in (A), PLUS (C) ONE HUNDRED PERCENT (100%) of
all CONTRIBUTIONS to stockholders' equity of Borrower since the end of the
preceding fiscal year after subtracting all fees and costs directly incurred in
conjunction with such contribution.
SECTION 7.10 MINIMUM 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. MINIMUM ADJUSTED TANGIBLE NET WORTH. Borrower's Adjusted
Tangible Net Worth shall not be less than THE GREATER OF (a) the Adjusted
Tangible Net Worth REQUIRED OF BORROWER for the PRECEDING CALENDAR QUARTER AND
(b) BORROWER'S ACTUAL ADJUSTED TANGIBLE NET WORTH on the current Determination
Date MULTIPLIED BY EIGHTY PERCENT (80%).
SECTION 7.12 MAXIMUM 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 5.0 TO 1.0. FOR PURPOSES
OF THIS PARAGRAPH ONLY, (I) REPURCHASE AGREEMENTS SHALL NOT BE CONSIDERED
INDEBTEDNESS UNLESS OUTSTANDING ON THE LAST DAY OF THE CALENDAR QUARTER IN WHICH
SUCH RATIO IS DETERMINED AND (II) REPURCHASE AGREEMENTS RELATING TO RESIDUAL
FINANCING AND LOANS FUNDED UNDER THE FNMA ASAP PLUS PROGRAM SHALL BE CONSIDERED
INDEBTEDNESS.
SECTION 7.13 MINIMUM LIQUIDITY. Borrower at all times shall maintain a
minimum Liquidity of no less than $500,000.00.
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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, except with respect to the
creation of special purpose entities in connection with the securitization or
financing of the Borrower's assets.
SECTION 7.18 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 5.23 hereof.
SECTION 7.19 ACTIONS WITH RESPECT TO MORTGAGE COLLATERAL. Borrower shall
not without the consent of Bank:
7.19(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;
7.19(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
7.19(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 7.20 INVESTORS. Borrower shall furnish to the Bank upon demand
financial information on all Investors to the extent that such information is
not confidential.
SECTION 7.21 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.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 NATURE OF EVENT. A Default shall exist if any one or more of
the following occurs:
8.1(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;
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8.1(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 8.1(a),
8.1(c) THROUGH 8.1(k), 8.1(p), 8.1(q) AND 8.1(s) THROUGH 8.1(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;
8.1(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;
8.1(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;
8.1(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;
8.1(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 (vii) take
corporate action for the purpose of effecting any of the foregoing;
8.1(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;
8.1(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
WORKING CAPITAL LINE;
8.1(i) The failure of Borrower or Guarantor to pay any money
judgment against Borrower or Guarantor;
8.1(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;
8.1(k) Bank's security interests in any of the Mortgage Collateral
should become unenforceable, or cease to be first priority security interests;
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8.1(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;
8.1(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;
8.1(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;
8.1(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;
8.1(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;
8.1(q) Any change of the office of president of Borrower shall occur
without the prior written consent of the Bank;
8.1(r) The occurrence of a Material Adverse Effect;
8.1(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;
8.1(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;
8.1(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;
8.1(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;
8.1(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;
8.1(x) If any property of Borrower or Guarantor is seized or
attached; and
8.1(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 8.1(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
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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 8.2 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 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:
8.2(a) TERMINATION. Terminate Bank's Commitment to lend hereunder
and stop all advances hereunder.
8.2(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.
8.2(c) JUDGMENT. Reduce to Judgment any claim arising under this
Agreement that Bank have standing to assert.
8.2(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 8.3 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,
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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.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 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.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 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, VICE PRESIDENT
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 3.4(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 10.2 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 10.3 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.
SECTION 10.4 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 10.5 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.
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SECTION 10.6 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 10.7 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 10.8 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 10.9 INTEREST. The Note and all of the other Loan Documents are
intended to be performed in accordance with, and only to the extent permitted
by, all applicable usury laws. If any provision hereof or of any of the other
Loan Documents or the application thereof to any person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by law.
It is expressly stipulated and agreed to be the intent of the Bank to at all
times comply with the usury and other applicable laws now or hereafter governing
the interest payable on the indebtedness evidenced by the Note. If the
applicable law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the indebtedness evidenced by the Note, or if Bank's exercise of the
option to accelerate the maturity of the Note, or if any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by law,
then it is the express intent of Borrower and Bank that all excess amounts
theretofore collected by Bank be credited on the principal balance of the Note
(or, if the Note and all other indebtedness arising under or pursuant to the
other Loan Documents have been paid in full, refunded to Borrower), and the
provisions of the Note and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to Bank under
the Note or arising under or pursuant to the other Loan Documents shall, to the
maximum extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in full
so that the rate or amount of interest on account of such indebtedness does not
exceed the usury ceiling from time to time in effect and applicable to such
indebtedness for so long as such indebtedness is outstanding. To the extent
federal law permits Bank to contract for, charge or receive a greater amount of
interest, Bank will rely on federal law instead of the Texas Finance Code, as
supplemented by Texas Credit Title for the purpose of determining the Maximum
Rate. Additionally, to the maximum extent permitted by applicable law now or
hereafter in effect, Bank may, at its option and from time to time, implement
any other method of computing the Maximum Rate under the Texas Finance Code, as
supplemented by Texas Credit Title, or under other applicable law by giving
notice, if required, to Borrower as provided by applicable law now or hereafter
in effect. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Bank to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to the
Note. To the extent that Chapter 303 of the Texas Finance Code is
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applicable to the Note, the "weekly ceiling" specified in Chapter 303 is the
applicable ceiling; provided that, if any applicable law permits greater
interest, the law permitting the greatest interest shall apply.
SECTION 10.10 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 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 10.12 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 10.11 ASSIGNMENTS, ETC.
10.11(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.
10.11(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 10.12 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 10.13 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 10.14 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 10.15 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
47
<PAGE>
OR ANY OTHER LOAN DOCUMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE
BANK AND BORROWER.
SECTION 10.16. 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,
(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 10.17. 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 10.18. 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.
48
<PAGE>
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/ Tommy M. Parker
------------------------------------------------
Tommy M. Parker, Executive Vice President
BANK:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ W. James Meintjes
------------------------------------------------
W. James Meintjes,
Vice President
GUARANTOR:
HOMECAPITAL INVESTMENT CORPORATION,
a Nevada corporation
By: /s/ John Ballard
------------------------------------------------
John Ballard, President
49
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 24th day of September, 1997,
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.
(SEAL) /s/ Sandy Parks
--------------------------------
Notary Public - State of Texas
Sandy Parks
My Commission expires: --------------------------------
9-11-2000 Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 24th day of September, 1997,
by W. James Meintjes, Vice President of GUARANTY FEDERAL BANK, F.S.B., a federal
savings bank, on behalf of said bank.
(SEAL) /s/ Sandy Parks
--------------------------------
Notary Public - State of Texas
Sandy Parks
My Commission expires: --------------------------------
9-11-2000 Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 24th day of September, 1997,
by John Ballard, President of HOMECAPITAL INVESTMENT CORPORATION, a Nevada
corporation, on behalf of said corporation.
(SEAL) /s/ Sandy Parks
--------------------------------
Notary Public - State of Texas
Sandy Parks
My Commission expires: --------------------------------
9-11-2000 Printed Name of Notary
50
<PAGE>
Exhibits:
"A" -- Mortgage Warehouse Credit Request
"B" -- Form of Delivery Commitment Certificate [Pending Loans Only]
"C" -- Form of Promissory Note
"D" -- Approved Investors
"E" -- Bailee Letter
"F" -- Trust Receipt and Bailee Letter
"G" -- Existing and Proposed Indebtedness
"H" -- Certificate Accompanying Financial Statements
"I" -- Pledge Agreement [Bank Account]
"J" -- Compliance Certificate
51
<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 FIRST AMENDED AND RESTATED WAREHOUSE LOAN AGREEMENT among
Borrower, GUARANTY FEDERAL BANK, F.S.B. ("Bank"), dated as of SEPTEMBER 24,
1997, 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 SCHEDULE A-I. 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) CHECK ONE ONLY:
[_] REGULAR: Borrower hereby grants to the Bank a security
interest in each Mortgage Note described on Schedule I
attached hereto.
[_] PENDING: Borrower has previously granted to Bank a
security interest pursuant to a Delivery Commitment
Certificate in each Mortgage Note funded by this Advance
and does hereby ratify and reconfirm such security
interest.
[Regular Mortgage Loans and Pending Mortgage Loans shall not be
contained on the same Credit Request. Separate Credit Requests must be
done.]
(b) Requirement of Agreement: Maximum of ONE HUNDRED TWENTY (120) DAYS in
the Borrowing Base for all TITLE I LOANS currently in the Borrowing
Base including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
<PAGE>
(c) Requirement of Agreement: Maximum of NINETY (90) DAYS in the Borrowing
Base for any NON-TITLE I LOAN to all such Loans currently in the
Borrowing Base including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(d) Requirement of Agreement: NO Mortgage Loans in the Borrowing Base are
in DEFAULT including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(e) Requirement of Agreement: Cumulative Collateral Value at any time
attributable to OTHER TITLE I LOANS limited to $1,000,000.00 presently
in the Borrowing Base including those related to this proposed
Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(f) Requirement of Agreement: Cumulative Collateral Value attributable to
UNSECURED LOANS limited to $1,000,000.00 presently in the Borrowing
Base including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(g) Requirement of Agreement: Cumulative Collateral Value attributable to
NON-TITLE I LOANS limited to $10,000,000.00 presently in the Borrowing
Base including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(h) Requirement of Agreement: All Mortgage Loans presently in the
Borrowing Base including those related to this proposed Advance
qualify as WAREHOUSED 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;
2
<PAGE>
(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 3.2 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.
3
<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
4
<PAGE>
SCHEDULE A-I
MORTGAGE NOTES
<TABLE>
<CAPTION>
Original
Type of Principal Collateral Interest Maturity Loan
Loan Date Amount Value Maker Payee Rate Date Number Originator
------ ---- --------- ---------- ----- ----- -------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
LEGEND:
Base -- Base Title I Loans (98% advance rate)
Other -- Other Title I Loans (97% advance rate)
Unsecured -- Unsecured Loans (97% advance rate)
Covered Non-Title I -- Covered Non-Title I (95% advance rate)
Non-Title I -- Non-Title I Loans (90% advance rate)
5
<PAGE>
EXHIBIT B
FORM OF DELIVERY COMMITMENT CERTIFICATE
[PENDING LOANS ONLY]
HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC. ("BORROWER")
hereby notifies GUARANTY FEDERAL BANK, F.S.B. ("BANK") under that certain First
Amended and Restated Loan Agreement dated as of SEPTEMBER 24, 1997 (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. Borrower does hereby grant to Bank a first lien perfected security
interest in and to 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 2.3 AND 3.2 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 3.4 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.
1
<PAGE>
7. Identifying Information:
Loan Number: Note Date: Note Amount:
_________________ ____________ ______________
Mortgagor: Note Rate:
_________________ ____________
PROPERTY ADDRESS: LOAN TYPE:
_________ ___ BASE TITLE I
_________ ___ OTHER TITLE I
___ UNSECURED
___ COVERED NON-TITLE I
ESCROW OR TITLE COMPANY: ___ NON-TITLE I
_______________________
_______________________
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
2
<PAGE>
EXHIBIT "C"
WAREHOUSE PROMISSORY NOTE
$20,000,000.00 DALLAS, TEXAS SEPTEMBER 24, 1997
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 TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00) 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 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 that certain FIRST AMENDED
AND RESTATED WAREHOUSE LOAN AGREEMENT dated as of SEPTEMBER 24, 1997 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 (10TH) DAY OF EACH MONTH,
beginning OCTOBER 10, 1997, 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 JUNE 30, 1998 (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.
This Note and all of the other Loan Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable usury laws.
If any provision hereof or of any of the other Loan Documents or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the application of such provision to any
other person or circumstance nor the remainder of the instrument in which such
provision is contained shall be affected thereby and shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed to be
the intent of the holder hereof to at all times comply with the usury and other
applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever revised,
repealed or judicially interpreted so as to render usurious any amount called
for under this Note or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the indebtedness evidenced
by this Note, or if Bank's exercise of the option to accelerate the maturity of
this Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess
--------------
Initialed for
Identification
1
<PAGE>
of that permitted by law, then it is the express intent of Borrower and Bank
that all excess amounts theretofore collected by Bank be credited on the
principal balance of this Note (or, if this Note and all other indebtedness
arising under or pursuant to the other Loan Documents have been paid in full,
refunded to Borrower), and the provisions of this Note and the other Loan
Documents immediately be deemed reformed and the amounts thereafter collectable
hereunder and thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder or thereunder.
All sums paid, or agreed to be paid, by Borrower for the use, forbearance,
detention, taking, charging, receiving or reserving of the indebtedness of
Borrower to Bank under this Note or arising under or pursuant to the other Loan
Documents shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to time
in effect and applicable to such indebtedness for so long as such indebtedness
is outstanding. To the extent federal law permits Bank to contract for, charge
or receive a greater amount of interest, Bank will rely on federal law instead
of the Texas Finance Code, as supplemented by Texas Credit Title for the purpose
of determining the Maximum Rate. Additionally, to the maximum extent permitted
by applicable law now or hereafter in effect, Bank may, at its option and from
time to time, implement any other method of computing the Maximum Rate under the
Texas Finance Code, as supplemented by Texas Credit Title, or under other
applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to this
Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the "weekly ceiling" specified in Chapter 303 is the applicable
ceiling; provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
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 renewal, extension and 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, (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, and (c) that certain WAREHOUSE PROMISSORY NOTE dated OCTOBER 15, 1996
in the principal amount of $15,000,000.00 executed by Borrower payable to the
order of Bank.
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
--------------
Initialed for
Identification
2
<PAGE>
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 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
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997, 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"
Approved Investors
1. FNMA
2. Green Country Bank
3. Pacific Southwest
4. Keystone National Bank
5. Cityscape
1
<PAGE>
EXHIBIT "E"
(Guaranty Federal Bank Letterhead)
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 "E-1" 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 "E-1". 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 "E-2" 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 "E-1". 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.
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.
<PAGE>
Page 2
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:_____________________________
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>
Page 3
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:____________________________
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 "E-1"
Minimum Amount Necessary to
Mortgagor Name Release Security Interest
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
___________________________ $___________________________
Total: $___________________________
<PAGE>
SCHEDULE "E-2"
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>
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 3.5 of First Amended and Restated Loan Agreement by and
between Guaranty Federal Bank, F.S.B., as "BANK", HomeOwners Mortgage & Equity,
Inc. d/b/a Home, Inc., 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:______________________
1
<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
2
<PAGE>
EXHIBIT "G"
EXISTING AND PROPOSED INDEBTEDNESS
EXISTING INDEBTEDNESS:
Description Amount
1. Revolving Warehouse Promissory Note $ 931,315.00
payable to Bank maturing June 30, 1998
2. Working Capital Line of Credit Note $ 6,800,000.00
payable to Bank maturing June 30, 1998
3. Capital Lease Obligations $ 44,905.00
4. Uncommitted revolving credit facilities $15,497,932.00
provided by FNMA for the sole purpose of
financing the origination and acquisition of
Title I Loan including the ASAP Program or
ASAP Plus Program.
.
5. Payable under securities loan agreements $20,995,000.00
with FNMA for the sole purposes of acquiring
and holding FNMA Securities
6. Other accrued expenses and liabilities $ 4,828,193.00
under clauses (ii), (iv) and (v) of Section 7.1
TOTAL $49,097,345.00
PROPOSED INDEBTEDNESS
DESCRIPTION
1. Not more than $65,000,000.00 in repurchase facilities of which
$50,000,000.00 may be used for the sole purpose of financing FNMA
Securities and $15,000,000.00 may be used for the sole purpose of RESIDUAL
FINANCING; provided however, in calculating the limits stated herein the
Existing Indebtedness listed in PARAGRAPH 5 above shall be included and
provided further that no such Indebtedness shall be incurred without the
prior written consent of Bank including a review by Bank of any proposed
written agreements relating to such Indebtedness
1
<PAGE>
[WH]
EXHIBIT "H"
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain First Amended and Restated Loan Agreement
dated as of SEPTEMBER 24, 1997 (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 6.1(a) or 6.1(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 7.1
THROUGH 7.21 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 6.2 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
1
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (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
2
<PAGE>
SCHEDULE H-1
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 Method of
Accounting [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Negative Pledge [7.5]: [YES] or [NO] *
6) Loans, Advances and
Investments of Borrower
and Affiliates [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) GAAP Net Worth of Borrower Not less than
[7.9]: 6.2(a) figure plus
7.9(b) & (c) _______
10) Tangible Net Worth of Not less than
Borrower [7.10]: HUD, FNMA, GNMA,
FHLMC minimum _______
11) Adjusted Tangible Net
Worth of Borrower Not less than the
[7.11]: greater of (a) ATNW
requirement for preceding
quarter and (b) 80% of
present ATNW _______
3
<PAGE>
12) Total Liabilities to
Adjusted Tangible Net Not less than
Worth [7.12]: 5.0 to 1.0 _______
13) 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) Loss of Eligibility [7.18]: [YES] or [NO] *
19) Actions Mortgage Collateral [7.19]: [YES] or [NO] *
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
4
<PAGE>
EXHIBIT "I"
PLEDGE AGREEMENT
[BANK ACCOUNT]
THIS PLEDGE AGREEMENT ("AGREEMENT") is made as of the 24th day of SEPTEMBER,
1997, by HOMEOWNERS MORTGAGE & EQUITY, INC., A DELAWARE CORPORATION, D/B/A HOME,
INC. (hereinafter called "PLEDGOR", whether one or more), in favor of GUARANTY
FEDERAL BANK, F.S.B. ("BANK" or "SECURED PARTY"). Pledgor hereby agrees with
Bank as follows:
1. DEFINITIONS. As used in this Agreement, terms not defined herein shall
have the definitions contained in the Loan Agreement executed by and between
Borrower and Bank dated June 1, 1996 (together with all amendments, the "LOAN
AGREEMENT"). The following terms shall have the meanings indicated below:
(a) The term "BORROWER" shall mean HOMEOWNERS MORTGAGE & EQUITY, INC., A
DELAWARE CORPORATION, D/B/A HOME, INC.
(b) The term "CODE" shall mean the Uniform Commercial Code as in effect
in the State of Texas on the date of this Agreement or as it may hereafter
be amended from time to time.
(c) The term "COLLATERAL" shall mean all THE BANK ACCOUNTS SPECIFICALLY
DESCRIBED ON SCHEDULE "A" ATTACHED HERETO AND MADE A PART HEREOF. The term
Collateral, as used herein, shall also include (i) all certificates,
instruments and/or other documents evidencing the foregoing and all cash or
monies contained in any bank accounts, (ii) all bank accounts and
certificates of deposit which are renewals, replacements and substitutions
of all of the foregoing, (iii) all Additional Property (as hereinafter
defined), (iv) and all PROCEEDS of all of the foregoing. The designation of
proceeds does not authorize Pledgor to sell, transfer or otherwise convey
any of the foregoing property. The delivery at any time by Pledgor to
Secured Party of any property as a pledge to secure payment or performance
of any indebtedness or obligation whatsoever shall also constitute a pledge
of such property as Collateral hereunder.
(d) The term "INDEBTEDNESS" shall mean:
(i) all indebtedness, obligations and liabilities of Borrower
to Secured Party of any kind or character relating to (A) that
certain Promissory Note (together with all modifications and
amendments thereto, the "NOTE") executed by Borrower payable to the
order of Bank dated SEPTEMBER 24, 1997 in the stated amount of
$20,000,000.00, or (B) that certain Working Capital Line of Credit
from Bank to Borrower now existing or hereafter arising, whether
direct, indirect, related, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, (ii) all accrued
but unpaid interest on any of the indebtedness described in (i)
above, (iii) all obligations of Borrower to Secured Party under any
documents evidencing, securing, governing and/or pertaining to all
or any part of the indebtedness described in (i) and (ii) above,
(iv) all costs and expenses incurred by Secured Party in connection
with the collection and administration of all or any part of the
indebtedness and obligations described in (i), (ii) and (iii) above
or the protection or preservation of, or realization upon, the
collateral securing all or any part of such indebtedness and
obligations, including without limitation all reasonable attorneys'
fees, and (v) all renewals, extensions, amendments, modifications,
increases and rearrangements of the indebtedness and obligations
described in (i), (ii), (iii) and (iv) above.
(e) The term "LOAN DOCUMENTS" shall mean all instruments and documents
evidencing, securing, governing, guaranteeing and/or pertaining to the
Indebtedness.
(f) The term "OBLIGATED PARTY" shall mean any party other than Borrower
who secures, guarantees and/or is otherwise obligated to pay all or any
portion of the Indebtedness.
PLEDGE AGREEMENT - PAGE 1
1
<PAGE>
(g) The term "SECURED PARTY" shall mean Bank, its successors and assigns,
including without limitation, any party to whom Bank, or its successors or
assigns, may assign its rights and interests under this Agreement.
All words and phrases used herein which are expressly defined in Section 1.201,
Chapter 8 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1.201, Chapter 8 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Pledgor, for value
received, hereby grants to Secured Party a continuing security interest in the
Collateral and pledges the Collateral to Secured Party.
3. ADDITIONAL PROPERTY. Collateral shall also includes the following
property (collectively, the "ADDITIONAL PROPERTY") which Pledgor becomes
entitled to receive or shall receive in connection with any other Collateral:
(a) any replacement bank accounts or certificates of deposit, the holder's right
to payment of interest, and (b) any interest or principal payments; provided,
however, that until the occurrence of an Event of Default (as hereinafter
defined), Pledgor shall be entitled to receive all interest paid on the
Collateral. All Additional Property received by Pledgor shall be received in
trust for the benefit of Secured Party. All Additional Property and all
certificates or other written instruments or documents evidencing and/or
representing the Additional Property that is received by Pledgor, together with
such instruments of transfer as Secured Party may request, shall immediately be
delivered to or deposited with Secured Party and held by Secured Party as
Collateral under the terms of this Agreement. Secured Party shall be deemed to
have possession of any Collateral in transit to Secured Party or its agent.
4. MAINTENANCE OF COLLATERAL. Other than the exercise of reasonable care to
assure the safe custody of any Collateral in Secured Party's possession from
time to time, Secured Party does not have any obligation, duty or responsibility
with respect to the Collateral. Without limiting the generality of the
foregoing, Secured Party shall not have any obligation, duty or responsibility
to do any of the following: (a) ascertain any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to the Collateral or
informing Pledgor with respect to any such matters; (b) fix, preserve or
exercise any right, privilege or option (whether conversion, redemption or
otherwise) with respect to the Collateral unless (i) Pledgor makes written
demand to Secured Party to do so, (ii) such written demand is received by
Secured Party in sufficient time to permit Secured Party to take the action
demanded in the ordinary course of its business, and (iii) Pledgor provides
additional collateral, acceptable to Secured Party in its sole discretion; (c)
collect any amounts payable in respect of the Collateral (Secured Party being
liable to account to Pledgor only for what Secured Party may actually receive or
collect thereon); (d) sell all or any portion of the Collateral to avoid market
loss; (e) sell all or any portion of the Collateral unless and until (i) Pledgor
makes written demand upon Secured Party to sell the Collateral, and (ii) Pledgor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Pledgor.
5. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants
the following to Secured Party:
(a) DUE AUTHORIZATION. The execution, delivery and performance of this
Agreement and all of the other Loan Documents by Pledgor have been duly
authorized by all necessary corporate action of Pledgor, to the extent
Pledgor is a corporation, or by all necessary partnership action, to the
extent Pledgor is a partnership.
(b) ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Pledgor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific remedies
may generally be limited by equitable principles.
(c) OWNERSHIP AND LIENS. Pledgor has good and marketable title to the
Collateral free and clear of all liens, security interests, encumbrances or
adverse claims, except for the security interest created by this Agreement.
No dispute, right of setoff, counterclaim or defense exists with respect to
all or any part of the Collateral. Pledgor has not executed any other
security agreement currently affecting the Collateral and no financing
statement or other instrument similar in effect covering all or any part of
the Collateral is on file in any recording office except as may have been
executed or filed in favor of Secured Party. PLEDGOR SHALL OBTAIN FROM
FROST NATIONAL BANK, AUSTIN, TEXAS THE BAILMENT AGREEMENT IN THE FORM
ATTACHED HERETO AS EXHIBIT "B" WHICH CONTAINS A WAIVER OF LIENS, SECURITY
INTERESTS AND OFFSET RIGHTS.
PLEDGE AGREEMENT - PAGE 2
2
<PAGE>
(d) NO CONFLICTS OR CONSENTS. Neither the ownership, the intended use of
the Collateral by Pledgor, the grant of the security interest by Pledgor to
Secured Party herein nor the exercise by Secured Party of its rights or
remedies hereunder, will (i) conflict with any provision of (A) any domestic
or foreign law, statute, rule or regulation, (B) the articles or certificate
of incorporation, charter, bylaws or partnership agreement, as the case may
be, of Pledgor, or (C) any agreement, judgment, license, order or permit
applicable to or binding upon Pledgor or otherwise affecting the Collateral,
or (ii) result in or require the creation of any lien, charge or encumbrance
upon any assets or properties of Pledgor or of any person except as may be
expressly contemplated in the Loan Documents. Except as expressly
contemplated in the Loan Documents, no consent, approval, authorization or
order of, and no notice to or filing with, any court, governmental authority
or third party is required in connection with the grant by Pledgor of the
security interest herein or the exercise by Secured Party of its rights and
remedies hereunder.
(e) SECURITY INTEREST. Pledgor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral.
(f) LOCATION. Pledgor's residence or chief executive office, as the case
may be, and the office where the records concerning the Collateral are kept
is located at its address set forth on the signature page hereof.
(g) SOLVENCY OF PLEDGOR. As of the date hereof, and after giving effect
to this Agreement and the completion of all other transactions contemplated
by Pledgor at the time of the execution of this Agreement, (i) Pledgor is
and will be solvent, (ii) the fair saleable value of Pledgor's assets
exceeds and will continue to exceed Pledgor's liabilities (both fixed and
contingent), (iii) Pledgor is and will continue to be able to pay its debts
as they mature, and (iv) if Pledgor is not an individual, Pledgor has and
will have sufficient capital to carry on Pledgor's businesses and all
businesses in which Pledgor is about to engage.
(h) NATURE OF OWNERSHIP. Pledgor is the registered owner of the
securities pledged as Collateral and a certificate has been issued in
Pledgor's name to evidence Pledgor's ownership in such securities.
(i) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. The security interest in
chattel paper, documents and instruments of Pledgor granted hereunder is
valid and genuine, and all such chattel paper, documents and instruments
have only one original counterpart. No party other than Pledgor or Secured
Party is in actual or constructive possession of any such chattel paper,
documents or instruments.
6. AFFIRMATIVE COVENANTS. Pledgor will comply with the covenants contained
in this Section at all times during the period of time this Agreement is
effective unless Secured Party shall otherwise consent in writing.
(a) OWNERSHIP AND LIENS. Pledgor will maintain good and marketable title
to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement and the security interests and other encumbrances expressly
permitted by the other Loan Documents. Pledgor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all or any
part of the Collateral. Pledgor will cause any financing statement or other
security instrument with respect to the Collateral to be terminated, except
as may exist or as may have been filed in favor of Secured Party. Pledgor
will defend at its expense Secured Party's right, title and security
interest in and to the Collateral against the claims of any third party.
(b) INSPECTION OF BOOKS AND RECORDS. Pledgor will keep adequate records
concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect Pledgor's
books and records of or relating to the Collateral at any time during normal
business hours, to make and take away photocopies, photographs and printouts
thereof and to write down and record any such information.
(c) ADVERSE CLAIM. Pledgor covenants and agrees to promptly notify
Secured Party of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created hereunder
and, at Pledgor's expense, defend Secured Party's security interest in the
Collateral against the claims of any third party. Pledgor also
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covenants and agrees to promptly deliver to Secured Party a copy of all
written notices received by Pledgor with respect to the Collateral,
including without limitation, notices received from the issuer of any
securities pledged hereunder as Collateral.
(d) DELIVERY OF INSTRUMENTS AND/OR CERTIFICATES. Contemporaneously
herewith, Pledgor covenants and agrees to deliver to Secured Party any
certificates, documents or instruments representing or evidencing the
Collateral, with Pledgor's endorsement thereon and/or accompanied by proper
instruments of transfer and assignment duly executed in blank with, if
requested by Secured Party, signatures guaranteed by a bank or member firm
of the New York Stock Exchange, all in form and substance satisfactory to
Secured Party. If required by Secured Party, Pledgor also covenants and
agrees to cooperate with Secured Party in registering the pledge of the
securities pledged as Collateral with the issuer of such securities.
(e) FURTHER ASSURANCES. Pledgor will from time to time at its expense
promptly execute and deliver all further instruments and documents and take
all further action necessary or appropriate or that Secured Party may
request in order (i) to perfect and protect the security interest created or
purported to be created hereby and the first priority of such security
interest, (ii) to enable Secured Party to exercise and enforce its rights
and remedies hereunder in respect of the Collateral, and (iii) to otherwise
effect the purposes of this Agreement, including without limitation,
executing and filing such financing or continuation statements, or any
amendments thereto.
(f) GOVERNMENTAL SECURITIES. Pledgor covenants and agrees that with
respect to any securities issued by an agency or department of the United
States pledged as Collateral, Pledgor shall, at Secured Party's request,
cause such securities to be registered in Secured Party's name or with
Secured Party's account maintained with a Federal Reserve Bank.
(g) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. Pledgor will take such
action as may be requested by Secured Party in order to cause any chattel
paper, documents or instruments to be valid and enforceable and will cause
all chattel paper to have only one original counterpart. Upon request by
Secured Party, Pledgor will deliver to Secured Party all originals of
chattel paper, documents or instruments and will mark all chattel paper with
a legend indicating that such chattel paper is subject to the security
interest granted hereunder.
7. NEGATIVE COVENANTS. Pledgor will comply with the covenants contained in
this Section at all times during the period of time this Agreement is effective,
unless Secured Party shall otherwise consent in writing.
(a) TRANSFER OR ENCUMBRANCE. Pledgor will not (i) sell, assign (by
operation of law or otherwise) or transfer Pledgor's rights in any of the
Collateral, (ii) grant a lien or security interest in or execute, file or
record any financing statement or other security instrument with respect to
the Collateral to any party other than Secured Party, or (iii) deliver
actual or constructive possession of any certificate, instrument or document
evidencing and/or representing any of the Collateral to any party other than
Secured Party.
(b) IMPAIRMENT OF SECURITY INTEREST. Pledgor will not take or fail to
take any action which would in any manner impair the value or enforceability
of Secured Party's security interest in any Collateral.
8. RIGHTS OF SECURED PARTY. Secured Party shall have the rights contained
in this Section at all times during the period of time this Agreement is
effective.
(a) POWER OF ATTORNEY. Pledgor hereby irrevocably appoints Secured Party
as Pledgor's attorney-in-fact, such power of attorney being coupled with an
interest, with full authority in the place and stead of Pledgor and in the
name of Pledgor or otherwise, to take any action and to execute any
instrument which Secured Party may from time to time in Secured Party's
discretion deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation, the following action: (i) transfer
any securities, instruments, documents or certificates pledged as Collateral
in the name of Secured Party or its nominee; (ii) use any interest, premium
or principal payments, conversion or redemption proceeds or other cash
proceeds received in connection with any Collateral to reduce any of the
Indebtedness; (iii) exchange any of the securities pledged as Collateral for
any other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, and, in
connection therewith, to deposit and deliver any and
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all of such securities with any committee, depository, transfer agent,
registrar or other designated agent upon such terms and conditions as
Secured Party may deem necessary or appropriate; (iv) exercise or comply
with any conversion, exchange, redemption, subscription or any other right,
privilege or option pertaining to any securities pledged as Collateral;
provided, however, except as provided herein, Secured Party shall not have a
duty to exercise or comply with any such right, privilege or option (whether
conversion, redemption or otherwise) and shall not be responsible for any
delay or failure to do so; and (v) file any claims or take any action or
institute any proceedings which Secured Party may deem necessary or
appropriate for the collection and/or preservation of the Collateral or
otherwise to enforce the rights of Secured Party with respect to the
Collateral.
(b) PERFORMANCE BY SECURED PARTY. If Pledgor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Pledgor on demand.
Notwithstanding any other provision herein to the contrary, Secured Party does
not have any duty to exercise or continue to exercise any of the foregoing
rights and shall not be responsible for any failure to do so or for any delay in
doing so.
9. EVENTS OF DEFAULT. Each of the following constitutes an "Event of
Default" under this Agreement:
(a) FAILURE TO PAY INDEBTEDNESS. The failure, refusal or neglect of
Borrower to make payment of the Indebtedness or any portion thereof, as the
same shall become due and payable at maturity (whether by acceleration or
otherwise); or
(b) NON-PERFORMANCE OF COVENANTS. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any
covenant, agreement, warranty or condition required herein; provided,
however, with respect to such defaults (other than those specified in
subparagraph 9(a), or 9(c) through 9(h) for which no notice and opportunity
to cure shall be available unless such opportunity is specifically provided
in such individual subparagraphs), Borrower will have thirty (30) days after
notice of default from Bank within which to cure such default; or
(c) DEFAULT UNDER OTHER LOAN DOCUMENTS. The occurrence of an event of
default under any of the other Loan Documents; or
(d) FALSE REPRESENTATION. Any representation contained herein or in any
of the other Loan Documents made by Borrower or any Obligated Party is false
or misleading in any material respect; or
(e) DEFAULT TO THIRD PARTY. The occurrence of any event which permits
the acceleration of the maturity of any indebtedness owing by Borrower or
any Obligated Party to any third party under any agreement or undertaking;
or
(f) BANKRUPTCY OR INSOLVENCY. If Borrower or any Obligated Party: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver or custodian appointed for,
or take possession of, all or substantially all of the assets of such party
or any of the Collateral, either in a proceeding brought by such party or in
a proceeding brought against such party and such appointment is not
discharged or such possession is not terminated within thirty (30) days
after the effective date thereof or such party consents to or acquiesces in
such appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or
state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "APPLICABLE BANKRUPTCY LAW") or an
involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not dismissed
within sixty (60) days after the filing thereof, or an order for relief
naming such party is entered under any Applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization or other relief of
debtors now or hereafter existing is requested or consented to by such
party; (v) fails to have discharged within a period of thirty (30) days any
attachment, sequestration or similar writ levied upon any property of such
party; or (vi) fails to pay within thirty (30) days any final money judgment
against such party; or
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(g) EXECUTION ON COLLATERAL. The Collateral or any portion thereof is
taken on execution or other process of law in any action against Pledgor; or
(h) ACTION BY OTHER LIENHOLDER. The holder of any lien or security
interest on any of the assets of Pledgor, including without limitation, the
Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the
Collateral), declares a default thereunder or institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder.
10. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have occurred,
and without limiting any other rights and remedies provided herein, under any of
the other Loan Documents or otherwise available to Secured Party, Secured Party
may exercise one or more of the rights and remedies provided in this Section.
(a) REMEDIES. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in any of
the Loan Documents:
(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not the Code
applies to the affected Collateral);
(ii) reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted hereunder
by any available judicial procedure;
(iii) sell or otherwise dispose of, at its office, on the
premises of Pledgor or elsewhere, the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of any
part of the Collateral shall not exhaust Secured Party's power of
sale, but sales or other dispositions may be made from time to time
until all of the Collateral has been sold or disposed of or until the
Indebtedness has been paid and performed in full), and at any such
sale or other disposition it shall not be necessary to exhibit any of
the Collateral;
(iv) buy the Collateral, or any portion thereof, at any public
sale;
(v) buy the Collateral, or any portion thereof, at any private
sale if the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely distributed
standard price quotations;
(vi) apply for the appointment of a receiver for the
Collateral, and Pledgor hereby consents to any such appointment;
(vii) at its option, retain the Collateral in satisfaction of
the Indebtedness whenever the circumstances are such that Secured
Party is entitled to do so under the Code or otherwise;
(viii) REQUIRE FROST NATIONAL BANK TO WIRE TRANSFER ALL FUNDS IN
SUCH ACCOUNTS TO SECURED PARTY; AND
(ix) NOTIFY ALL MORTGAGORS UNDER NOTES PLEDGED TO SECURED PARTY
TO MAKE ALL FUTURE PAYMENTS DIRECTLY TO SECURED PARTY RATHER THAN TO
BORROWER OR ANY ACCOUNTS OF BORROWER WHETHER OR NOT AT FROST NATIONAL
BANK.
Pledgor agrees that in the event Pledgor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the state
governing any such notice, of the sale or other disposition of any
Collateral, reasonable notice shall be deemed given when such notice is
deposited in a depository receptacle under the care and custody of the
United States Postal Service, postage prepaid, at Pledgor's address set
forth on the signature page hereof, five (5) days prior to the date of
any public sale, or after which a private sale, of any of such Collateral
is to be held. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured Party
may
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adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
Pledgor further acknowledges and agrees that the redemption by Secured
Party of any certificate of deposit pledged as Collateral shall be deemed
to be a commercially reasonable disposition under Section 9.504(c) of the
Code.
(b) PRIVATE SALE OF SECURITIES. Pledgor recognizes that Secured Party
may be unable to effect a public sale of all or any part of the
securities pledged as Collateral because of restrictions in applicable
federal and state securities laws and that Secured Party may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among
other things, to acquire such securities for their own account, for
investment and not with a view to the distribution or resale thereof.
Pledgor acknowledges that each any such private sale may be at prices and
other terms less favorable then what might have been obtained at a public
sale and, notwithstanding the foregoing, agrees that each such private
sale shall be deemed to have been made in a commercially reasonable
manner and that Secured Party shall have no obligation to delay the sale
of any such securities for the period of time necessary to permit the
issuer to register such securities for public sale under any federal or
state securities laws. Pledgor further acknowledges and agrees that any
offer to sell such securities which has been made privately in the manner
described above to not less than five (5) bona fide offerees shall be
deemed to involve a "public sale" for the purposes of Section 9.504(c) of
the Code, notwithstanding that such sale may not constitute a "public
offering" under any federal or state securities laws and that Secured
Party may, in such event, bid for the purchase of such securities.
(c) APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held
by Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or other disposition of, collection from, or
other realization upon, all or any part of the Collateral as follows in
such order and manner as Secured Party may elect:
(i) to the repayment or reimbursement of the reasonable costs
and expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Secured Party in connection with (A)
the administration of the Loan Documents, (B) the custody,
preservation, use or operation of, or the sale of, collection from, or
other realization upon, the Collateral, and (C) the exercise or
enforcement of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable
law (including without limitation, Section 9.504(a)(3) of the Code or
any other applicable statutory provision); and
(vi) by delivery to Pledgor or any other party lawfully entitled
to receive such cash or proceeds whether by direction of a court of
competent jurisdiction or otherwise.
(d) DEFICIENCY. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed
or is otherwise obligated to pay all or any portion of the Indebtedness
shall be liable for the deficiency, together with interest thereon as
provided in the Loan Documents.
(e) NON-JUDICIAL REMEDIES. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial
hearing, Pledgor expressly waives, renounces and knowingly relinquishes
any legal right which might otherwise require Secured Party to enforce
its rights by judicial process. Pledgor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade, are
responsive to commercial necessity
PLEDGE AGREEMENT - PAGE 7
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and are the result of a bargain at arm's length. Nothing herein is
intended to prevent Secured Party or Pledgor from resorting to judicial
process at either party's option.
(f) OTHER RECOURSE. Pledgor waives any right to require Secured Party
to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Pledgor in any suit arising out of the Indebtedness or any of the Loan
Documents, or pursue any other remedy available to Secured Party.
Pledgor further waives any and all notice of acceptance of this Agreement
and of the creation, modification, rearrangement, renewal or extension of
the Indebtedness. Pledgor further waives any defense arising by reason
of any disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.
Until all of the Indebtedness shall have been paid in full, Pledgor shall
have no right of subrogation and Pledgor waives the right to enforce any
remedy which Secured Party has or may hereafter have against any third
party, and waives any benefit of and any right to participate in any
other security whatsoever now or hereafter held by Secured Party.
Pledgor authorizes Secured Party, and without notice or demand and
without any reservation of rights against Pledgor and without affecting
Pledgor's liability hereunder or on the Indebtedness, to (i) take or hold
any other property of any type from any third party as security for the
Indebtedness, and exchange, enforce, waive and release any or all of such
other property, (ii) apply such other property and direct the order or
manner of sale thereof as Secured Party may in its discretion determine,
(iii) renew, extend, accelerate, modify, compromise, settle or release
any of the Indebtedness or other security for the Indebtedness, (iv)
waive, enforce or modify any of the provisions of any of the Loan
Documents executed by any third party, and (v) release or substitute any
third party.
(g) INTEREST PAYMENTS. Upon the occurrence of an Event of Default:
(i) all rights of Pledgor to receive and retain the interest
payments which it would otherwise be authorized to receive and retain
pursuant to SECTION 3 shall automatically cease, and all such rights
shall thereupon become vested with Secured Party which shall
thereafter have the sole right to receive, hold and apply as
Collateral such interest payments; and
(ii) all interest payments which are received by Pledgor
contrary to the provisions of clause (i) of this Subsection shall be
received in trust for the benefit of Secured Party, shall be
segregated from other funds of Pledgor, and shall be forthwith paid
over to Secured Party in the exact form received (properly endorsed or
assigned if requested by Secured Party), to be held by Secured Party
as Collateral.
11. INDEMNIFICATION. IN CONSIDERATION OF THE INDEBTEDNESS OWED BY
BORROWER TO SECURED PARTY, PLEDGOR AGREES TO INDEMNIFY AND DEFEND THE SECURED
PARTY AND ANY PERSON DEEMED TO CONTROL THE SECURED PARTY 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
SECURED PARTY'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 ADVANCES,
(II) ANY IMPOUNDMENT, ATTACHMENT OR RETENTION OF ANY OF THE COLLATERAL, AND
(III) ANY REPRESENTATION MADE BY PLEDGOR HEREUNDER OR BORROWER UNDER ANY OF THE
LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL BE
CONSTRUED AS AN AGREEMENT BY PLEDGOR TO INDEMNIFY AND HOLD THE SECURED PARTY,
ANY PERSON DEEMED TO CONTROL THE SECURED PARTY, 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 SECURED PARTY, 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
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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 SECURED PARTY SHALL NOT BE
RESPONSIBLE OR LIABLE TO BORROWER, PLEDGOR OR ANY OTHER PERSON OR ENTITY FOR ANY
CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF OR IN CONNECTION WITH
(I), (II) AND (III) LISTED IN THIS PARAGRAPH. PLEDGOR'S OBLIGATIONS UNDER THIS
PARAGRAPH SHALL SURVIVE THE COMMITMENT TERMINATION DATE, NOTWITHSTANDING
ANYTHING TO THE CONTRARY. PLEDGOR SHALL PROVIDE SUCH INDEMNIFICATION AND DEFENSE
UPON WRITTEN NOTICE FROM THE SECURED PARTY.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire agreement of
Secured Party and Pledgor with respect to the Collateral. If the parties
hereto are parties to any prior agreement, either written or oral,
relating to the Collateral, the terms of this Agreement shall amend and
supersede the terms of such prior agreements as to transactions on or
after the effective date of this Agreement, but all security agreements,
financing statements, guaranties, other contracts and notices for the
benefit of Secured Party shall continue in full force and effect to
secure the Indebtedness unless Secured Party specifically releases its
rights thereunder by separate release.
(b) AMENDMENT. No modification, consent or amendment of any provision
of this Agreement or any of the other Loan Documents shall be valid or
effective unless the same is in writing and signed by the party against
whom it is sought to be enforced.
(c) ACTIONS BY SECURED PARTY. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i)
any renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant with
respect to the Collateral, or (iii) any release or indulgence granted to
any endorser, guarantor or surety of the Indebtedness. The taking of
additional security by Secured Party shall not release or impair the
lien, security interest or other security rights of Secured Party
hereunder or affect the obligations of Pledgor hereunder.
(d) WAIVER BY SECURED PARTY. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the
delay by Secured Party in exercising, any right or remedy upon any Event
of Default shall be construed as a waiver of such Event of Default or as
a waiver of the right to exercise any such right or remedy at a later
date. No single or partial exercise by Secured Party of any right or
remedy hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right or remedy hereunder may be
exercised at any time. No waiver of any provision hereof or consent to
any departure by Pledgor therefrom shall be effective unless the same
shall be in writing and signed by Secured Party and then such waiver or
consent shall be effective only in the specific instances, for the
purpose for which given and to the extent therein specified. No notice
to or demand on Pledgor in any case shall of itself entitle Pledgor to
any other or further notice or demand in similar or other circumstances.
(e) COSTS AND EXPENSES. Pledgor will upon demand pay to Secured Party
the amount of any and all reasonable costs and expenses (including
without limitation, attorneys' reasonable fees and expenses), which
Secured Party may incur in connection with (i) the transactions which
give rise to the Loan Documents, (ii) the preparation of this Agreement
and the perfection and preservation of the security interests granted
under the Loan Documents, (iii) the administration of the Loan Documents,
(iv) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, the Collateral, (v) the
exercise or enforcement of any of the rights of Secured Party under the
Loan Documents, or (vi) the failure by Pledgor to perform or observe any
of the provisions hereof.
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(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL
LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF
ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF TEXAS.
(g) VENUE. This Agreement has been entered into in the county in
Texas where Bank's address for notice purposes is located, and it shall
be performable for all purposes in such county. Courts within the State
of Texas shall have jurisdiction over any and all disputes arising under
or pertaining to this Agreement and venue for any such disputes shall be
in the county or judicial district where this Agreement has been executed
and delivered.
(h) SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) NO OBLIGATION. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, or (iii) United States mail, postage
prepaid, registered or certified mail, return receipt requested, sent to
the intended addressee at the address set forth on the signature page
hereof or to such different address as the addressee shall have
designated by written notice sent pursuant to the terms hereof and shall
be deemed to have been received either, in the case of personal delivery,
at the time of personal delivery, in the case of expedited delivery
service, as of the date of first attempted delivery at the address and in
the manner provided herein, or in the case of mail, upon deposit in a
depository receptacle under the care and custody of the United States
Postal Service. Either party shall have the right to change its address
for notice hereunder to any other location within the continental United
States by notice to the other party of such new address at least thirty
(30) days prior to the effective date of such new address.
(k) BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Pledgor and the heirs, executors, administrators, personal
representatives, successors and assigns of Pledgor, and (iii) shall inure
to the benefit of Secured Party and its successors and assigns. Without
limiting the generality of the foregoing, Secured Party may pledge,
assign or otherwise transfer the Indebtedness and its rights under this
Agreement and any of the other Loan Documents to any other party.
Pledgor's rights and obligations hereunder may not be assigned or
otherwise transferred without the prior written consent of Secured Party.
(l) TERMINATION. It is contemplated by the parties hereto that from
time to time there may be no outstanding Indebtedness, but
notwithstanding such occurrences, this Agreement shall remain valid and
shall be in full force and effect as to subsequent outstanding
Indebtedness. Upon (i) the satisfaction in full of the Indebtedness, (ii)
the termination or expiration of any commitment of Secured Party to
extend credit to Borrower, (iii) written request for the termination
hereof delivered by Pledgor to Secured Party, and (iv) written release
delivered by Secured Party to Pledgor, this Agreement and the security
interests created hereby shall terminate. Upon termination of this
Agreement and Pledgor's written request, Secured Party will, at Pledgor's
sole cost and expense, return to Pledgor such of the Collateral as shall
not have been sold or otherwise disposed of or applied pursuant to the
terms hereof and execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination.
(m) CUMULATIVE RIGHTS. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any
of the other Loan Documents, and the exercise of one or more of such
rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of any other rights or remedies.
PLEDGE AGREEMENT - PAGE 10
10
<PAGE>
(n) GENDER AND NUMBER. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and
words in the plural number shall be held and construed to include the
singular, unless in each instance the context requires otherwise.
(o) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope
or meaning of the various and several provisions hereof.
EXECUTED as of the date first written above.
PLEDGOR'S ADDRESS: PLEDGOR:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
6836 Austin Center Boulevard a Delaware corporation, d/b/a HOME, INC.
Suite 280
Austin, Texas 78731
By:______________________________
Tommy M. Parker,
Executive Vice President
SECURED PARTY'S ADDRESS:
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
11th Floor
Dallas, Texas 75225
Attention: W. James Meintjes
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of September,
1997, 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.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
__________
PLEDGE AGREEMENT - PAGE 11
11
<PAGE>
SCHEDULE "A"
TO
PLEDGE AGREEMENT
DATED SEPTEMBER 24, 1997
BY AND BETWEEN
GUARANTY FEDERAL BANK, F.S.B.
AND
HOMEOWNERS MORTGAGE & EQUITY, INC.,
A DELAWARE CORPORATION, D/B/A HOME, INC.
1. "Austin Controlled Disbursement Account" shall mean that certain
controlled disbursement account at Frost National Bank, Austin, Texas, ABA
No. 114000093, Credit Home, Inc. Austin Control Disbursement Account- No.
294018508.
2. "Austin Funding Account - Wires" shall mean that certain account
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Funding Account - Wires No. 591055526.
3. "Austin Funding Account - Checks" shall mean that certain controlled
disbursement account, established by Borrower at Frost National Bank,
Austin, Texas, ABA No. 114000093, Credit Home, Inc. Austin Funding Account
- Checks No. 294038096.
4. "Austin Operating Account" shall mean that certain account established by
Borrower at Frost National Bank, Austin, Texas, ABA No. 114000093, Credit
Home, Inc. Austin Operating Account - No. 591044583.
SCHEDULE "A"
12
<PAGE>
EXHIBIT "B"
TO
PLEDGE AGREEMENT
DATED SEPTEMBER 24, 1997
BY AND BETWEEN
GUARANTY FEDERAL BANK, F.S.B.
AND
HOMEOWNERS MORTGAGE & EQUITY, INC.,
A DELAWARE CORPORATION, D/B/A HOME, INC.
BAILMENT AGREEMENT
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
11th Floor
Dallas, Texas 75225
Attention: W. James Meintjes
Re: (1) "Austin Controlled Disbursement Account" shall mean that certain
controlled disbursement account at Frost National Bank, Austin, Texas,
ABA No. 114000093, Credit Home, Inc. Austin Control Disbursement
Account-No. 294018508;
(2) "Austin Funding Account - Wires" shall mean that certain account
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Funding Account - Wires No.
591055526;
(3) "Austin Funding Account - Checks" shall mean that certain
controlled disbursement account, established by Borrower at Frost
National Bank, Austin, Texas, ABA No. 114000093, Credit Home, Inc.
Austin Funding Account - Checks No. 294038096; and
(4) "Austin Operating Account" shall mean that certain account
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Operating Account - No. 591044583.
Gentlemen:
The undersigned, Frost National Bank ("Bank") understands and agrees that
in connection with those certain loans ("Loans") have been made by Guaranty
Federal Bank ("Secured Party") to HomeOwners Mortgage & Equity, Inc., a Delaware
corporation, d/b/a Home, Inc. ("Borrower") which Loans would not be modified
without the execution and delivery of this Bailee Agreement (the "Agreement") by
Bank. Therefore, Bank hereby agrees with Secured Party and Borrower as follows:
1. The Accounts and all sums contained in such Accounts, all renewals,
replacements, substitutions and proceeds of the foregoing (collectively,
the "Collateral") have been pledged to Secured Party by that certain
Pledge Agreement (herein so called) dated as of September 24, 1997 by
and between Borrower and Secured Party. Bank hereby agrees to act as the
bailee solely and exclusively on behalf of Secured Party to allow
Secured Party to perfect its first lien security interest in and to such
Collateral which shall be the sole and exclusive security interest in
such Collateral.
2. Bank hereby waives and relinquishes any and all offset rights, security
interests and/or liens to which Bank may be entitled to in and to the
Collateral.
3. Bank hereby agrees that upon notice of an Event of Default under any of
the documents representing, evidencing or securing the Loans from
Secured Party to Bank, Bank shall, upon demand of Secured Party,
transfer any and all monies contained in the Accounts immediately to
Secured Party and in the event any future monies are deposited in such
Accounts after such notice, Bank shall immediately without the request
13
<PAGE>
of Secured Party wire transfer all such funds to Secured Party utilizing
the wiring instructions previously delivered to Bank by Secured Party.
EXECUTED AND AGREED TO effective as of, although not necessarily on, the
date first written above.
BANK:
FROST NATIONAL BANK
By: _______________________________
Name:
Title:
BORROWER:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By: _______________________________
Tommy M. Parker,
Executive Vice President
SECURED PARTY:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: _______________________________
W. James Meintjes,
Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the __ day of September,
1997, by ____________________, ____________________ of FROST NATIONAL BANK,
a ___________________, behalf of said bank.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
__________
14
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the __ day of September,
1997, 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.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
__________
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the __ day of September,
1997, by W. James Meintjes, 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
__________
15
<PAGE>
[WH]
EXHIBIT "J"
COMPLIANCE CERTIFICATE
Reference is made to that certain First Amended and Restated Warehouse Loan
Agreement dated as of SEPTEMBER 24, 1997 (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 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 (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 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.
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, Borrower's non-compliance as of the date hereof with the
requirements Section(s) ________________________ of the Loan Agreement.
6. No Net Collateral Deficit exists.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
___________, 199__.
___________________________________
___________________, ______________
Name Title
1
<PAGE>
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
_____________________
2
<PAGE>
SCHEDULE J-1
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 Method of
Accounting [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Negative Pledge [7.5]: [YES] or [NO] *
6) Loans, Advances and
Investments of Borrower
and Affiliates [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) GAAP Net Worth of Borrower Not less than
[7.9]: 6.2(a) figure plus
7.9(b) & (c) _______
10) Tangible Net Worth of Not less than
Borrower [7.10]: HUD, FNMA, GNMA,
FHLMC minimum _______
11) Adjusted Tangible Net
Worth of Borrower Not less than the
[7.11]: greater of (a) ATNW
requirement for preceding
quarter and (b) 80% of
present ATNW _______
3
<PAGE>
12) Total Liabilities to
Adjusted Tangible Net Not less than
Worth [7.12]: 5.0 to 1.0 _______
13) 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) Loss of Eligibility [7.18]: [YES] or [NO] *
19) Actions Mortgage Collateral [7.19]: [YES] or [NO] *
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
__________
1
<PAGE>
EXHIBIT 10.9(a)
WAREHOUSE PROMISSORY NOTE
$20,000,000.00 DALLAS, TEXAS SEPTEMBER 24, 1997
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 TWENTY MILLION AND NO/100
DOLLARS ($20,000,000.00) 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 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 that certain FIRST
AMENDED AND RESTATED WAREHOUSE LOAN AGREEMENT dated as of SEPTEMBER 24, 1997
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 (10TH) DAY OF EACH MONTH,
beginning OCTOBER 10, 1997, 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 JUNE 30, 1998 (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.
This Note and all of the other Loan Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable usury laws.
If any provision hereof or of any of the other Loan Documents or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the application of such provision to any
other person or circumstance nor the remainder of the instrument in which such
provision is contained shall be affected thereby and shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed to be
the intent of the holder hereof to at all times comply with the usury and
--------------
Initialed for
Identification
<PAGE>
other applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever revised,
repealed or judicially interpreted so as to render usurious any amount called
for under this Note or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the indebtedness evidenced
by this Note, or if Bank's exercise of the option to accelerate the maturity of
this Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is the express intent of
Borrower and Bank that all excess amounts theretofore collected by Bank be
credited on the principal balance of this Note (or, if this Note and all other
indebtedness arising under or pursuant to the other Loan Documents have been
paid in full, refunded to Borrower), and the provisions of this Note and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectable hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower for
the use, forbearance, detention, taking, charging, receiving or reserving of the
indebtedness of Borrower to Bank under this Note or arising under or pursuant to
the other Loan Documents shall, to the maximum extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of interest
on account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to contract
for, charge or receive a greater amount of interest, Bank will rely on federal
law instead of the Texas Finance Code, as supplemented by Texas Credit Title for
the purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Bank may, at its option
and from time to time, implement any other method of computing the Maximum Rate
under the Texas Finance Code, as supplemented by Texas Credit Title, or under
other applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to this
Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the "weekly ceiling" specified in Chapter 303 is the applicable
ceiling; provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
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.
--------------
Initialed for
Identification
<PAGE>
This Note is executed in renewal, extension and 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, (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, and (c) that certain WAREHOUSE PROMISSORY NOTE dated OCTOBER 15, 1996
in the principal amount of $15,000,000.00 executed by Borrower payable to the
order of Bank.
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 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
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
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 10.9(b)
WAREHOUSE
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 TWENTY MILLION AND
NO/100 DOLLARS ($20,000,000.00) (collectively, the "LOAN"); and
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that FIRST AMENDED AND RESTATED WAREHOUSE LOAN AGREEMENT
dated SEPTEMBER 24, 1997, 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 $20,000,000.00 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:
_______
Initialed for
Identification
<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:
_______
Intialed for
Identification
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 "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
_______
Intialed for
Identification
3
<PAGE>
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 IS EXECUTED IN RENEWAL, EXTENSION AND MODIFICATION OF (BUT
NOT EXTINGUISHMENT OF) THAT CERTAIN UNCONDITIONAL GUARANTY OF GUARANTOR DATED
OCTOBER 15, 1996.
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.
_______
Intialed for
Identification
4
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 24TH DAY OF
SEPTEMBER, 1997.
Address of Guarantor:
HOMECAPITAL INVESTMENT CORPORATION,
6836 Austin Center, Blvd. a Nevada corporation
Suite 280
Austin, Texas 78731
By: _______________________
Name:_________________
Title:_________________
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
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 10.9(c)
SECURITY AGREEMENT
(and Assignment of Rights)
THIS SECURITY AGREEMENT is executed as of June 1, 1996 by HOMEOWNERS
MORTGAGE & EQUITY, INC. D/B/A HOME, INC., a Delaware corporation ("Borrower")
with a mailing address, principal office, chief executive office and principal
place of business of 6836 Austin Center Blvd., Suite 280, Austin, Texas 78731
for the benefit of GUARANTY FEDERAL BANK, F.S.B. ("Bank"), whose address is 8333
Douglas Avenue, 10th Floor, Dallas, Texas 75225 under the Loan Agreement
(hereinafter defined).
Section . Defined Terms. Unless the context otherwise requires,
capitalized terms used in this Security Agreement and not otherwise defined
herein shall have the meanings assigned to such terms in the Loan Agreement, and
the following terms shall have the following meanings:
"Accounts" shall have the meaning assigned to such term in the UCC.
"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" shall have the meaning assigned to such term in Section 2
hereof.
"Custodial Accounts" means all deposit accounts held by Borrower or
Subservicer for the benefit of any Agency.
"Event of Default" shall mean the occurrence of any of the "Events of
Default" as defined in the Loan Agreement.
"General Intangibles" shall have the meaning assigned to such term in
the UCC.
"Instruments" shall have the meaning assigned to such term in the UCC.
"Loan Agreement" shall mean that certain Warehouse Loan Agreement
executed by and between Borrower and the Bank and dated of even date
herewith together with all modifications, extensions, amendments and
restatements thereto.
"Loan Documents" shall mean the Note, the Loan Agreement, this
Agreement and all documents and instruments representing, evidencing or
securing the Note.
"Note" shall mean that certain promissory note executed by Borrower
and payable to the order of the Bank, and (ii) any and all renewals,
modifications and extensions of such note, and any and all notes executed
in substitution for such notes.
"Person" includes any individual, corporation, joint venture, general
or limited partnership, trust, organization, association or other entity.
"Sales Proceeds" means, as to any sale of any Collateral, 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.
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"Secured Indebtedness" shall have the meaning assigned to such term in
Section 3 hereof.
"UCC" shall mean Chapter 9 of the Texas Uniform Commercial Code, TEX.
BUS. & COM. CODE ANN. (S)9.101 et seq. (Vernon Supp. 1989), as amended.
"Uncertificated Securities" shall have the meaning assigned to such
term in the UCC.
Section 2. Assignment and Grant of Security Interest. As collateral
security for the prompt and complete payment of the Secured Indebtedness, and in
order to induce Bank to enter into the Loan Agreement and make Advances
thereunder, Borrower hereby assigns, mortgages, pledges and hypothecates to the
Bank, and hereby grants to Bank a continuing security interest in, the assets
and property of Borrower of the types described below, whether now owned or
hereafter acquired, wherever located, howsoever arising or created, and whether
now existing or hereafter arising, existing or created:
(a) all Chattel Paper, Instruments, other promissory notes,
Certificated Securities and Uncertificated Securities, in the actual or
constructive possession of Bank or of Borrower in trust for Bank, or in the
possession of a third party on behalf of Bank, or in transit to or from
Bank, or designated by Borrower as collateral for the Secured Indebtedness
(as defined in Section 3 hereof) (whether or not such collateral shall have
been delivered to Bank), including, without limitation, all rights, titles
and interests Borrower may now or hereafter have in and to any and all
promissory notes, guaranties, deeds of trust, security agreements, bonds,
Mortgage Backed Securities (as defined in the Loan Agreement), insurance
policies, title insurance policies, take-out commitments, commitments to
purchase promissory notes secured by real property, other commitments, and
other instruments, documents, or agreements relating thereto, delivered or
to be delivered, to the Bank or to be held by Borrower in trust for Bank
or, in the case of Uncertificated Securities, the assignment to the Bank of
which and the grant to the Bank in which have been or are to be registered
upon the books and records of the FRB Member (as defined in the Loan
Agreement) or PTC Member (as defined in the Loan Agreement) in whose name
nominal ownership of such Uncertificated Securities is shown in the books
and records of a FRB (as defined in the Loan Agreement) or the PTC (as
defined in the Loan Agreement), as applicable;
(b) all money or other property of Borrower in the possession of Bank
including, without limitation, (i) Borrower's deposits with Bank, (ii) the
obligations of Bank, as the case may be, to Borrower arising out of such
deposits, and (iii) collateral delivered to Bank, or held for the benefit
of Bank, to support other credit facilities which Bank has made, or may
make, available to Borrower;
(c) all Accounts and General Intangibles, relating to the foregoing;
(d) All Sales Proceeds.
(e) All personal property, contract rights, accounts receivable,
accounts and general intangibles 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.
(f) all of Borrower's property insurance maintained upon and
protecting the assets and property described above.
(g) all payments and prepayments of principal, interest, penalties and
other income of payments due or to become due with respect to any and all
promissory notes and related loan documents constituting Borrower's
property, including but not limited to, such payments deposited with Bank.
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<PAGE>
(h) 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.
(i) all products and proceeds (including, without limitation,
insurance proceeds) of, and additions, improvements and accessions to all
and any of the property described above.
All of the property described in clauses (a) through (i) above is
hereinafter collectively called the "Collateral."
Section 3. Secured Indebtedness.
This security interest and assignment of rights is granted to secure the
payment of:
(i) The "Obligations," as defined in the Loan Agreement;
(ii) All costs reasonably incurred by the Bank (a) to obtain,
preserve, perfect and enforce the security interest granted hereby and all
other liens and security interests securing payment of the Obligations, (b)
to collect the obligations, and (c) to maintain, preserve and collect the
Collateral, including, but not limited to, taxes, assessments, insurance
premiums, repairs, reasonable attorneys' fees and legal expenses
(including, without limitation, allocated costs for in-house legal
services), rent, storage charges, advertising costs, brokerage fees and
expenses of sale; and
(iii) All renewals, extensions and modifications of the indebtedness
referred to in the foregoing clauses, or any part thereof.
The loans, advances, indebtedness, obligations, liabilities and costs mentioned
in this Section 3 are hereafter collectively referred to as the "Secured
Indebtedness." All proceeds hereof shall be applied by the Bank to the Secured
indebtedness in accordance with the Loan Agreement.
Section 4. Borrower's Warranties, Representations, Covenants and
Agreements. Borrower represents, warrants, covenants and agrees as follows:
(a) Borrower has the authority to execute, deliver and perform this
Security Agreement and the execution and performance hereof has been
authorized by all necessary action of Borrower.
(b) There are no liens on any of the Collateral and there is no
financing statement or other document creating or evidencing a lien now on
file in any public office covering any of the Collateral, or any lien or
encumbrance on any of the Collateral, whether such Collateral be real or
personal, tangible or intangible, or whether Borrower is named or signed as
"Borrower," "Debtor" or "Pledgor", and until the termination of this
Security Agreement, Borrower shall not execute and there shall not be on
file in any public office any such financing statement or statements,
except as may have been or may hereafter be granted to the Bank, 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.
(c) The chief executive office and principal place of business of
Borrower is 6836 Austin Center Blvd., Suite 280, Austin, Texas 78731.
Borrower's mailing address is 6836 Austin Center Blvd., Suite 280, Austin,
Texas 78731.
(d) Borrower shall, at its expense, make, procure, execute and deliver
such financing statement or statements, or amendments thereof or
supplements thereto, or other instruments, certificates and supplemental
writings, and do and deliver all acts, things, writings and assurances as
Bank may from time
3
<PAGE>
to time require in order to comply with the UCC, or any other applicable law,
and to grant, defend, enforce, preserve and perfect the security interest
hereby granted and the priority of such security interest.
(e) 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 Secured Indebtedness, 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.
(f) If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
Instrument, such Instrument shall be immediately pledged to Bank hereunder
and Borrower shall deliver to Bank such Instrument, duly endorsed in a
manner satisfactory to Bank.
(g) Borrower covenants and warrants that when any of the Collateral
becomes subject to this Security Agreement, 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.
(h) Borrower warrants to Bank that Borrower has granted to Bank a
first priority security interest in and to the Collateral.
(i) 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.
(j) 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 Secured Indebtedness, 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.
(k) Unless and until notified to the contrary by the Bank and except
to the extent otherwise required under the Loan Agreement, 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.
(l) 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, collect the Secured Indebtedness, and preserve,
defend, enforce and collect the Collateral.
(m) Borrower shall punctually and properly perform all of Borrower's
covenants and duties under any other security agreement, deed of trust,
mortgage, collateral pledge agreement or contract of any kind, now or
hereafter existing as security for or in connection with payment of the
Secured Indebtedness, or any part thereof, and will pay the Secured
Indebtedness in accordance with the terms thereof and in accordance with
the terms of the promissory notes or other writings evidencing the Secured
indebtedness, or any part thereof, and will promptly furnish the Bank with
any information or writings which such Person may reasonably request
concerning the Collateral.
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<PAGE>
(n) Borrower shall promptly notify the Bank of any change in any fact
or circumstance warranted or represented by Borrower in this Security
Agreement or in any other writing furnished by Borrower to the Bank in
connection with the Collateral or the Secured Indebtedness, and shall
promptly notify the 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 the Bank appear in and defend, at
Borrower's expense, any such action or proceeding.
(o) 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
forthwith pay and deliver to Bank all of the same which are susceptible of
delivery, and, at the same time, if Bank deems it necessary and so
requests, Borrower will properly endorse or assign the same.
(p) Borrower shall comply with all of its covenants and agreements
contained in all instruments and documents evidencing and securing the
Secured Indebtedness or any part thereof.
(q) All of the representations and warranties made by Borrower in all
instruments and documents evidencing and securing the Secured Indebtedness
or any part thereof are true and correct.
(r) All agreements constituting any of the Collateral are enforceable
against the parties thereto and are in full force and effect and, except as
otherwise expressly permitted under the Loan Documents, Borrower has
delivered true and correct copies of all such agreements to the Bank.
(s) Borrower shall promptly pay or cause to be paid, when due, all
lawful claims, whether for labor, materials or otherwise, which might, or
could if unpaid, become a lien or charge on the Collateral, unless and to
the extent only that the same are being contested in good faith by
appropriate proceedings, and notice thereof has been delivered to the Bank
setting forth the nature and amount of the contested claim, and reserves
adequate under GAAP have been established therefor.
(t) Bank does not assume and shall never have any liability for the
performance of any of the obligations of Borrower under the Collateral or
any transaction, agreement or contract out of which the Collateral, or any
portion thereof, arises.
Section 5. Rights and Remedies of the Bank.
(a) The Bank, at any time, either before or after the occurrence of an
Event of Default:
(i) May examine and inspect the Collateral at any time,
wherever located; and
(ii) Shall have the right, together with such accountants
and other agents as they may from time to time designate, to visit and
inspect Borrower's properties, assets and books relating to the
Collateral, and to discuss Borrower's affairs, finances and accounts
relating to the Collateral with Borrower's employees, officers,
directors and accountants, at such reasonable times as Bank may
designate, and to make and take away copies of Borrower's records
relating to the Collateral.
(b) In the event of the occurrence of any Event of Default, the Bank
may, at its option, in addition to the rights and remedies provided in
Section 5(a) hereof and in any of the other Loan Documents,
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<PAGE>
without demand, presentment, protest, notice of protest and nonpayment, notice
of intention to accelerate, notice of acceleration, or other notice of any kind
(which are fully waived) :
(i) Declare the entire unpaid balance of the principal of
the Secured Indebtedness to be in default and immediately due and
payable, together with all accrued and unpaid interest thereon,
reasonable attorneys' fees and all other collection charges.
(ii) In addition to the rights and remedies provided in this
Security Agreement, Loan Agreement or in any other Loan Document,
invoke the rights and remedies of a secured party under the UCC and
any and all other laws.
(iii) Take possession and dispose of all or any portion of
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 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 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 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.
(iv) After the occurrence of a Default, the costs and
expenses incurred by Bank relative to the collection of any of the
Secured Indebtedness and the exercise by the Bank of its rights and
remedies hereunder shall be added to and become part of the Secured
Indebtedness.
(v) 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 Secured Indebtedness,
or any part thereof.
(vi) 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.
(vii) The Bank shall be entitled to apply the proceeds of
any sale or other disposition of the Collateral, and the payments
received by Bank with respect to any of the Collateral, first, to the
payment of all its reasonable expenses, including attorneys' fees and
legal expenses, incurred in holding and preparing the Collateral, or
any part thereof, for sale or other disposition, in arranging for such
sale or other disposition, and in actually selling the same, and next
toward payment in full of the balance of the Secured Indebtedness in
accordance with the Loan Agreement. The Bank shall account to
Borrower for any surplus. If the proceeds are not sufficient to pay
the Secured Indebtedness in full, such proceeds shall be applied to
the Secured Indebtedness owing to the Bank in accordance with the
provisions of the Loan Agreement, and Borrower shall remain liable for
any deficiency.
6
<PAGE>
(viii) Borrower acknowledges and agrees that (a) a private
sale of any Collateral pursuant to any Take-Out Commitment (as defined
in the Loan Agreement) shall be deemed to be a sale of such Collateral
in a commercially reasonable manner, provided that such sale is
substantially on the terms and conditions of such Take-Out Commitment,
and (b) the Collateral described in Section 2(a) is intended to be
sold and none of such Collateral is of a type or kind intended by
Borrower to be held for investment or for any purpose other than for
sale.
(ix) The Bank is hereby authorized, in its own name or the
name of Borrower, at any time during the continuation of 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, 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, the Bank
shall never 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 or any 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.
(c) Issuance by the Bank of a receipt to any person, firm, corporation
or other entity obligated to pay any amounts to Borrower shall be a full
and complete release, discharge and acquittance to such person, firm,
corporation or other entity to the extent of any amount so paid to the
Bank. The Bank is hereby authorized and empowered on behalf of Borrower to
endorse the name of Borrower upon any check, draft, instrument, receipt,
instruction or other document or items, including, but not limited to, all
items evidencing payment upon any indebtedness of any person, firm,
corporation or other entity to Borrower coming into the Bank's possession,
and to receive and apply the proceeds therefrom in accordance with the
provisions of the Loan Agreement. The Bank is hereby granted an irrevocable
power of attorney, which is coupled with an interest, to execute all
checks, drafts, receipts, instruments, instructions or other documents,
agreements or items on behalf of the Bank, at any time after the occurrence
of an Event of Default, as shall be deemed by the Bank to be necessary or
advisable, in the sole discretion of the Bank, to protect the security
interest of the Bank in the Collateral or the repayment of the indebtedness
secured hereby, and the Bank shall not incur any liability to Borrower in
connection with or arising from the exercise by the Bank's exercise of such
power of attorney.
Section 6. Miscellaneous.
(a) THIS SECURITY AGREEMENT IS EXECUTED AND DELIVERED IN, AND THE
VALIDITY, ENFORCEABILITY AND INTERPRETATION OF THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA.
7
<PAGE>
(b) Regardless of any provision contained herein, or in any note,
notes or other evidences of the Secured Indebtedness, or other instruments
executed or delivered in connection therewith, the Bank shall not be
entitled to receive, collect or apply as interest on the Secured
Indebtedness an amount which would be usurious and, to this end, in the
event of the acceleration of the maturity of the Secured Indebtedness, or
any item hereof, a proper credit shall be given for unearned interest and
such unearned interest shall be immediately refunded to Borrower.
(c) It is agreed that any custom or usage to the contrary
notwithstanding, the Bank shall have the right at all times to enforce the
covenants and provisions of this Security Agreement in strict accordance
with the terms hereof, notwithstanding any conduct or custom on the part of
the Bank in refraining from so doing at any time, or any acceptance by the
Bank of partial performance by Borrower. All rights and remedies of Bank
hereunder are cumulative of each other and of every other right or remedy
which Bank may have at law or in equity, or in any other contract or other
writing for the enforcement of any security interest or the collection of
the Secured Indebtedness, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
(d) This Security Agreement is binding upon Borrower and Borrower's
receivers, trustees, successors and assigns, and shall inure to the benefit
of the Bank and its respective successors and assigns. Bank may assign its
interest in this agreement or any of its rights and powers hereunder, with
all or any interest in the Secured Indebtedness hereby secured, and may
assign and/or deliver to any such assignee any of the Collateral therefor
and, may instruct the Bank to hold for the benefit of such assignee any of
the Collateral therefor. Upon the appointment of a successor to the Bank
as the agent under Section 9.06 of the Loan Agreement, such successor shall
have the rights and remedies as if originally named herein in place of the
Bank and the Bank shall be thereafter fully discharged from all
responsibility hereunder.
(e) The Bank shall be deemed to have exercised reasonable care in the
custody and preservation of any of the Collateral in its possession if
it exercises the same diligence in the care thereof which it exercises in
the care of its own property.
(f) Any notice of sale, disposition or other action by the Bank
required by the UCC and sent to Borrower at Borrower's address shown above,
or at such other address as Borrower may have furnished the Bank in
writing, at least ten (10) days prior to such action, shall constitute
reasonable notice to Borrower. Any such notice shall be deemed to have
been given on the day it is mailed by first class or express mail, postage
prepaid, or sent by telex, telegram, telecopy or other similar form of
rapid transmission confirmed by mailing (by first class or express mail,
postage prepaid) written confirmation at substantially the same time as
such rapid transmission, or personally delivered to an officer of Borrower.
(g) No failure on the part of the Bank to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank of any right,
power or remedy hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies herein
provided are cumulative and are not exclusive of any remedies provided by
law.
(h) This is a security agreement and assignment of rights and is not a
delegation of duties. The Bank shall not assume any of, and the Bank shall
not at any time ever be liable for, any of the obligations, duties,
covenants, warranties, representations or other liabilities of Borrower in
or under the Collateral or any transaction, agreement or contract out of
which the Collateral, or any of it, arises.
(i) All representations and warranties shall survive the date hereof
and shall be deemed to have been made continuously.
8
<PAGE>
(j) Any provision of this Security Agreement found to be prohibited by
law shall be ineffective to the extent of such prohibition without
invalidating any other provision of this Security Agreement.
(k) If the Secured Indebtedness, or any part thereof, is given in
renewal or extension, or applied toward the payment of indebtedness secured
by mortgage, deed of trust, pledge, security agreement or other lien, the
Bank shall be, and hereby is, subrogated to all of the rights, titles,
security interests and other liens securing the indebtedness so renewed,
extended or paid.
(l) This Security Agreement shall, after being executed by Borrower,
be a valid and binding obligation of Borrower, whether or not the Bank
thereafter executes this Security Agreement.
(m) This Security Agreement (either an original or copy) may be
presented to filing officers for recordation as a financing statement or
other document evidencing the security interest created hereunder.
(n) In the event of a conflict between the provisions hereof and the
provisions of the Loan Agreement, the provisions of such Loan Agreement
shall be deemed to govern and control.
(o) THE LOAN AGREEMENT AND THE DOCUMENTS EXECUTED IN CONNECTION
THEREWITH (INCLUDING THIS SECURITY AGREEMENT) REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the day and year first set forth above.
BORROWER:
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By: ___________________________________
John Ballard, President
BANK:
GUARANTY FEDERAL BANK, F.S.B.
By: ____________________________________
W. James Meintjes,
Assistant Vice President
9
<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
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of June, 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
468146.01/d
10
<PAGE>
EXHIBIT 10.9(d)
PLEDGE AGREEMENT
[BANK ACCOUNT]
THIS PLEDGE AGREEMENT ("AGREEMENT") is made as of the 2ND DAY OF APRIL,
1997, by HOMEOWNERS MORTGAGE & EQUITY, INC., A DELAWARE CORPORATION, D/B/A HOME,
INC. (hereinafter called "PLEDGOR", whether one or more), in favor of GUARANTY
FEDERAL BANK, F.S.B. ("BANK" or "SECURED PARTY"). Pledgor hereby agrees with
Bank as follows:
1. DEFINITIONS. As used in this Agreement, terms not defined herein shall
have the definitions contained in the Loan Agreement executed by and between
Borrower and Bank dated June 1, 1996 (together with all amendments, the "LOAN
AGREEMENT"). The following terms shall have the meanings indicated below:
(a) The term "BORROWER" shall mean HOMEOWNERS MORTGAGE & EQUITY, INC.,
A DELAWARE CORPORATION, D/B/A HOME, INC.
(b) The term "CODE" shall mean the Uniform Commercial Code as in effect
in the State of Texas on the date of this Agreement or as it may hereafter
be amended from time to time.
(c) The term "COLLATERAL" shall mean all THE BANK ACCOUNTS SPECIFICALLY
DESCRIBED ON SCHEDULE "A" ATTACHED HERETO AND MADE A PART HEREOF. The term
Collateral, as used herein, shall also include (i) all certificates,
instruments and/or other documents evidencing the foregoing and all cash or
monies contained in any bank accounts, (ii) all bank accounts and
certificates of deposit which are renewals, replacements and substitutions
of all of the foregoing, (iii) all Additional Property (as hereinafter
defined), (iv) and all PROCEEDS of all of the foregoing. The designation of
proceeds does not authorize Pledgor to sell, transfer or otherwise convey
any of the foregoing property. The delivery at any time by Pledgor to
Secured Party of any property as a pledge to secure payment or performance
of any indebtedness or obligation whatsoever shall also constitute a pledge
of such property as Collateral hereunder.
(d) The term "INDEBTEDNESS" shall mean:
(i) all indebtedness, obligations and liabilities of Borrower to
Secured Party of any kind or character relating to that certain
Promissory Note (together with all modifications and amendments
thereto, the "NOTE") executed by Borrower payable to the order of Bank
dated June 1, 1996 in the stated amount of $2,000,000.00 (INCREASED BY
SUBSEQUENT MODIFICATIONS TO $15,000,000.00), now existing or hereafter
arising, whether direct, indirect, related, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, (ii) all
accrued but unpaid interest on any of the indebtedness described in (i)
above, (iii) all obligations of Borrower to Secured Party under any
documents evidencing, securing, governing and/or pertaining to all or
any part of the indebtedness described in (i) and (ii) above, (iv) all
costs and expenses incurred by Secured Party in connection with the
collection and administration of all or any part of the indebtedness
and obligations described in (i), (ii) and (iii) above or the
protection or preservation of, or realization upon, the collateral
securing all or any part of such indebtedness and obligations,
including without limitation all reasonable attorneys' fees, and (v)
all renewals, extensions, amendments, modifications, increases and
rearrangements of the indebtedness and obligations described in (i),
(ii), (iii) and (iv) above.
(e) The term "LOAN DOCUMENTS" shall mean all instruments and documents
evidencing, securing, governing, guaranteeing and/or pertaining to the
Indebtedness.
PLEDGE AGREEMENT - PAGE 1
<PAGE>
(f) The term "OBLIGATED PARTY" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
(g) The term "SECURED PARTY" shall mean Bank, its successors and
assigns, including without limitation, any party to whom Bank, or its
successors or assigns, may assign its rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section 1.201,
Chapter 8 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1.201, Chapter 8 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Pledgor, for
value received, hereby grants to Secured Party a continuing security interest in
the Collateral and pledges the Collateral to Secured Party.
3. ADDITIONAL PROPERTY. Collateral shall also includes the following
property (collectively, the "ADDITIONAL PROPERTY") which Pledgor becomes
entitled to receive or shall receive in connection with any other Collateral:
(a) any replacement bank accounts or certificates of deposit, the holder's right
to payment of interest, and (b) any interest or principal payments; provided,
however, that until the occurrence of an Event of Default (as hereinafter
defined), Pledgor shall be entitled to receive all interest paid on the
Collateral. All Additional Property received by Pledgor shall be received in
trust for the benefit of Secured Party. All Additional Property and all
certificates or other written instruments or documents evidencing and/or
representing the Additional Property that is received by Pledgor, together with
such instruments of transfer as Secured Party may request, shall immediately be
delivered to or deposited with Secured Party and held by Secured Party as
Collateral under the terms of this Agreement. Secured Party shall be deemed to
have possession of any Collateral in transit to Secured Party or its agent.
4. MAINTENANCE OF COLLATERAL. Other than the exercise of reasonable care
to assure the safe custody of any Collateral in Secured Party's possession from
time to time, Secured Party does not have any obligation, duty or responsibility
with respect to the Collateral. Without limiting the generality of the
foregoing, Secured Party shall not have any obligation, duty or responsibility
to do any of the following: (a) ascertain any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to the Collateral or
informing Pledgor with respect to any such matters; (b) fix, preserve or
exercise any right, privilege or option (whether conversion, redemption or
otherwise) with respect to the Collateral unless (i) Pledgor makes written
demand to Secured Party to do so, (ii) such written demand is received by
Secured Party in sufficient time to permit Secured Party to take the action
demanded in the ordinary course of its business, and (iii) Pledgor provides
additional collateral, acceptable to Secured Party in its sole discretion; (c)
collect any amounts payable in respect of the Collateral (Secured Party being
liable to account to Pledgor only for what Secured Party may actually receive or
collect thereon); (d) sell all or any portion of the Collateral to avoid market
loss; (e) sell all or any portion of the Collateral unless and until (i) Pledgor
makes written demand upon Secured Party to sell the Collateral, and (ii) Pledgor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Pledgor.
5. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants the following to Secured Party:
(a) DUE AUTHORIZATION. The execution, delivery and performance of this
Agreement and all of the other Loan Documents by Pledgor have been duly
authorized by all necessary corporate action of Pledgor, to the extent
Pledgor is a corporation, or by all necessary partnership action, to the
extent Pledgor is a partnership.
PLEDGE AGREEMENT - PAGE 2
<PAGE>
(b) ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Pledgor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific remedies
may generally be limited by equitable principles.
(c) OWNERSHIP AND LIENS. Pledgor has good and marketable title to the
Collateral free and clear of all liens, security interests, encumbrances or
adverse claims, except for the security interest created by this Agreement.
No dispute, right of setoff, counterclaim or defense exists with respect to
all or any part of the Collateral. Pledgor has not executed any other
security agreement currently affecting the Collateral and no financing
statement or other instrument similar in effect covering all or any part of
the Collateral is on file in any recording office except as may have been
executed or filed in favor of Secured Party. PLEDGOR SHALL OBTAIN FROM
FROST NATIONAL BANK, AUSTIN, TEXAS THE BAILMENT AGREEMENT IN THE FORM
ATTACHED HERETO AS EXHIBIT "B" WHICH CONTAINS A WAIVER OF LIENS, SECURITY
INTERESTS AND OFFSET RIGHTS.
(d) NO CONFLICTS OR CONSENTS. Neither the ownership, the intended use
of the Collateral by Pledgor, the grant of the security interest by Pledgor
to Secured Party herein nor the exercise by Secured Party of its rights or
remedies hereunder, will (i) conflict with any provision of (A) any
domestic or foreign law, statute, rule or regulation, (B) the articles or
certificate of incorporation, charter, bylaws or partnership agreement, as
the case may be, of Pledgor, or (C) any agreement, judgment, license, order
or permit applicable to or binding upon Pledgor or otherwise affecting the
Collateral, or (ii) result in or require the creation of any lien, charge
or encumbrance upon any assets or properties of Pledgor or of any person
except as may be expressly contemplated in the Loan Documents. Except as
expressly contemplated in the Loan Documents, no consent, approval,
authorization or order of, and no notice to or filing with, any court,
governmental authority or third party is required in connection with the
grant by Pledgor of the security interest herein or the exercise by Secured
Party of its rights and remedies hereunder.
(e) SECURITY INTEREST. Pledgor has and will have at all times full
right, power and authority to grant a security interest in the Collateral
to Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral.
(f) LOCATION. Pledgor's residence or chief executive office, as the
case may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof.
(g) SOLVENCY OF PLEDGOR. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Pledgor at the time of the execution of this Agreement, (i)
Pledgor is and will be solvent, (ii) the fair saleable value of Pledgor's
assets exceeds and will continue to exceed Pledgor's liabilities (both
fixed and contingent), (iii) Pledgor is and will continue to be able to pay
its debts as they mature, and (iv) if Pledgor is not an individual, Pledgor
has and will have sufficient capital to carry on Pledgor's businesses and
all businesses in which Pledgor is about to engage.
(h) NATURE OF OWNERSHIP. Pledgor is the registered owner of the
securities pledged as Collateral and a certificate has been issued in
Pledgor's name to evidence Pledgor's ownership in such securities.
(i) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. The security interest
in chattel paper, documents and instruments of Pledgor granted hereunder is
valid and genuine, and all such chattel paper, documents and instruments
have only one original counterpart. No party other than Pledgor or Secured
Party is in actual or constructive possession of any such chattel paper,
documents or instruments.
PLEDGE AGREEMENT - PAGE 3
<PAGE>
6. AFFIRMATIVE COVENANTS. Pledgor will comply with the covenants
contained in this Section at all times during the period of time this Agreement
is effective unless Secured Party shall otherwise consent in writing.
(a) OWNERSHIP AND LIENS. Pledgor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement and the security interests and other encumbrances expressly
permitted by the other Loan Documents. Pledgor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all or
any part of the Collateral. Pledgor will cause any financing statement or
other security instrument with respect to the Collateral to be terminated,
except as may exist or as may have been filed in favor of Secured Party.
Pledgor will defend at its expense Secured Party's right, title and
security interest in and to the Collateral against the claims of any third
party.
(b) INSPECTION OF BOOKS AND RECORDS. Pledgor will keep adequate
records concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect Pledgor's
books and records of or relating to the Collateral at any time during
normal business hours, to make and take away photocopies, photographs and
printouts thereof and to write down and record any such information.
(c) ADVERSE CLAIM. Pledgor covenants and agrees to promptly notify
Secured Party of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created hereunder
and, at Pledgor's expense, defend Secured Party's security interest in the
Collateral against the claims of any third party. Pledgor also covenants
and agrees to promptly deliver to Secured Party a copy of all written
notices received by Pledgor with respect to the Collateral, including
without limitation, notices received from the issuer of any securities
pledged hereunder as Collateral.
(d) DELIVERY OF INSTRUMENTS AND/OR CERTIFICATES. Contemporaneously
herewith, Pledgor covenants and agrees to deliver to Secured Party any
certificates, documents or instruments representing or evidencing the
Collateral, with Pledgor's endorsement thereon and/or accompanied by proper
instruments of transfer and assignment duly executed in blank with, if
requested by Secured Party, signatures guaranteed by a bank or member firm
of the New York Stock Exchange, all in form and substance satisfactory to
Secured Party. If required by Secured Party, Pledgor also covenants and
agrees to cooperate with Secured Party in registering the pledge of the
securities pledged as Collateral with the issuer of such securities.
(e) FURTHER ASSURANCES. Pledgor will from time to time at its expense
promptly execute and deliver all further instruments and documents and take
all further action necessary or appropriate or that Secured Party may
request in order (i) to perfect and protect the security interest created
or purported to be created hereby and the first priority of such security
interest, (ii) to enable Secured Party to exercise and enforce its rights
and remedies hereunder in respect of the Collateral, and (iii) to otherwise
effect the purposes of this Agreement, including without limitation,
executing and filing such financing or continuation statements, or any
amendments thereto.
(f) GOVERNMENTAL SECURITIES. Pledgor covenants and agrees that with
respect to any securities issued by an agency or department of the United
States pledged as Collateral, Pledgor shall, at Secured Party's request,
cause such securities to be registered in Secured Party's name or with
Secured Party's account maintained with a Federal Reserve Bank.
(g) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. Pledgor will take such
action as may be requested by Secured Party in order to cause any chattel
paper, documents or instruments to be valid and enforceable and will
cause all chattel paper to have only one original counterpart. Upon request
by Secured Party, Pledgor will deliver to Secured Party all originals of
chattel paper, documents or instruments and will
PLEDGE AGREEMENT - PAGE 4
<PAGE>
mark all chattel paper with a legend indicating that such chattel paper is
subject to the security interest granted hereunder.
7. NEGATIVE COVENANTS. Pledgor will comply with the covenants contained
in this Section at all times during the period of time this Agreement is
effective, unless Secured Party shall otherwise consent in writing.
(a) TRANSFER OR ENCUMBRANCE. Pledgor will not (i) sell, assign (by
operation of law or otherwise) or transfer Pledgor's rights in any of the
Collateral, (ii) grant a lien or security interest in or execute, file or
record any financing statement or other security instrument with respect to
the Collateral to any party other than Secured Party, or (iii) deliver
actual or constructive possession of any certificate, instrument or
document evidencing and/or representing any of the Collateral to any party
other than Secured Party.
(b) IMPAIRMENT OF SECURITY INTEREST. Pledgor will not take or fail to
take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
8. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section at all times during the period of time this Agreement
is effective.
(a) POWER OF ATTORNEY. Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, such power of attorney being coupled
with an interest, with full authority in the place and stead of Pledgor and
in the name of Pledgor or otherwise, to take any action and to execute any
instrument which Secured Party may from time to time in Secured Party's
discretion deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation, the following action: (i) transfer
any securities, instruments, documents or certificates pledged as
Collateral in the name of Secured Party or its nominee; (ii) use any
interest, premium or principal payments, conversion or redemption proceeds
or other cash proceeds received in connection with any Collateral to reduce
any of the Indebtedness; (iii) exchange any of the securities pledged as
Collateral for any other property upon any merger, consolidation,
reorganization, recapitalization or other readjustment of the issuer
thereof, and, in connection therewith, to deposit and deliver any and all
of such securities with any committee, depository, transfer agent,
registrar or other designated agent upon such terms and conditions as
Secured Party may deem necessary or appropriate; (iv) exercise or comply
with any conversion, exchange, redemption, subscription or any other right,
privilege or option pertaining to any securities pledged as Collateral;
provided, however, except as provided herein, Secured Party shall not have
a duty to exercise or comply with any such right, privilege or option
(whether conversion, redemption or otherwise) and shall not be responsible
for any delay or failure to do so; and (v) file any claims or take any
action or institute any proceedings which Secured Party may deem necessary
or appropriate for the collection and/or preservation of the Collateral or
otherwise to enforce the rights of Secured Party with respect to the
Collateral.
(b) PERFORMANCE BY SECURED PARTY. If Pledgor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Pledgor on demand.
Notwithstanding any other provision herein to the contrary, Secured Party does
not have any duty to exercise or continue to exercise any of the foregoing
rights and shall not be responsible for any failure to do so or for any delay in
doing so.
9. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF
DEFAULT" under this Agreement:
PLEDGE AGREEMENT - PAGE 5
<PAGE>
(a) FAILURE TO PAY INDEBTEDNESS. The failure, refusal or neglect of
Borrower to make payment of the Indebtedness or any portion thereof, as the
same shall become due and payable at maturity (whether by acceleration or
otherwise); or
(b) NON-PERFORMANCE OF COVENANTS. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any
covenant, agreement, warranty or condition required herein; provided,
however, with respect to such defaults (other than those specified in
SUBPARAGRAPH 9(a), or 9(c) THROUGH 9(h) for which no notice and opportunity
to cure shall be available unless such opportunity is specifically provided
in such individual subparagraphs), Borrower will have thirty (30) days
after notice of default from Bank within which to cure such default; or
(c) DEFAULT UNDER OTHER LOAN DOCUMENTS. The occurrence of an event of
default under any of the other Loan Documents; or
(d) FALSE REPRESENTATION. Any representation contained herein or in
any of the other Loan Documents made by Borrower or any Obligated Party is
false or misleading in any material respect; or
(e) DEFAULT TO THIRD PARTY. The occurrence of any event which permits
the acceleration of the maturity of any indebtedness owing by Borrower or
any Obligated Party to any third party under any agreement or undertaking;
or
(f) BANKRUPTCY OR INSOLVENCY. If Borrower or any Obligated Party: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver or custodian appointed for,
or take possession of, all or substantially all of the assets of such party
or any of the Collateral, either in a proceeding brought by such party or
in a proceeding brought against such party and such appointment is not
discharged or such possession is not terminated within thirty (30) days
after the effective date thereof or such party consents to or acquiesces in
such appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or
state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "APPLICABLE BANKRUPTCY LAW") or an
involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not dismissed
within sixty (60) days after the filing thereof, or an order for relief
naming such party is entered under any Applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization or other relief of
debtors now or hereafter existing is requested or consented to by such
party; (v) fails to have discharged within a period of thirty (30) days any
attachment, sequestration or similar writ levied upon any property of such
party; or (vi) fails to pay within thirty (30) days any final money
judgment against such party; or
(g) EXECUTION ON COLLATERAL. The Collateral or any portion thereof is
taken on execution or other process of law in any action against Pledgor;
or
(h) ACTION BY OTHER LIENHOLDER. The holder of any lien or security
interest on any of the assets of Pledgor, including without limitation, the
Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the
Collateral), declares a default thereunder or institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder.
10. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party,
Secured Party may exercise one or more of the rights and remedies provided in
this Section.
PLEDGE AGREEMENT - PAGE 6
<PAGE>
(a) REMEDIES. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in any
of the Loan Documents:
(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not the Code
applies to the affected Collateral);
(ii) reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted hereunder
by any available judicial procedure;
(iii) sell or otherwise dispose of, at its office, on the
premises of Pledgor or elsewhere, the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of any
part of the Collateral shall not exhaust Secured Party's power of
sale, but sales or other dispositions may be made from time to time
until all of the Collateral has been sold or disposed of or until the
Indebtedness has been paid and performed in full), and at any such
sale or other disposition it shall not be necessary to exhibit any of
the Collateral;
(iv) buy the Collateral, or any portion thereof, at any public
sale;
(v) buy the Collateral, or any portion thereof, at any private
sale if the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely distributed
standard price quotations;
(vi) apply for the appointment of a receiver for the Collateral,
and Pledgor hereby consents to any such appointment;
(vii) at its option, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that Secured Party is
entitled to do so under the Code or otherwise;
(viii) REQUIRE FROST NATIONAL BANK TO WIRE TRANSFER ALL FUNDS IN
SUCH ACCOUNTS TO SECURED PARTY; AND
(ix) NOTIFY ALL MORTGAGORS UNDER NOTES PLEDGED TO SECURED PARTY
TO MAKE ALL FUTURE PAYMENTS DIRECTLY TO SECURED PARTY RATHER THAN TO
BORROWER OR ANY ACCOUNTS OF BORROWER WHETHER OR NOT AT FROST NATIONAL
BANK.
Pledgor agrees that in the event Pledgor is entitled to receive any notice
under the Uniform Commercial Code, as it exists in the state governing any
such notice, of the sale or other disposition of any Collateral, reasonable
notice shall be deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States Postal Service,
postage prepaid, at Pledgor's address set forth on the signature page
hereof, five (5) days prior to the date of any public sale, or after which
a private sale, of any of such Collateral is to be held. Secured Party
shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Pledgor further acknowledges and
agrees that the redemption by Secured Party of any certificate of deposit
pledged as Collateral shall be deemed to be a commercially reasonable
disposition under Section 9.504(c) of the Code.
(b) PRIVATE SALE OF SECURITIES. Pledgor recognizes that Secured Party
may be unable to effect a public sale of all or any part of the securities
pledged as Collateral because of restrictions in applicable
PLEDGE AGREEMENT - PAGE 7
<PAGE>
federal and state securities laws and that Secured Party may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment
and not with a view to the distribution or resale thereof. Pledgor
acknowledges that each any such private sale may be at prices and other
terms less favorable then what might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that each such private sale
shall be deemed to have been made in a commercially reasonable manner and
that Secured Party shall have no obligation to delay the sale of any such
securities for the period of time necessary to permit the issuer to
register such securities for public sale under any federal or state
securities laws. Pledgor further acknowledges and agrees that any offer to
sell such securities which has been made privately in the manner described
above to not less than five (5) bona fide offerees shall be deemed to
involve a "public sale" for the purposes of Section 9.504(c) of the Code,
notwithstanding that such sale may not constitute a "public offering" under
any federal or state securities laws and that Secured Party may, in such
event, bid for the purchase of such securities.
(c) APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or other disposition of, collection from, or
other realization upon, all or any part of the Collateral as follows in
such order and manner as Secured Party may elect:
(i) to the repayment or reimbursement of the reasonable costs
and expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Secured Party in connection with (A)
the administration of the Loan Documents, (B) the custody,
preservation, use or operation of, or the sale of, collection from, or
other realization upon, the Collateral, and (C) the exercise or
enforcement of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable
law (including without limitation, Section 9.504(a)(3) of the Code or
any other applicable statutory provision); and
(vi) by delivery to Pledgor or any other party lawfully entitled
to receive such cash or proceeds whether by direction of a court of
competent jurisdiction or otherwise.
(d) DEFICIENCY. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed or
is otherwise obligated to pay all or any portion of the Indebtedness shall
be liable for the deficiency, together with interest thereon as provided in
the Loan Documents.
(e) NON-JUDICIAL REMEDIES. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial
hearing, Pledgor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its
rights by judicial process. Pledgor recognizes and concedes that non-
judicial remedies are consistent with the usage of trade, are responsive to
commercial necessity and are the result of a bargain at arm's length.
Nothing
PLEDGE AGREEMENT - PAGE 8
<PAGE>
herein is intended to prevent Secured Party or Pledgor from resorting to
judicial process at either party's option.
(f) OTHER RECOURSE. Pledgor waives any right to require Secured Party
to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Pledgor in any suit arising out of the Indebtedness or any of the Loan
Documents, or pursue any other remedy available to Secured Party. Pledgor
further waives any and all notice of acceptance of this Agreement and of
the creation, modification, rearrangement, renewal or extension of the
Indebtedness. Pledgor further waives any defense arising by reason of any
disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.
Until all of the Indebtedness shall have been paid in full, Pledgor shall
have no right of subrogation and Pledgor waives the right to enforce any
remedy which Secured Party has or may hereafter have against any third
party, and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Pledgor
authorizes Secured Party, and without notice or demand and without any
reservation of rights against Pledgor and without affecting Pledgor's
liability hereunder or on the Indebtedness, to (i) take or hold any other
property of any type from any third party as security for the Indebtedness,
and exchange, enforce, waive and release any or all of such other property,
(ii) apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive, enforce or
modify any of the provisions of any of the Loan Documents executed by any
third party, and (v) release or substitute any third party.
(g) INTEREST PAYMENTS. Upon the occurrence of an Event of Default:
(i) all rights of Pledgor to receive and retain the interest
payments which it would otherwise be authorized to receive and retain
pursuant to SECTION 3 shall automatically cease, and all such rights
shall thereupon become vested with Secured Party which shall
thereafter have the sole right to receive, hold and apply as
Collateral such interest payments; and
(ii) all interest payments which are received by Pledgor
contrary to the provisions of clause (i) of this Subsection shall be
received in trust for the benefit of Secured Party, shall be
segregated from other funds of Pledgor, and shall be forthwith paid
over to Secured Party in the exact form received (properly endorsed or
assigned if requested by Secured Party), to be held by Secured Party
as Collateral.
11. INDEMNIFICATION. IN CONSIDERATION OF THE INDEBTEDNESS OWED BY
BORROWER TO SECURED PARTY, PLEDGOR AGREES TO INDEMNIFY AND DEFEND THE SECURED
PARTY AND ANY PERSON DEEMED TO CONTROL THE SECURED PARTY 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
SECURED PARTY'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 ADVANCES,
(II) ANY IMPOUNDMENT, ATTACHMENT OR RETENTION OF ANY OF THE COLLATERAL, AND
(III) ANY REPRESENTATION MADE BY PLEDGOR HEREUNDER OR BORROWER UNDER ANY OF THE
PLEDGE AGREEMENT - PAGE 9
<PAGE>
LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL BE
CONSTRUED AS AN AGREEMENT BY PLEDGOR TO INDEMNIFY AND HOLD THE SECURED PARTY,
ANY PERSON DEEMED TO CONTROL THE SECURED PARTY, 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 SECURED PARTY, 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 SECURED PARTY SHALL NOT BE RESPONSIBLE
OR LIABLE TO BORROWER, PLEDGOR OR ANY OTHER PERSON OR ENTITY FOR ANY
CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF OR IN CONNECTION WITH
(I), (II) AND (III) LISTED IN THIS PARAGRAPH. PLEDGOR'S OBLIGATIONS UNDER THIS
PARAGRAPH SHALL SURVIVE THE COMMITMENT TERMINATION DATE, NOTWITHSTANDING
ANYTHING TO THE CONTRARY. PLEDGOR SHALL PROVIDE SUCH INDEMNIFICATION AND
DEFENSE UPON WRITTEN NOTICE FROM THE SECURED PARTY.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire agreement of
Secured Party and Pledgor with respect to the Collateral. If the parties
hereto are parties to any prior agreement, either written or oral, relating
to the Collateral, the terms of this Agreement shall amend and supersede
the terms of such prior agreements as to transactions on or after the
effective date of this Agreement, but all security agreements, financing
statements, guaranties, other contracts and notices for the benefit of
Secured Party shall continue in full force and effect to secure the
Indebtedness unless Secured Party specifically releases its rights
thereunder by separate release.
(b) AMENDMENT. No modification, consent or amendment of any provision
of this Agreement or any of the other Loan Documents shall be valid or
effective unless the same is in writing and signed by the party against
whom it is sought to be enforced.
(c) ACTIONS BY SECURED PARTY. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i) any
renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal, extension,
exchange or substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any endorser,
guarantor or surety of the Indebtedness. The taking of additional security
by Secured Party shall not release or impair the lien, security interest or
other security rights of Secured Party hereunder or affect the obligations
of Pledgor hereunder.
(d) WAIVER BY SECURED PARTY. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay
by Secured Party in exercising, any right or remedy upon any Event of
Default shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a later date.
No single or partial exercise by Secured Party of any right or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be exercised
at any time. No waiver of any provision hereof or consent to any departure
by Pledgor therefrom shall be effective unless the
PLEDGE AGREEMENT - PAGE 10
<PAGE>
same shall be in writing and signed by Secured Party and then such waiver
or consent shall be effective only in the specific instances, for the
purpose for which given and to the extent therein specified. No notice to
or demand on Pledgor in any case shall of itself entitle Pledgor to any
other or further notice or demand in similar or other circumstances.
(e) COSTS AND EXPENSES. Pledgor will upon demand pay to Secured Party
the amount of any and all reasonable costs and expenses (including without
limitation, attorneys' reasonable fees and expenses), which Secured Party
may incur in connection with (i) the transactions which give rise to the
Loan Documents, (ii) the preparation of this Agreement and the perfection
and preservation of the security interests granted under the Loan
Documents, (iii) the administration of the Loan Documents, (iv) the
custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, the Collateral, (v) the exercise or
enforcement of any of the rights of Secured Party under the Loan Documents,
or (vi) the failure by Pledgor to perform or observe any of the provisions
hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL
LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-
PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF TEXAS.
(g) VENUE. This Agreement has been entered into in the county in
Texas where Bank's address for notice purposes is located, and it shall be
performable for all purposes in such county. Courts within the State of
Texas shall have jurisdiction over any and all disputes arising under or
pertaining to this Agreement and venue for any such disputes shall be in
the county or judicial district where this Agreement has been executed and
delivered.
(h) SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) NO OBLIGATION. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery service
with proof of delivery, or (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the
intended addressee at the address set forth on the signature page hereof or
to such different address as the addressee shall have designated by written
notice sent pursuant to the terms hereof and shall be deemed to have been
received either, in the case of personal delivery, at the time of personal
delivery, in the case of expedited delivery service, as of the date of
first attempted delivery at the address and in the manner provided herein,
or in the case of mail, upon deposit in a depository receptacle under the
care and custody of the United States Postal Service. Either party shall
have the right to change its address for notice hereunder to any other
location within the continental United States by notice to the other party
of such new address at least thirty (30) days prior to the effective date
of such new address.
(k) BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Pledgor and the heirs, executors, administrators, personal representatives,
successors and assigns of Pledgor, and (iii) shall inure to the benefit of
Secured Party and its
PLEDGE AGREEMENT - PAGE 11
<PAGE>
successors and assigns. Without limiting the generality of the foregoing,
Secured Party may pledge, assign or otherwise transfer the Indebtedness and
its rights under this Agreement and any of the other Loan Documents to any
other party. Pledgor's rights and obligations hereunder may not be assigned
or otherwise transferred without the prior written consent of Secured
Party.
(l) TERMINATION. It is contemplated by the parties hereto that
from time to time there may be no outstanding Indebtedness, but
notwithstanding such occurrences, this Agreement shall remain valid and
shall be in full force and effect as to subsequent outstanding
Indebtedness. Upon (i) the satisfaction in full of the Indebtedness, (ii)
the termination or expiration of any commitment of Secured Party to extend
credit to Borrower, (iii) written request for the termination hereof
delivered by Pledgor to Secured Party, and (iv) written release delivered
by Secured Party to Pledgor, this Agreement and the security interests
created hereby shall terminate. Upon termination of this Agreement and
Pledgor's written request, Secured Party will, at Pledgor's sole cost and
expense, return to Pledgor such of the Collateral as shall not have been
sold or otherwise disposed of or applied pursuant to the terms hereof and
execute and deliver to Pledgor such documents as Pledgor shall reasonably
request to evidence such termination.
(m) CUMULATIVE RIGHTS. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any of
the other Loan Documents, and the exercise of one or more of such rights or
remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
(n) GENDER AND NUMBER. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and words
in the plural number shall be held and construed to include the singular,
unless in each instance the context requires otherwise.
(o) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
(p) MODIFICATION. This Agreement is in modification (but not
extinguishment) of that certain Pledge Agreement [Bank Account] dated as of
February 24, 1997 by and betweeen HomeOwners Mortgage & Equity, Inc., d/b/a
Home, Inc. as Pledgor and Guaranty Federal Bank, F.S.B. as Secured Party.
EXECUTED as of the date first written above.
PLEDGOR'S ADDRESS: PLEDGOR:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
6836 Austin Center Boulevard a Delaware corporation, d/b/a HOME, INC.
Suite 280
Austin, Texas 78731
By:_____________________________________
Tommy M. Parker,
Executive Vice President
SECURED PARTY'S ADDRESS:
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
PLEDGE AGREEMENT - PAGE 12
<PAGE>
11th Floor
Dallas, Texas 75225
Attention: W. James Meintjes
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
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.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
_____________
PLEDGE AGREEMENT - PAGE 13
<PAGE>
SCHEDULE "A"
TO
PLEDGE AGREEMENT
DATED APRIL 2, 1997
BY AND BETWEEN
GUARANTY FEDERAL BANK, F.S.B.
AND
HOMEOWNERS MORTGAGE & EQUITY, INC.,
A DELAWARE CORPORATION, D/B/A HOME, INC.
1. "Austin Controlled Disbursement Account" shall mean that certain
controlled disbursement account at Frost National Bank, Austin, Texas,
ABA No. 114000093, Credit Home, Inc. Austin Control Disbursement
Account- No. 294018508.
2. "Austin Funding Account - Wires" shall mean that certain account
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Funding Account - Wires No.
591055526.
3. "Austin Funding Account - Checks" shall mean that certain controlled
disbursement account, established by Borrower at Frost National Bank,
Austin, Texas, ABA No. 114000093, Credit Home, Inc. Austin Funding
Account - Checks No. 294038096.
4. "Austin Operating Account" shall mean that certain account established
by Borrower at Frost National Bank, Austin, Texas, ABA No. 114000093,
Credit Home, Inc. Austin Operating Account - No. 591044583.
SCHEDULE "A"
<PAGE>
EXHIBIT "B"
BAILMENT AGREEMENT
April 2, 1997
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
11th Floor
Dallas, Texas 75225
Attention: W. James Meintjes
Re: (1)"Austin Controlled Disbursement Account" shall mean that certain
controlled disbursement account at Frost National Bank, Austin, Texas,
ABA No. 114000093, Credit Home, Inc. Austin Control Disbursement
Account- No. 294018508;
(2) "Austin Funding Account - Wires" shall mean that certain account
at Frost National Bank, Austin, Texas, ABA No. 114000093, Credit Home,
Inc. Austin Control Disbursement Account- No. 591055526;
(3) "Austin Funding Account - Checks" shall mean that certain
controlled disbursement account established by Borrower at Frost
National Bank, Austin, Texas, ABA No. 114000093, Credit Home, Inc.
Austin Operating Account - No. 294038096; and
(4) "Austin Operating Account" shall mean that certain account
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Operating Account - No. 591044583
(collectively, the "Accounts").
All of the above, collectively, to be known as the "Collateral".
Gentlemen:
The undersigned, Frost National Bank ("Bank") understands and agrees that
in connection with those certain loans ("Loans") have been made by Guaranty
Federal Bank ("Secured Party") to HomeOwners Mortgage & Equity, Inc., a Delaware
corporation, d/b/a Home, Inc. ("Borrower") which Loans would not be modified
without the execution and delivery of this Bailee Agreement (the "Agreement") by
Bank. Therefore, Bank hereby agrees with Secured Party and Borrower as follows:
1. The Accounts and all sums contained in such Accounts, all renewals,
replacements, substitutions and proceeds of the foregoing
(collectively, the "Collateral") have been pledged to Secured Party by
that certain Pledge Agreement (herein so called) dated as of April 2,
1997 by and between Borrower and Secured Party. Bank hereby agrees to
act as the bailee solely and exclusively on behalf of Secured Party to
allow Secured Party to perfect its first lien security interest in and
to such Collateral which shall be the sole and exclusive security
interest in such Collateral.
2. Bank hereby agrees that upon written notice of an Event of Default
under any of the documents representing, evidencing or securing the
Loans from Secured Party to Bank, Bank shall, upon written demand of
Secured Party, transfer any and all monies contained in the Accounts
immediately to Secured Party.
This Bailment Agreement is executed in modification of (but not in
extinguishment of) that certain Bailment Agreement executed by and between Bank,
Secured Party and Borrower dated as of March 5, 1997.
<PAGE>
EXECUTED AND AGREED TO effective as of, although not necessarily on, the
date first written above.
BANK:
FROST NATIONAL BANK
By: _______________________________
Name:__________________________
Title:_________________________
BORROWER:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By: _______________________________
Tommy M. Parker,
Executive Vice President
SECURED PARTY:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: _______________________________
W. James Meintjes,
Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
by ________________________, _______________________ of FROST NATIONAL BANK, a
___________________, behalf of said bank.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
________________
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
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.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
________________
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
by W. James Meintjes, 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
________________
<PAGE>
EXHIBIT 10.9 (e)
BAILMENT AGREEMENT
April 2, 1997
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
11th Floor
Dallas, Texas 75225
Attention: W. James Meintjes
Re: (1)"Austin Controlled Disbursement Account" shall mean that certain
controlled disbursement account at Frost National Bank, Austin, Texas,
ABA No. 114000093, Credit Home, Inc. Austin Control Disbursement
Account- No. 294018508;
(2) "Austin Funding Account - Wires" shall mean that certain account
at Frost National Bank, Austin, Texas, ABA No. 114000093, Credit Home,
Inc. Austin Control Disbursement Account- No. 591055526;
(3) "Austin Funding Account - Checks" shall mean that certain
controlled disbursement account established by Borrower at Frost
National Bank, Austin, Texas, ABA No. 114000093, Credit Home, Inc.
Austin Operating Account - No. 294038096; and
(4) "Austin Operating Account" shall mean that certain account
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Operating Account - No. 591044583
(collectively, the "Accounts").
All of the above, collectively, to be known as the "Collateral".
Gentlemen:
The undersigned, Frost National Bank ("Bank") understands and agrees that
in connection with those certain loans ("Loans") have been made by Guaranty
Federal Bank ("Secured Party") to HomeOwners Mortgage & Equity, Inc., a Delaware
corporation, d/b/a Home, Inc. ("Borrower") which Loans would not be modified
without the execution and delivery of this Bailee Agreement (the "Agreement") by
Bank. Therefore, Bank hereby agrees with Secured Party and Borrower as follows:
1. The Accounts and all sums contained in such Accounts, all renewals,
replacements, substitutions and proceeds of the foregoing
(collectively, the "Collateral") have been pledged to Secured Party by
that certain Pledge Agreement (herein so called) dated as of April 2,
1997 by and between Borrower and Secured Party. Bank hereby agrees to
act as the bailee solely and exclusively on behalf of Secured Party to
allow Secured Party to perfect its first lien security interest in and
to such Collateral which shall be the sole and exclusive security
interest in such Collateral.
2. Bank hereby agrees that upon written notice of an Event of Default
under any of the documents representing, evidencing or securing the
Loans from Secured Party to Bank, Bank shall, upon written demand of
Secured Party, transfer any and all monies contained in the Accounts
immediately to Secured Party.
This Bailment Agreement is executed in modification of (but not in
extinguishment of) that certain Bailment Agreement executed by and between Bank,
Secured Party and Borrower dated as of March 5, 1997.
<PAGE>
EXECUTED AND AGREED TO effective as of, although not necessarily on, the
date first written above.
BANK:
FROST NATIONAL BANK
By:__________________________________
Name:________________________________
Title:_______________________________
BORROWER:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation, d/b/a HOME, INC.
By:__________________________________
Tommy M. Parker,
Executive Vice President
SECURED PARTY:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By:__________________________________
W. James Meintjes,
Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
by ________________________, _______________________ of FROST NATIONAL BANK, a
___________________, behalf of said bank.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
- ------------
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
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.
[S E A L] _______________________
Notary Public, State of Texas
My Commission Expires: _______________________
Printed Name of Notary
- ------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me on the day of April, 1997,
by W. James Meintjes, 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
- ------------
<PAGE>
EXHIBIT 10.10
- --------------------------------------------------------------------------------
FIRST AMENDED AND RESTATED WORKING CAPITAL
LINE OF CREDIT AND SECURITY AGREEMENT
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 SEPTEMBER 24, 1997
--------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRST AMENDED AND RESTATED WORKING CAPITAL
LINE OF CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED WORKING CAPITAL LINE OF CREDIT AND SECURITY
AGREEMENT (the "AGREEMENT"), dated effective as of, although not necessarily
executed on, SEPTEMBER 24, 1997 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") and HOMECAPITAL INVESTMENT
CORPORATION, A NEVADA CORPORATION ("GUARANTOR").
WHEREAS, on NOVEMBER 8, 1996, the Borrower requested the Bank to extend a
revolving line of credit to the Borrower to finance the working capital
requirements of Borrower, and the parties set forth the terms and conditions
under which Advances under the line of credit would be made and the security to
be provided for the repayment thereof in that certain WORKING CAPITAL LINE OF
CREDIT AND SECURITY AGREEMENT dated of even date therewith and that certain
Promissory Note in the original principal sum of $3,000,000.00 executed by
Borrower payable to the order of Bank and that certain Unconditional Guaranty
dated of even date therewith executed by Guarantor (as hereinafter defined) and
certain other documents;
WHEREAS, on JANUARY 1, 1997, Bank, Borrower and Guarantor executed that
certain FIRST AMENDMENT TO THE LOAN AGREEMENT modifying certain provisions of
the Loan Agreement and the Loan Documents including an
increase in the Commitment to $5,000,000.00;
WHEREAS, on JULY 25, 1997, Bank, Borrower and Guarantor executed that
certain SECOND AMENDMENT TO THE LOAN AGREEMENT modifying certain provisions of
the Loan Agreement and the Loan Documents including an increase in the
Commitment to $6,800,000.00;
WHEREAS, on AUGUST 13, 1997, Bank, Borrower and Guarantor executed that
certain THIRD AMENDMENT TO THE LOAN AGREEMENT modifying certain provisions of
the Loan Agreement;
WHEREAS, Bank, Borrower and Guarantor now desire to further modify the Loan
Agreement and the Loan Documents to integrate the current and prior changes into
this FIRST AMENDED AND RESTATED WORKING CAPITAL LINE OF CREDIT AND SECURITY
AGREEMENT;
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
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<PAGE>
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 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.
-3-
<PAGE>
"AGREEMENT" means this FIRST AMENDED AND RESTATED 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 (a) the Excess Servicing Rights for
Eligible Collateral and/or (b) the Excess Interest Certificates, 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 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 (1) with respect to ELIGIBLE COLLATERAL
consisting of FNMA Servicing RIGHTS the LESSER OF (A) FIFTY PERCENT (50%) of the
Appraised Value of the Excess Servicing Receivables relating to Eligible
Collateral specifically pledged to Bank in connection with a current or past
Advance Request, as determined on the
-4-
<PAGE>
date hereof, on the date of any Advance and on December 31, March 31, June 30
and September 30 of each year by an appraiser selected by Borrower acceptable to
Bank in its sole discretion, which appraisal shall be paid for by Borrower and
shall be acceptable to Bank in its sole discretion or (B) the amount of such
Excess Servicing Receivables capitalized on Borrower's balance sheet in
accordance with GAAP and (2) with respect to Eligible Collateral consisting of
Excess Interest Certificates, fifty-five percent (55%) of the Appraised Value of
such Excess Interest Certificates; provided, however, if an Excess Interest
Certificate ceases to qualify under Rule 144A of the Securities Act of 1933,
then the Collateral Value attributable to such certificate shall be zero (0).
"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.
"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.
-5-
<PAGE>
"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.
"DETERMINATION DATE" means January 1, April 1, July 1, and October 1 of
each year.
"ELIGIBLE COLLATERAL" means (a) FNMA SERVICING RIGHTS (under which the only
remedy available to FNMA is termination of the Servicing Agreement) owned by the
Borrower for which the related 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 and (b) EXCESS INTEREST CERTIFICATES
currently paying the holders of such certificates the excess spread from the
accrued interest on a monthly basis.
"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 INTEREST CERTIFICATES" shall mean with respect to a series of HOME
Asset Backed Bonds (the "BONDS") the Certificated Securities issued by HOME
SECURITIZATION TRUST I (THE "TRUST") which qualify under Rule 144A of the
Securities Act of 1933 and represent (a) the right to monthly interest payments
which are attributable to the difference between the interest rate paid on
such series of Bonds, including without limitation, Series 1997-1 Bonds and the
interest rate paid on the FNMA Securities that have been pledged to back such
series of Bonds and the related Excess Interest Certificates, and (b) the right
to any remaining principal and interest from the FNMA Securities for such series
of Bonds after the payment in full of such series of Bonds. A further
description of such Excess Interest Certificates shall be set forth in a pro
forma Excess Interest Certificate and the private placement memorandum relating
to the private sale of such Excess Interest Certificates which shall be attached
to the related Advance Request and which shall also be provided to Bank five (5)
Business Days prior to such requested Advance.
"EXCESS SERVICING RECEIVABLES" shall mean the amount capitalized on
Borrower's balance sheet which reflects the PRESENT VALUE OF FUTURE CASH FLOWS
estimated to be received by Borrower subsequent to loan sales to or swaps for
FNMA Securities with FNMA. The discounted cash flow streams are based on the
difference between (A) the gross note rate of a Mortgage Loan sold to FNMA and
which is being serviced by Borrower under an Agency Servicing Agreement for FNMA
MINUS (B) the sum of (i) (a) the MBS pass through rate paid to FNMA with respect
to such Mortgage Loan under such Agency Servicing Agreement PLUS (ii) the
SUBSERVICING FEE payable to the Subservicer attributable to such Mortgage Loan
and (iii) in the case of a swap of Mortgage Loans by Borrower to FNMA for FNMA
Securities, the FNMA Guaranty Fee.
"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.
"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.
-6-
<PAGE>
"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 and Mortgage Loans that are purchased by FNMA on a whole loan basis
and held in portfolio by FNMA.
"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.
-7-
<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.
"HOME SECURITIZATION TRUST I" is the Issuer of the Excess Interest
Certificates and the Bonds and is a Delaware business trust, which has been
established pursuant to a declaration of trust dated as of September 1, 1997.
"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.
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"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.
"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.
"LIBOR RATE" shall mean the rate of interest per annum (rounded upward, if
necessary, to the nearest whole one sixteenth (1/16th) of one percentage point
of the rate per annum) equal to the interest settlement rate for U.S. Dollars as
published by the British Bankers Association as of 11:00 a.m. London time two
Business Days (on which commercial banks are open for international business in
London) prior to the first day of such calendar month, for the approximate
principal amount of the collective outstanding principal balances of the Notes
of the Banks, for a period of time equal to thirty (30) days - as quoted by
Bloomberg. If no such rate is published by the British Bankers Association,
then No LIBOR Rate may be elected pursuant to this Agreement and the rate of
interest shall be the Base Rate plus one and ONE-HALF PERCENT (1 1/2%).
"LIBOR RATE PORTION" shall mean the outstanding principal balance of the
Note.
"LIBOR RESERVE REQUIREMENT" shall mean, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such date, as provided
by the Federal Reserve System for determining the maximum reserve requirements
generally applicable to financial institutions regulated by the Federal Reserve
Board comparable in size and type to Bank (including, without limitation, basic
supplemental, marginal and emergency reserves) under Regulation D with respect
to "Eurocurrency liabilities" as currently defined in Regulation D, or under any
similar or successor regulation with respect to Eurocurrency liabilities or
Eurocurrency funding (or other category of liabilities which includes deposits
by reference to which the interest rate on a LIBOR Rate Portion is determined or
any category or extensions of credit which includes loans by a non-United State
office of Bank to United States residents. Each determination by Bank of the
LIBOR Reserve Requirement shall, in the absence of manifest error, be conclusive
and binding.
"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 JUNE 30, 1998.
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"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.
To the extent federal law permits Bank ot contract for, charge or receive a
greater amount of interest, Bank will rely on federal law instead of the Texas
Finance Code, as supplemented by Texas Credit Title for the purpose of
determining the Maximum Rate. Additionally, to the maximum extent permitted by
applicable law now or hereafter in effect, Bank may, at its option and from time
to time, implement any other method of computing the Maximum Rate under the
Texas Finance Code, as supplemented by Texas Credit Title, or under other
applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to the
Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the "weekly ceiling" specified in Chapter 303 is the applicable
ceiling; provided, that if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
"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 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.
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"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 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 Section 10.3 hereof.
"OBLIGATIONS" shall mean all Indebtedness owed to Bank by Borrower or
Guarantor under this Agreement and/or the Warehousing Credit Facility.
"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.
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"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.
"PROPOSED INDEBTEDNESS" shall mean subordinated debt and approved gestation
financing listed on EXHIBIT "K" after such indebtedness has been approved by
Bank in its sole and absolute discretion after receiving certified copies of the
proposed loan documents relating to such indebtedness and the executed loan
documents pertaining to such indebtedness.
"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.
"REPURCHASE FACILITY" or "REPO FACILITY" shall mean a facility provided by
a third party under which Borrower may purchase and originate Mortgage Loans
pursuant to a written agreement with such third party defining Borrower's
requirement to sell such Mortgage Loans to such third party and ultimately
repurchase such Mortgage Loans from such third party at a later date.
"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.
"RESIDENTIAL MORTGAGE LOAN" means a Mortgage Loan secured by a Mortgage
covering improved real property containing a one- to four-family residence.
"RESIDUAL FINANCING" shall mean committed or uncommitted agreements between
Borrower and a third party providing for the financing of certain assets
("Residual Assets") created by the process of converting Mortgage Loans into
securities and which represent Borrower's right to receive subsequent cash flows
from such securities subject to the senior rights of the ultimate owners of such
securities.
"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
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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 Loan Service, Inc. and Financial
Collection Agencies of Pennsylvania, Inc. 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.
"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 SECURITIES" shall have the meaning assigned to such term in
the UCC.
"VA" means the Department of Veterans Affairs and any successor thereto.
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"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 SIXTEEN MILLION SIX HUNDRED SIXTY-SIX THOUSAND
SIX HUNDRED AND NO/100 DOLLARS ($16,666,600.00). 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 financing the origination and retention of Title I Excess Servicing Rights
related to FNMA Securities and the retention of Excess Interest Certificates
generated by Borrower pursuant to the issuance of Bonds and Excess Interest
Certificates by its Affiliate HOME SECURITIZATION TRUST I 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.
2.1(c) No Advance shall exceed the COLLATERAL VALUE of the Eligible
Collateral pledged in connection with such Advance.
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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
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 and the SETTLEMENT 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 NEW Eligible
Collateral being pledged in connection with the Advance Request;
(ii) if requested by Bank, an Appraisal showing the Collateral Value
for all Eligible Collateral;
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(iii) an executed ADVANCE REQUEST;
(iv) (A) a true, correct and complete copy of the applicable
SERVICING AGREEMENT or (B) THE ORIGINAL EXCESS INTEREST CERTIFICATES
together with a true, correct and complete copy of the private placement
memorandum, the Indenture and all other relevant documents relating to the
Excess Interest Certificates;
(v) 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;
(vi) ACKNOWLEDGMENT AGREEMENTS for the applicable Servicing
Agreements;
(vii) a UCC SEARCH for all applicable jurisdictions; and
(viii) 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 (1) THE SUM OF FOUR AND ONE HALF PERCENT (4.50%) PER ANNUM
PLUS THE LIBOR RATE in the case of Advances secured by a pledge of FNMA
SERVICING or (2) THE SUM OF THREE AND THREE QUARTERS PERCENT (3.75%) PER ANNUM
PLUS THE LIBOR RATE in the case of Advances secured by a pledge of EXCESS
INTEREST CERTIFICATES. 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 LIBOR 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.
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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.
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
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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 Account are subject in all
respects to the right of OFFSET in favor of the Bank granted under SECTION
10.19. 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
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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.
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 the Commitment Fee in advance in the
following manner (i) $3,750.00 each on NOVEMBER 8, 1996 and JANUARY 1, 1997,
(ii) on FEBRUARY 25, 1997 in the amount of $944.44, (iii) equal payments of
$6,250.00 EACH on APRIL 1, 1997 AND JULY 1, 1997, (iv) on OCTOBER 1, 1997 in
the amount of $10, 417.00, and (v) ON THE FIRST DAY OF EACH CALENDAR QUARTER
THEREAFTER equal payments of $10,417.00 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.
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3.1(c) FHLMC Servicing Rights.
3.1(d) GNMA Servicing Rights.
3.1(e) Agency Servicing Rights.
3.1(f) Agency Servicing Records.
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) All Excess Interest Certificates in the possession
(constructive or actual) of Bank or listed on SCHEDULE C-I of an
Advance Request.
3.1(s) the Funding Account, the Operating Account and the Settlement
Account.
3.1(t) 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(u) 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).
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3.1(v) 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(w) all of Borrower's property INSURANCE maintained upon and
protecting the assets and property described above.
3.1(x) 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(y) 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 Acknowledgment 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 occurrence of an Event of Default or a Default. Prior to a Default or Event
of Default, upon receipt by the Borrower of any Agency Servicing Payments and
Non-Agency Servicing Payments, such Agency Servicing Payments shall be released
from the security interest and lien of the Bank hereunder and shall no longer
constitute Collateral hereunder.
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)
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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 release for such collateral being so released and an
acknowledgment 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);
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(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;
(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.
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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.
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.
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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.
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, 1997 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
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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.
(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.
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SECTION 5.13 SUBSIDIARIES. As of the date hereof, Borrower has no
subsidiaries other than Home Securities One L.L.C. and Home Securitization Trust
I. As of the date hereof, Borrower does not own, directly or indirectly, any
interest in any Person, other than Home Securities One L.L.C. and Home
Securitization Trust I which are special purpose entities created and owned by
Borrower in connection with the securitization or financing of the Borrower's
assets.
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.
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.
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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. or Home Improvement Mortgage, 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 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 5.5 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.
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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 second to last
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 second to last
paragraph of SECTION 3.1, NO AUTHORIZATION, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
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 Bank in the FNMA Servicing Rights will be a perfected,
first-priority security interest.
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5.28(J) Upon the execution by FHLMC of the FHLMC Acknowledgment, the
security interest of Bank 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 Bank 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) All Excess Interest Certificates shall be at all time in
strict compliance with the definition of such certificates stated in ARTICLE I
hereof and the requirements stated therein. Upon possession (actual or
constructive) of the Excess Interest Certificates pledged to Bank hereunder Bank
will have a first lien sole and exclusive security interest in such Excess
Interest Certificates. The Excess Interest Certificates shall comply in all
respects with the applicable securities laws of the United States of America and
applicable states. Borrower shall deliver to Bank such memoranda of law and
opinions as Bank may require in connection with the application of securities
laws to the Excess Interest Certificates including but not limited to the
registration and marketability of such securities under Rule 144 or 144A of the
Securities Act of 1933.
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.
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
the following, all in form and detail reasonably satisfactory to Bank, prepared
in accordance with GAAP and a Certificate Accompanying Financial Statements in
the form of EXHIBIT "I" attached hereto:
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
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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 ONE HUNDRED
TWENTY (120) DAYS after the close of each FISCAL YEAR of GUARANTOR, copies
of the consolidated and consolidating balance sheet of Guarantor 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 Guarantor) by COOPERS & LYBRAND LLP or by independent certified public
accountants selected by Guarantor 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(C) As soon as available and in any event within FORTY-FIVE (45)
DAYS after the end of each calendar quarter, a report in form and detail
acceptable to Bank, prepared as of the end of such month, setting forth the
prepayments of Mortgage Loans underlying all Agency Servicing Rights, Non-
Agency Servicing Rights and Excess Interest Certificates;
6.2(D) 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(E) 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(F) 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(G) 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
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not limited to, any audits or self-compliance reviews prepared in
connection with Borrower's continuing agency certifications;
6.2(H) 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(I) 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 FEDERAL INCOME TAX RETURNS
filed by Borrower;
6.2(J) 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(K) 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 AND FORM 10-QSB reports for HOMECAPITAL INVESTMENT
CORPORATION, the parent corporation of Borrower;
6.2(L) 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;
6.2(M) 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.
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
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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
Agreements 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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SECTION 6.10 INSURED CLOSINGS. Except with respect to FNMA Title I
Loans, the Borrower will obtain and maintain in effect at all times an insured
closing letter (if obtainable) 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 ORIGINATION AND RETENTION OF
TITLE I EXCESS SERVICING RIGHTS RELATED TO FNMA SECURITIES AND THE RETENTION OF
EXCESS INTEREST CERTIFICATES GENERATED BY BORROWER PURSUANT TO THE ISSUANCE OF
BONDS AND EXCESS INTEREST CERTIFICATES BY ITS AFFILIATE HOME SECURITIZATION
TRUST I AND IN ALL CASES SHALL BE SECURED BY A PLEDGE OF ELIGIBLE COLLATERAL.
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.
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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 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, ALL EXCESS INTEREST CERTIFICATES, 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
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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 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.
6.14(M) Borrower shall provide to Bank all reports prepared by or on
behalf of, and information received by, Borrower with respect to the Excess
Interest Certificates, including, without limitation, (I) all reports provided
by or to Borrower pursuant to Section 8.07 of that certain Indenture dated of
even date herewith between Home Securitization Trust I Series 1997-1, U.S. Bank,
National Association, and Borrower, and (II) any financial statements received
by or prepared on behalf of Borrower with respect to the Excess Interest
Certificates. Borrower shall not take any actions that would prohibit the
Excess Interest Certificates from being eligible for sale under Rule 144A as
promulgated under the Securities Act of 1933, as amended.
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 AND PROPOSED
INDEBTEDNESS listed on EXHIBIT "K" 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.
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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 (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 time that amount equal to FIVE PERCENT
(5%) OF BORROWER'S GAAP NET WORTH.
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;
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(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. MINIMUM GAAP NET WORTH. Borrower's GAAP Net Worth shall not
be less than THE SUM OF (A) GAAP NET WORTH as reflected in the most recent
financial statements delivered to Bank pursuant to SECTION 6.2(A), PLUS (B)
EIGHTY PERCENT ( 80%) OF EACH SUBSEQUENT FISCAL QUARTERS POSITIVE NET INCOME on
a CUMULATIVE basis since the report referenced in (A), PLUS (C) ONE HUNDRED
PERCENT (100%) of all CONTRIBUTIONS to stockholders' equity of Borrower since
the end of the preceding fiscal year after subtracting all fees and costs
directly incurred in conjunction with such contribution.
SECTION 7.10 MINIMUM 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. MINIMUM ADJUSTED TANGIBLE NET WORTH. Borrower's Adjusted
Tangible Net Worth shall not be less than THE GREATER OF (A) the Adjusted
Tangible Net Worth REQUIRED OF BORROWER for the PRECEDING CALENDAR QUARTER AND
(B) BORROWER'S ACTUAL ADJUSTED TANGIBLE NET WORTH on the current Determination
Date MULTIPLIED BY EIGHTY PERCENT (80%).
SECTION 7.12 MAXIMUM 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 5.0 TO 1.0. FOR PURPOSES
OF THIS PARAGRAPH ONLY, (I) REPURCHASE AGREEMENTS SHALL NOT BE CONSIDERED
INDEBTEDNESS UNLESS OUTSTANDING ON THE LAST DAY OF THE CALENDAR QUARTER IN WHICH
SUCH RATIO IS DETERMINED BUT (II) ANY FINANCING AGREEMENTS PROVIDED BY FNMA
AND/OR ANY RESIDUAL FINANCING AGREEMENTS SHALL BE CONSIDERED INDEBTEDNESS.
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, except with respect to the
creation of special purpose entities in connection with the securitization or
financing of the Borrower's assets.
SECTION 7.18 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.
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SECTION 7.19 SPECIAL NEGATIVE COVENANTS CONCERNING COLLATERAL.
7.19(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.
7.19(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.
7.19(C) The Borrower shall not make any compromise, adjustment or
SETTLEMENT in respect of any of the Collateral or liquidate the Collateral.
7.19(d) The Borrower shall not 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.
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 7.19, 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,
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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 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.
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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.
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
UCC 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
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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.
(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
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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.
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
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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 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
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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 INSURANCE CORPORATION AND ANY OTHER BANKING REGULATORY BODY OR AUTHORITY
HAVING JURISDICTION OVER THE BANK).
ARTICLE X
MISCELLANEOUS
SECTION 10.1 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 10.2 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 10.3 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) 795-9815
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IF TO THE BANK: GUARANTY FEDERAL BANK, F.S.B.
8333 DOUGLAS AVENUE
DALLAS, TEXAS 75225
ATTN: WAREHOUSE LENDING
TELECOPY NO: (214) 360-1660
SECTION 10.4 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 10.5 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 10.6 INTEREST. The Note and all of the other Loan Documents are
intended to be performed in accordance with, and only to the extent permitted
by, all applicable usury laws. If any provision hereof or of any of the other
Loan Documents or the application thereof to any person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by law.
It is expressly stipulated and agreed to be the intent of the Bank to at all
times comply with the usury and other applicable laws now or hereafter governing
the interest payable on the Indebtedness evidenced by the Note. If the
applicable law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the Indebtedness evidenced by this Note, or if Bank's exercise of the
option to accelerate the maturity of the Note, or if any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by law,
then it is the express intent of Borrower and Bank that all excess amounts
theretofore collected by Bank be credited on the principal balance of the Note
(or, if the Note and all other Indebtedness arising under or pursuant to the
other Loan Documents have been paid in full, refunded to Borrower), and the
provisions of the Note and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to Bank under
the Note or arising under or pursuant to the other Loan Documents shall, to the
maximum extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in full
so that the rate or amount of interest on account of such indebtedness does not
exceed the usury ceiling from time to time in effect and applicable to such
indebtedness for so long as such indebtedness is outstanding. To the extent
federal law permits Bank to contract for, charge or receive a greater amount of
interest, Bank will rely on federal law instead of the Texas Finance Code, as
supplemented by Texas Credit Title for the purpose of determining the Maximum
Rate. Additionally, to the maximum extent permitted by applicable law now or
hereafter in effect, Bank may, at its option and from time to time, implement
any other method of computing the Maximum Rate under the Texas Finance Code, as
supplemented by Texas Credit Title, or under other applicable law by giving
notice, if required, to Borrower as provided by applicable law now or hereafter
in effect. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Bank to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration. In no event
shall Chapter 346 of the Texas Finance code (which regulates certain revolving
loan accounts and revolving tri-party accounts) apply to the Note. To the extent
that Chapter 303 of the Texas Finance Code is applicable to this Note, the
"weekly ceiling" specified in
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Chapter 303 is the applicable ceiling; provided that, it any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
SECTION 10.7 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 10.8 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.
SECTION 10.9 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 10.10 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 10.11. 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 10.12. 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
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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 10.13 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 10.14 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 10.15 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 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 10.16 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 10.17 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 10.18 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 10.19 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
-48-
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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
10.19 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 10.20 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 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 10.21 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 10.22 TIME. Time is of the essence in the performance of this
Agreement.
SECTION 10.23. 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.
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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: /s/ W. James Meintjes
----------------------------------------------
W. James Meintjes,
Vice President
GUARANTOR:
HOMECAPITAL INVESTMENT CORPORATION,
a Nevada corporation
By: /s/ John Ballard
----------------------------------------------
John Ballard, President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 24th day of September, 1997,
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.
(SEAL) /s/ Sandy Parks
--------------------------------------------
Notary Public - State of Texas
Sandy Parks
My Commission expires: --------------------------------------------
9-11-2000 Printed Name of Notary
-50-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 24th day of September, 1997,
by W. James Meintjes, in his capacity as Vice President of GUARANTY FEDERAL
BANK, F.S.B., a federal savings bank, on behalf of said bank.
(SEAL) /s/ Sandy Parks
--------------------------------------------
Notary Public - State of Texas
Sandy Parks
My Commission expires: --------------------------------------------
9-11-2000 Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 24th day of September, 1997,
by John Ballard, in his capacity as President of HOMECAPITAL INVESTMENT
CORPORATION., a Nevada corporation, on behalf of said corporation.
(SEAL) /s/ Sandy Parks
--------------------------------------------
Notary Public - State of Texas
Sandy Parks
My Commission expires: --------------------------------------------
9-11-2000 Printed Name of Notary
1599262.03
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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 Agreement
EXHIBIT K Existing and Proposed Indebtedness
EXHIBIT L Subservicing Contracts
EXHIBIT M Proforma Excess Interest Certificate and Offering Memorandum
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EXHIBIT "A" [WC]
PROMISSORY NOTE
$16,666,600.00 DALLAS, TEXAS SEPTEMBER 24, 1997
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 SIXTEEN MILLION SIX HUNDRED
SIXTY-SIX THOUSAND SIX HUNDRED AND NO/100 DOLLARS ($16,666,600.00) 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 FIRST AMENDED AND RESTATED WORKING
CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT [SERVICING SECURED] together with
all amendments, modifications and extensions thereto ("LOAN AGREEMENT") dated
NOVEMBER 8, 1996, 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 (10TH) DAY OF EACH MONTH,
beginning OCTOBER 10, 1997. 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 JUNE 30, 1998 (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.
This Note and all of the other Loan Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable usury laws.
If any provision hereof or of any of the other Loan Documents or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the application of such provision to any
other person or circumstance nor the remainder of the instrument in which such
provision is contained shall be affected thereby and shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed to be
the intent of the holder hereof to at all times comply with the usury and
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other applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever revised,
repealed or judicially interpreted so as to render usurious any amount called
for under this Note or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the indebtedness evidenced
by this Note, or if Bank's exercise of the option to accelerate the maturity of
this Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is the express intent of
Borrower and Bank that all excess amounts theretofore collected by Bank be
credited on the principal balance of this Note (or, if this Note and all other
indebtedness arising under or pursuant to the other Loan Documents have been
paid in full, refunded to Borrower), and the provisions of this Note and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectable hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower for
the use, forbearance, detention, taking, charging, receiving or reserving of the
indebtedness of Borrower to Bank under this Note or arising under or pursuant to
the other Loan Documents shall, to the maximum extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of interest
on account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to contract
for, charge or receive a greater amount of interest, Bank will rely on federal
law instead of the Texas Finance Code, as supplemented by Texas Credit Title for
the purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Bank may, at its option
and from time to time, implement any other method of computing the Maximum Rate
under the Texas Finance Code, as supplemented by Texas Credit Title, or under
other applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration. In no event shall Chapter 346 of the Texas Finance
Code (which regulates certain revolving loan accounts and revolving tri-party
accounts) apply to this Note. To the extent that Chapter 303 of the Texas
Finance Code is applicable to this Note, the "weekly ceiling" specified in
Chapter 303 is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
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.
THIS NOTE IS EXECUTED IN RENEWAL, EXTENSION AND MODIFICATION (BUT NOT IN
EXTINGUISHMENT) OF (A) THAT CERTAIN PROMISSORY NOTE DATED AS OF NOVEMBER 8, 1996
IN THE STATED AMOUNT OF THREE MILLION AND NO/100
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DOLLARS ($3,000,000.00) EXECUTED BY BORROWER PAYABLE TO THE ORDER OF BANK, (B)
THAT CERTAIN PROMISSORY NOTE DATED AS OF JANUARY 1, 1997 IN THE STATED AMOUNT OF
FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) EXECUTED BY BORROWER PAYABLE TO
THE ORDER OF BANK, AND (C) THAT CERTAIN PROMISSORY NOTE DATED AS OF JULY 25,
1997 IN THE STATED AMOUNT OF SIX MILLION EIGHT HUNDRED THOUSAND AND NO/100
DOLLARS ($6,800,000.00) EXECUTED BY BORROWER PAYABLE TO THE ORDER OF BANK.
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,
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
3
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
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
- ----------------------
100316\1599262.03
4
<PAGE>
[WC]
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 SIXTEEN MILLION SIX
HUNDRED SIXTY-SIX THOUSAND SIX HUNDRED AND NO/100 DOLLARS ($16,666,600.00)
(collectively, the "LOAN"); and
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that FIRST AMENDED AND RESTATED WORKING CAPITAL LINE OF
CREDIT AND SECURITY AGREEMENT [SERVICING SECURED] dated effective as of
SEPTEMBER 24, 1997, 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 modify the Loan Agreement 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, 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;
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(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 which Guarantor is
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2
<PAGE>
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 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
--------------
INITIALED FOR
IDENTIFICATION
3
<PAGE>
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 IS EXECUTED IN MODIFICATION AND INCREASE (BUT NOT
EXTINGUISHMENT) OF (A) THAT CERTAIN UNCONDITIONAL GUARANTY DATED EFFECTIVE AS OF
NOVEMBER 8, 1996 EXECUTED BY GUARANTOR , (B) THAT CERTAIN UNCONDITIONAL GUARANTY
EXECUTED BY GUARANTOR DATED EFFECTIVE AS OF JANUARY 1, 1997, AND (C) THAT
CERTAIN UNCONDITIONAL GUARANTY EXECUTED BY GUARANTOR DATED EFFECTIVE AS OF
JULY 5, 1997.
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 24TH DAY OF
SEPTEMBER, 1997.
ADDRESS OF GUARANTOR:
6836 AUSTIN CENTER BLVD. HOMECAPITAL INVESTMENT CORPORATION,
SUITE 280 a Nevada corporation
AUSTIN, TEXAS 78731
By:
----------------------------------------------
John W. Ballard, President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
by John W. Ballard, President of HOMECAPITAL INVESTMENT CORPORATION, a Nevada
corporation, on behalf of said corporation.
--------------------------------------------
Notary Public - State of Texas
My Commission expires: --------------------------------------------
Printed Name of Notary
- ----------------------
1599262.03
5
<PAGE>
EXHIBIT "C" [WC]
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 FIRST AMENDED AND RESTATED WORKING
CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT [SERVICING SECURED] among
Borrower and the Bank, dated as of SEPTEMBER 24, 1997, 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 C-I. 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 or Excess INTEREST CERTIFICATES described on
SCHEDULE C-I attached hereto.
(iv) If this Advance Request is to be made based upon a pledge of
Excess Interest Certificates, a pro forma Excess Interest
Certificate and the private placement memorandum relating thereto
shall be attached hereto as SCHEDULE C-III.
Requirement of Agreement: Maximum of $16,666,600.00.
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;
1
<PAGE>
(e) no change or event which with notice and/or the passage of time would
constitute an Event of Default; and
(f) attached hereto is the COMPLIANCE SCHEDULE C-II 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: $_________________
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.,
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
- ----------------------
100316\1599262.03
2
<PAGE>
SCHEDULE C-I
SERVICING RIGHTS
List of Servicing Agreements
1. Mortgage Selling and Servicing Contract with Federal National Mortgage
Association Dated March 1, 1996. (Agency Servicing Agreement)
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.
5.
EXCESS INTEREST CERTIFICATES
100316\1599262.03
3
<PAGE>
[WC]
COMPLIANCE SCHEDULE C-II
<TABLE>
<CAPTION>
FINANCIAL COVENANTS REQUIRED ACTUAL IN COMPLIANCE
[YES] OR [NO]
[*DELETE
INAPPLICABLE
ANSWER]
<S> <C> <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) Investments [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
6.2(A) figure
plus 7.9(B) & (C) _________ [YES] or [NO] *
10) Tangible Net Worth [7.10]: Agency Minimum _________ [YES] or [NO] *
11) Adjusted Tangible Not less than the
Net Worth [7.11]: greater of (A) ATNW
requirement for
preceding quarter
and (B) 80% of
PRESENT ATNW _________ [YES] or [NO] *
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 5.0 to 1.0 _________ [YES] or [NO] *
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _________ [YES] or [NO] *
14) Management [7.14]: No change [YES] or [NO] *
15) Interested Transactions [7.15]: $50,000.00 Maximum _________ [YES] or [NO] *
16) Transfer of Stock [7.16]: Maximum 35% _________ [YES] or [NO] *
</TABLE>
4
<PAGE>
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Loss of Eligibility [7.18]: [YES] or [NO] *
20) Negative Covenants/
Collateral [7.19(W.C.)]: [YES] or [NO] *
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
- ----------------------
100316\1599262.03
5
<PAGE>
[WC]
EXHIBIT "D"
BORROWING BASE CERTIFICATE
Reference is made to that certain First Amended and Restated Working
Capital Line of Credit and Security Agreement [Servicing Secured] dated as of
SEPTEMBER 24, 1997 (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. Attached hereto is the BORROWING BASE SCHEDULE showing Borrower's
compliance as of the date hereof with the requirements of Loan Agreement.
2. No Net Collateral Deficit exists.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
__________________, 199__.
_________________________________________
Tommy M. Parker, Executive Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of _______________,
19__, 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
- ----------------------
100316\1599262.03
1
<PAGE>
SCHEDULE D-1
BORROWING BASE SCHEDULE
LTV (FOR WORKING CAPITAL LINE)
(A) UPB of FNMA Interest-only Strip Receivable $
(B) Most Recent Quarterly Valuation Dated (Date of Valuation)
(C) Value of FNMA Interest-only Strip Receivable (A) x (B) $
(D) (C) x .50 $
(E) Interest-only Strip Receivable FNMA $
(F) Lesser of (D) or (E) $
(G) Working Capital Principal Balance Loan to Value (G) / (F) $
2
<PAGE>
EXHIBIT "E"
List of Servicing Contracts
1. Mortgage Selling and Servicing Contract with Federal National Mortgage
Association Dated March 1, 1996. (Agency Servicing Agreement).
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.
3
<PAGE>
[WC]
EXHIBIT "F"
1 of 6
COMPLIANCE CERTIFICATE
Reference is made to that certain First Amended and Restated Working
Capital Line of Credit and Security Agreement [Servicing Secured] dated as of
SEPTEMBER 24, 1997 (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
__________________, 1997.
_________________________________________
Tommy M. Parker, Executive Vice President
1
<PAGE>
EXHIBIT "F" [WC]
2 of 6
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
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
- ----------------------
100316\1599262.03
2
<PAGE>
EXHIBIT "F" [WC]
3 of 6
Compliance Schedule
<TABLE>
<CAPTION>
FINANCIAL COVENANTS REQUIRED ACTUAL IN COMPLIANCE
[YES] OR [NO]
[*DELETE
INAPPLICABLE
ANSWER]
<S> <C> <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) Investments [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
6.2(A) figure
plus 7.9(B) & (C) _________ [YES] or [NO] *
10) Tangible Net Worth [7.10]: Agency Minimum _________ [YES] or [NO] *
11) Adjusted Tangible Not less than the
Net Worth [7.11]: greater of (A) ATNW
requirement for
preceding quarter
and (B) 80% of
PRESENT ATNW _________ [YES] or [NO] *
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 5.0 to 1.0 _________ [YES] or [NO] *
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _________ [YES] or [NO] *
14) Management [7.14]: No change [YES] or [NO] *
15) Interested Transactions [7.15]: $50,000.00 Maximum _________ [YES] or [NO] *
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
16) Transfer of Stock [7.16]: Maximum 35% _________ [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Sale or pledge of servicing
contracts [7.18]: [YES] or [NO] *
19) Loss of Eligibility [7.19]: [YES] or [NO] *
20) Negative Covenants/
Collateral [7.19]: [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
- ----------------------
100316\1599262.02
4
<PAGE>
EXHIBIT "G"
Subsidiaries
1. Home Securities One L.L.C.
2. Home Securities Trust I
5
<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: FIRST AMENDED AND RESTATED WORKING CAPITAL LINE OF CREDIT AND SECURITY
AGREEMENT [SERVICING SECURED] dated SEPTEMBER 24, 1997 (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.
6
<PAGE>
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.
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,
_______________________________
100316\1599262.03
7
<PAGE>
[WC]
EXHIBIT "I"
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain First Amended and Restated Working
Capital Line of Credit and Security Agreement dated as of SEPTEMBER 24, 1997 (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 unaudited monthly financial statements
(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
8
<PAGE>
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
- ----------------------
100316\1599262.02
1
<PAGE>
COMPLIANCE SCHEDULE
<TABLE>
<CAPTION>
FINANCIAL COVENANTS REQUIRED ACTUAL IN COMPLIANCE
[YES] OR [NO]
[*DELETE
INAPPLICABLE
ANSWER]
<S> <C> <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) Investments [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
6.2(A) figure
plus 7.9(B) & (C) _________ [YES] or [NO] *
10) Tangible Net Worth [7.10]: Agency Minimum _________ [YES] or [NO] *
11) Adjusted Tangible Not less than the
Net Worth [7.11]: greater of (A) ATNW
requirement for
preceding quarter
and (B) 80% of
PRESENT ATNW _________ [YES] or [NO] *
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 5.0 to 1.0 _________ [YES] or [NO] *
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _________ [YES] or [NO] *
14) Management [7.14]: No change [YES] or [NO] *
15) Interested Transactions [7.15]: $50,000.00 Maximum _________ [YES] or [NO] *
16) Transfer of Stock [7.16]: Maximum 35% _________ [YES] or [NO] *
</TABLE>
2
<PAGE>
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Loss of Eligibility [7.18]: [YES] or [NO] *
19) Negative Covenants/
Collateral [7.19]: [YES] or [NO] *
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 September, 1997,
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
- ----------------------
100316\1599262.03
3
<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.: _______________
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: ________________________________________
John Ballard,
President
Agreed And Accepted As Of the ____
Day of ________________, 199__:
Firm: ____________________________
By: ____________________________
Name: _____________________
Title: _____________________
100316\1599262.03
4
<PAGE>
EXHIBIT "K"
EXISTING AND PROPOSED INDEBTEDNESS
EXISTING INDEBTEDNESS:
DESCRIPTION Amount
1. Revolving Warehouse Promissory Note $ 931,315.00
payable to Bank maturing June 30, 1998
2. Working Capital Line of Credit Note $ 6,800,000.00
payable to Bank maturing June 30, 1998
3. Capital Lease Obligations $ 44,905.00
4.Uncommitted revolving credit facilities $15,497,932.00
provided by FNMA for the sole purpose of financing
the origination and acquisition of Title I Loan
including the ASAP Program or ASAP Plus
Program.
.
5. Payable under securities loan agreements $20,995,000.00
with FNMA for the sole purposes of acquiring
and holding FNMA Securities
6. Other accrued expenses and liabilities $ 4,828,193.00
under clauses (ii), (iv) and (v) of Section 7.1 --------------
TOTAL $49,097,345.00
PROPOSED INDEBTEDNESS
DESCRIPTION
1. Not more than $65,000,000.00 in repurchase facilities of which
$50,000,000.00 may be used for the sole purpose of financing FNMA
Securities and $15,000,000.00 may be used for the sole purpose of RESIDUAL
FINANCING; provided however, in calculating the limits stated herein the
Existing Indebtedness listed in PARAGRAPH 5 above shall be included and
provided further that no such Indebtedness shall be incurred without the
prior written consent of Bank including a review by Bank of any proposed
written agreements relating to such Indebtedness
5
<PAGE>
EXHIBIT "L"
SUBSERVICING CONTRACTS
1. Home Improvement Loan Program Subservicing Agreement dated May 31, 1995,
between the Borrower and Compu-Link Loan Service, Inc.
2. The Agreement dated July 31, 1997, between the Borrower and Financial
Collection Agencies of Pennsylvania, Inc.
6
<PAGE>
EXHIBIT 10.10(a)
[WC]
PROMISSORY NOTE
$16,666,600.00 DALLAS, TEXAS SEPTEMBER 24, 1997
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 SIXTEEN MILLION SIX HUNDRED
SIXTY-SIX THOUSAND SIX HUNDRED AND NO/100 DOLLARS ($16,666,600.00) 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 FIRST AMENDED AND RESTATEDWORKING
CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT [SERVICING SECURED] together with
all amendments, modifications and extensions thereto ("LOAN AGREEMENT") dated
NOVEMBER 8, 1996, 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 (10/TH/) day of each month,
beginning OCTOBER 10, 1997. 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 JUNE 30, 1998 (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.
This Note and all of the other Loan Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable usury laws.
If any provision hereof or of any of the other Loan Documents or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the application of such provision to any
other person or circumstance nor the remainder of the instrument in which such
provision is contained shall be affected thereby and shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed to be
the intent of the holder hereof to at all times comply with the usury and
__________
INITIALED FOR
IDENTIFICATION
1
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other applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever revised,
repealed or judicially interpreted so as to render usurious any amount called
for under this Note or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the indebtedness evidenced
by this Note, or if Bank's exercise of the option to accelerate the maturity of
this Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is the express intent of
Borrower and Bank that all excess amounts theretofore collected by Bank be
credited on the principal balance of this Note (or, if this Note and all other
indebtedness arising under or pursuant to the other Loan Documents have been
paid in full, refunded to Borrower), and the provisions of this Note and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectable hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower for
the use, forbearance, detention, taking, charging, receiving or reserving of the
indebtedness of Borrower to Bank under this Note or arising under or pursuant to
the other Loan Documents shall, to the maximum extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of interest
on account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to contract
for, charge or receive a greater amount of interest, Bank will rely on federal
law instead of the Texas Finance Code, as supplemented by Texas Credit Title for
the purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Bank may, at its option
and from time to time, implement any other method of computing the Maximum Rate
under the Texas Finance Code, as supplemented by Texas Credit Title, or under
other applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration. In no event shall Chapter 346 of the Texas Finance
Code (which regulates certain revolving loan accounts and revolving tri-party
accounts) apply to this Note. To the extent that Chapter 303 of the Texas
Finance Code is applicable to this Note, the "weekly ceiling" specified in
Chapter 303 is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
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.
THIS NOTE IS EXECUTED IN RENEWAL, EXTENSION AND MODIFICATION (BUT NOT IN
EXTINGUISHMENT) OF (A) THAT CERTAIN PROMISSORY NOTE DATED AS OF NOVEMBER 8, 1996
IN THE STATED AMOUNT OF THREE MILLION AND NO/100
__________
INITIALED FOR
IDENTIFICATION
2
<PAGE>
DOLLARS ($3,000,000.00) EXECUTED BY BORROWER PAYABLE TO THE ORDER OF BANK, (B)
THAT CERTAIN PROMISSORY NOTE DATED AS OF JANUARY 1, 1997 IN THE STATED AMOUNT OF
FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) EXECUTED BY BORROWER PAYABLE TO
THE ORDER OF BANK, AND (C) THAT CERTAIN PROMISSORY NOTE DATED AS OF JULY 25,
1997 IN THE STATED AMOUNT OF SIX MILLION EIGHT HUNDRED THOUSAND AND NO/100
DOLLARS ($6,800,000.00) EXECUTED BY BORROWER PAYABLE TO THE ORDER OF BANK.
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,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
HOMEOWNERS & EQUITY, INC., a Delaware
corporation, d/b/a HOME, INC.
By: ___________________________________
Tommy M. Parker,
Executive Vice President
3
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
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
_____________________
100316\1599262.03
4
<PAGE>
EXHIBIT 10.10(b)
[WC]
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 SIXTEEN MILLION SIX
HUNDRED SIXTY-SIX THOUSAND SIX HUNDRED AND NO/100 DOLLARS ($16,666,600.00)
(collectively, the "LOAN"); and
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that FIRST AMENDED AND RESTATED WORKING CAPITAL LINE OF
CREDIT AND SECURITY AGREEMENT [SERVICING SECURED] dated effective as of
SEPTEMBER 24, 1997, 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 modify the Loan Agreement 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, 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;
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<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 which Guarantor is
----------
INITIALED FOR
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<PAGE>
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 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
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<PAGE>
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 IS EXECUTED IN MODIFICATION AND INCREASE (BUT NOT
EXTINGUISHMENT) OF (A) THAT CERTAIN UNCONDITIONAL GUARANTY DATED EFFECTIVE AS OF
NOVEMBER 8, 1996 EXECUTED BY GUARANTOR , (B) THAT CERTAIN UNCONDITIONAL GUARANTY
EXECUTED BY GUARANTOR DATED EFFECTIVE AS OF JANUARY 1, 1997, AND (C) THAT
CERTAIN UNCONDITIONAL GUARANTY EXECUTED BY GUARANTOR DATED EFFECTIVE AS OF JULY
5, 1997.
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
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 24/th/ DAY OF
SEPTEMBER, 1997.
ADDRESS OF GUARANTOR:
6836 AUSTIN CENTER BLVD. HOMECAPITAL INVESTMENT CORPORATION,
SUITE 280 a Nevada corporation
AUSTIN, TEXAS 78731
By: --------------------------------
John W. Ballard, President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of September, 1997,
by John W. Ballard, President of HOMECAPITAL INVESTMENT CORPORATION, a Nevada
corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
Printed Name of Notary
_____________________
1599262.03
<PAGE>
EXHIBIT 10.15
HOMEOWNERS MORTGAGE & EQUITY, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 8, 1997
("Effective Date"), is by and between HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation (the "Employer"), and MICHAEL B. THIMMIG (the "Employee").
WITNESSETH:
WHEREAS, the Employer desires to employ the Employee, and the Employee
desires to accept such employment by the Employer, upon the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises, covenants and agreements
set forth herein, and for other good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES.
1.1 Employment. Employer hereby employs the Employee, and the Employee
hereby accepts such employment by Employer, upon and subject to the terms,
covenants, conditions and agreements set forth herein.
1.2 Authority and Duties. During the Term of Employment, the Employee
shall serve as an Executive Vice President of the Employer, and if elected or
appointed by the applicable board of directors, the Employee shall serve in such
additional offices of Employer or of any parent, subsidiary or Affiliate (as
hereinafter defined) of the Employer to which he may be elected or appointed
from time to time, without any compensation other than as provided in this
Agreement; provided that the election or appointment of Employee to other
offices is reasonable in nature and does not materially expand the scope of the
duties required of the Employee hereunder. During the Term of Employment,
Employee shall be subject to the direction, supervision and control of the
President of Employer ("President") and the Board of Directors of the Employer
(the "Board"), the Employee shall perform the duties and have the powers and
authority which are provided in the Bylaws of the Employer or as otherwise
determined by the President or the Board from time to time and 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 Employee
pursuant to this Agreement. Employee shall at all times comply with and be
subject to such policies and procedures as Employer may establish from time to
time.
1.3 Employee Loyalty. Employee acknowledges and agrees that Employee owes
a duty of loyalty, fidelity and allegiance to act at all times during employment
pursuant to this Agreement in the interests of the Employer and Employee shall
not act in any manner which would injure Employer's business, its interests, or
its reputation. Employee shall devote his full business time, attention and
energy to the business of Employer and faithfully and diligently perform the
duties
<PAGE>
required or incident to his employment hereunder and promote the interests of
Employer to be best of the ability, effort and experience of the Employee.
Employee shall not engage in any other business, investment or activity that
interferes with the performance of the duties of Employee hereunder. Employee
shall not, during the Term of this Agreement or any extension or renewal
thereof, engage, directly or indirectly, in any activity which constitutes a
Conflict of Interest (as hereinafter defined).
1.4 Place of Employment. The duties of Employee shall be rendered
primarily at the principal offices of Employer in Austin, Texas, and at such
other place or places as the Employer shall reasonably require or as the
interests, needs, business and opportunities of the Employer shall require or
make advisable from time to time.
2. COMPENSATION AND BENEFITS. The Employer hereby agrees to pay the Employee
and the Employee hereby agrees to accept as compensation for all services
rendered by the Employee in any capacity during the Term of Employment
(including, without limitation, services as any officer, director or member of
any committee of the Employer or any parent, subsidiary and Affiliate thereof)
the following compensation and benefits:
2.1 Base Salary. The Employee shall receive a base salary (the "Base
Salary") for the initial year of the Term of Employment of $150,000 which shall
be payable in installments in accordance with the standard payroll practice of
Employer. The Base Salary for any period of the Term of Employment subsequent
to the initial year shall be reviewed annually by the Compensation Committee of
the Board ("Compensation Committee"), and the Base Salary for each fiscal year
of Employer (or portion thereof) beginning October 1 of each year shall be
determined by the Compensation Committee; provided that (i) the Base Salary
shall not be reduced unless it is reduced for Cause (as hereinafter defined),
and (ii) there is no understanding that the Base Salary will be increased in any
period subsequent to the first year of the Term of Employment.
2.2 Signing Bonus. The Employer shall pay to Employee the sum of $60,000
immediately upon the execution and delivery of this Agreement by the parties
hereto as additional compensation for the execution hereof; provided, however,
that in the event that Employee shall resign or the Term of Employment shall be
terminated for Cause by Employer during the first year of the Term of
Employment, then Employee shall promptly refund to Employer a portion of the
signing bonus equal to (i) the number of days remaining in the first year of the
Term of Employment after termination of employment (ii) divided by 364.
2.3 Annual Incentive Bonus. The Employer shall pay to executive a bonus
of $25,000 at the end of the first full year of the Term of Employment. In the
event that the Board of the Employer shall establish an incentive bonus plan
covering executive officers of the Employer ("Incentive Bonus Plan"), then the
Employee shall be eligible to receive a discretionary bonus under the Incentive
Bonus Plan for each year (or portion thereof) during the Term of Employment and
any extensions thereof subsequent to the first year, with the actual amount of
any such bonus to be determined in the sole discretion of the Board of the
Employer based upon its evaluation of Employee's performance during
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<PAGE>
such year. All such bonuses shall be reviewed annually and recommended by the
Compensation Committee.
2.4 Grant of Stock Options. Upon or as soon as practicable after the
Effective Date of this Agreement, the Employer shall arrange for its parent
company, HomeCapital Investment Corporation, a Nevada corporation ("HCAP"), to
grant to the Employee incentive stock options to acquire not less than 150,000
shares of the $.01 par value common stock of HCAP under the HomeCapital
Investment Corporation 1996 Stock Option Plan ("Plan") at the purchase price as
determined by the stock option committee of the Board of HCAP pursuant to the
Plan ("Stock Options"). One-fifth (1/5) of the Stock Options shall vest on each
succeeding anniversary of the Effective Date.
2.5 Employee Benefit Plans. The Employee shall be eligible to participate
in all employee benefit and deferred compensation plans established by the
Employer for all eligible employees, including family health insurance coverage,
group life insurance, disability insurance, and any defined benefit or defined
contribution retirement plan.
2.6 Expenses. Employer shall pay or reimburse the Employee 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 to Employer of expense statements and such other documentation as
the Employer may reasonably require.
2.7 Automobile. The Employer shall provide to the Employee an automobile
allowance of $500 per month and shall pay or reimburse the Employee for the
reoccurring charges of an automobile telephone. The Employee shall be
responsible for all other automobile expenses, including insurance, maintenance,
operating, parking and repair expenses.
2.8 Leave. The Employee shall be entitled to vacations and sick leave
with pay in accordance with the published policies of the Employer during each
year during the Term of Employment and any extensions thereof, prorated for
partial years.
2.9 Memberships. For the Term of Employment and any extensions thereof,
the Employer shall pay or reimburse the Employee for payment of the basic
monthly dues for membership of the Employee in the State Bar of Texas and the
American Bar Association, and reasonable fees and expenses required for
continuing legal education courses essential for membership in the State Bar of
Texas and an annual securitization industry seminar.
2.10 Relocation. In connection with the relocation of the Employee from
the Dallas, Texas area to the Austin, Texas, area, the Employer shall pay and/or
reimburse the Employee 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) payment or reimbursement of any amount by which the net
proceeds from sale of the Dallas, Texas area residence of Employee shall be less
than the sum of $36,000 after payment of the principal balance of the first
mortgage loan secured by the residence, real estate
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<PAGE>
commissions and customary closing costs allocated to Employee as seller
(exclusive of interest on the mortgage secured by the residence and pro rated
property taxes).
2.11 Employee Loan. The Employer shall loan the Employee the principal
amount of $25,000, bearing interest at the most favorable commercial borrowing
rate of the Employer from financial institutions and payable within one year
from the date of the loan, evidenced by the promissory note of Employee payable
to the order of the Employer providing for payment of attorneys' fees and other
costs of collection and such other terms as the Employer shall reasonably
require.
2.12 Payment Deductions. Employer shall be entitled to withhold from any
compensation, benefits or amounts payable under this Agreement all applicable
federal, state and local income taxes, social security payments, health,
retirement or other benefit plan payments and other customary payroll
deductions.
3. TERM AND TERMINATION.
3.1 Term of Employment. The employment of the Employee under this
Agreement shall be for a term of one (1) year commencing with the Effective Date
of this Agreement, subject to continuation, renewal, extension or early
termination as provided herein (such period, as continued renewed, extended or
terminated early is referred to as the "Term of Employment").
3.2 Renewal of Term of Employment. On the anniversary of the Effective
Date hereof and at the end of each subsequent six (6)-month period (each, a
"Renewal Date"), this Agreement shall be automatically renewed and extended for
an additional term of six (6) months without further action by either party,
unless at least thirty (30) days prior to any such Renewal Date the Employee or
the Employer, as the case may be, 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 parties hereto
to terminate this Agreement pursuant to any other provision hereunder.
3.3 Termination by Employer. Employer shall have the right to terminate
the Term of Employment of Employee under this Agreement at any time prior to the
expiration of the Term of Employment as follows:
(a) Upon the death of Employee;
(b) Upon the Disability of Employee (as hereinafter defined);
(c) For Cause (as hereinafter defined); and
(d) Upon thirty (30) days notice, with or without cause or reason, in the
sole discretion of Employer.
4
<PAGE>
3.4 Termination by Employee. Employee shall have the right to terminate
the Term of Employment under this Agreement at any time prior to the expiration
of the Term of Employment for a material default by Employer in the performance
of any material provision of this Agreement that remains in default for thirty
(30) days following written notice of such default by Employee to Employer. The
right of termination by Employee shall constitute the sole and exclusive remedy
of Employee for default herein by Employer.
3.5 Termination for Cause. For purposes of this Agreement the term
"Cause" for reduction of the Base Salary or termination of the Term of
Employment by Employer shall mean and include the occurrence of any of the
following events in the good faith determination of the President or the Board:
(a) The Employee has participated in embezzlement, theft, larceny or fraud,
or has otherwise acted dishonestly with respect to Employer or any of its
Affiliates or engaged in gross negligence or willful misconduct in the
performance of any of the duties and services required of Employee pursuant
to this Agreement;
(b) The Employee has breached a fiduciary duty or duty of loyalty or
fidelity owed to the Employer or any of its Affiliates;
(c) The Employee has materially defaulted in observing a published policy
of the Employer communicated to the Employee in writing and that remains in
default for thirty (30) days following written notice of such default by
Employer;
(d) The Employee has been convicted of or entered a plea of nolo contendere
to a felony or a misdemeanor involving moral turpitude;
(e) The Employee has violated any law, regulation or ordinance of a
governmental entity (other than traffic violations and similar minor
offenses), but including any law relating to employment, the environment,
discrimination, libel, slander, assault or other forms of abuse, or has
violated any judicial decree applicable to the Employer or any of its
Affiliates which violation has or may have a material and adverse affect on
the Employer or any of its Affiliates or the ability of the Employee to
perform his duties hereunder; or
(f) The Employee has failed to perform or otherwise defaulted in any of the
material terms of this Agreement or any duties assigned to Employee by the
President or the Board as provided herein that remain in default for thirty
(30) days following written notice of such default by Employer to Employee.
3.6 Disability of Employee. For purposes of this Agreement the
"Disability" of the Employee shall have the same meaning as the term "long-term
disability" or "permanent disability" or similar term in Employee's disability
policy provided by Employer.
3.7 Severance and Termination Payments.
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<PAGE>
(a) Upon expiration of the Term of Employment pursuant to this Agreement,
or upon termination of the Term of Employment by either party pursuant to
Section 3.2 hereof, or in the event of termination of the Term of
Employment by the Employer as a result of the death or Disability of the
Employee or for Cause, then the Employee shall be entitled to receive any
compensation that has been earned or accrued but not paid through the date
of termination, and any other compensation or benefits to which the
Employee is entitled under any pension, retirement or disability plan
provided as part of the employee benefit programs for eligible employees of
the Employer following such termination, and Employer shall have no further
liability or obligation to the Employee under or pursuant to this
Agreement.
(b) However, if (i) the Employer terminates the Term of Employment other
than for death, Disability or Cause or (ii) the Employee terminates the
Term of Employment as a result of default by Employer as provided for in
Section 3.4 hereof, then the Employer shall pay the Employee an amount (the
"Severance Payment") equal to (x) the Base Salary payable pursuant to
Section 2.1 hereof for one (1) year, if such termination occurs during the
initial year of the Term of Employment, or (y) one-half (1/2) of the Base
Salary then payable pursuant to Section 2.1 hereof, if such termination
occurs at anytime thereafter. The Severance Payment shall be paid to the
Employee, at the election of the Employer, (i) in monthly installments at
the applicable Base Salary, 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 Employee may be entitled under any employee benefit
program of the Employer pursuant to this Agreement. Upon payment by the
Employer of the Severance Payment and other amounts payable hereunder to
the Employee (or the Employee's estate), the Employer shall have no other
or further liability or obligation whatsoever under this Agreement to the
Employee (or the Employee's estate) related to the Employee's employment or
other capacities and the Employer or related to the termination of the
Employee's employment and the Employer. As a condition to payment of the
Severance Payment and any other amounts payable to the Employee upon
termination of his employment, the Employee or his estate shall deliver to
the Employer a full and unconditional release of the Employer under this
Agreement (in form and substance satisfactory to the Employer) of any and
all claims arising out of the termination of employment of Employee by the
Employer.
3.8 Payment by Employee. Upon termination of the Term of Employment,
Employee shall pay Employer or any Affiliate of Employer any amount or amounts
owed by Employee to Employer or any such Affiliate, and Employer and any such
Affiliate shall be entitled to offset against any amounts owed to Employee any
amounts owed by Employee to Employer or any such Affiliate, without prejudice to
any other rights or remedies of Employer or any such Affiliate available at law
or in equity.
4. EMPLOYEE REPRESENTATION
6
<PAGE>
4.1 No Violation of Other Agreements. The Employee hereby represents and
warrants to the Employer 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 Employee and any
other person, firm, corporation or other entity, including, without limitation,
any former employer of the Employee.
5. CONFIDENTIALITY, NONCOMPETITION AND NON-SOLICITATION COVENANTS.
5.1 Confidentiality. The Employee acknowledges that by reason of the
nature of the Employee's duties, the Employee will or may have access to and
become informed of confidential and secret information which is a competitive
asset of the Employer, 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 Employer financial results and
business condition, and (vii) any of the foregoing which belong to any other
person or company but to which the Employee has had access by reason of his
employment with the Employer (collectively, "Confidential Information"). The
Employee 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 Employee's duties hereunder), any
Confidential Information. The Employee 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 Employer's business and any and all other
documents containing Confidential Information furnished to the Employee by a
representative of the Employer or otherwise acquired or developed by the
Employee in connection with his employment with the Employer (collectively,
"Recipient Materials") shall at all times be the property of the Employer. Upon
termination of the Employee's employment with the Employer, the Employee shall
return to the Employer any Recipient Materials which are in the Employee's
possession, custody or control. The Employee's obligations under this Section
5.1 shall survive such termination of the Employee's employment with the
Employer, but shall not be applicable to (i) any such Confidential Information
which becomes, through no fault of the Employee, 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 Employee's obligations under this Section
5.1 are in addition to, and not in limitation or preemption of, all other
obligations of confidentiality which the Employee may have to the Employer under
general legal or equitable principles.
5.2 Noncompetition and Non-Solicitation.
(a) The Employee acknowledges that during the Term of Employment, the
Employee's access to the Confidential Information will enable the Employee
to benefit from the Employer's goodwill and know-how. The Employee further
acknowledges that it would be inherent in the performance of the Employee's
duties as a director, officer, employee, agent
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<PAGE>
or consultant of any company which competes with the Employer or any
Affiliate, as hereinafter defined, or which intends to or may compete with
the Employer or any such Affiliate, to disclose or use the Confidential
Information, and the Employer's or the Affiliate Companies' goodwill and
know-how, to or for the benefit of such other company. The Employer'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 Employer, and the issuance, ownership, sale, acquisition
or transfer of securities backed by Property Improvement Loans. To protect
these vital interests of the Employer and any Affiliate, the Employee
agrees that during the Term of Employment and for a period of one (1) year
following the termination of the Employee's employment hereunder, the
Employee will not, without the prior written consent of the Employer,
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 Employee to the Employer;
(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
Employer or any Affiliate to any person, firm, corporation or other
entity called upon or served by the Employee on behalf of the Employer
or any Affiliate during the Term of Employment;
(iii) solicit, attempt to solicit or seek to divert from the Employer
or any Affiliate, the business or patronage of any person, firm,
corporation or other entity with whom the Employee has had business
relations in connection with the Competitive Business of the Employer
or any Affiliate; 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 Employer or any
Affiliate related to the Competitive Business of the Employer or any
Affiliate.
(b) This covenant not to compete shall apply whether the Employee 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
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<PAGE>
the United States in which the Employer conducts business, provides
services or sells financial products at any time during the Term of
Employment. Moreover, the restriction herein contained shall prohibit the
Employee from competing with the Employer and any Affiliate only in the
line or lines of Competitive Business actually conducted in a particular
geographical area by the Employer or any Affiliate. During the Term of
Employment, the Employee shall disclose to the Board of Employer 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 Employer or any
Affiliate is engaged in marketing or has definitive plans to market.
(c) The Employee agrees that each Affiliate is a third party
beneficiary to this Section 5.2 and each Affiliate is entitled to enforce
the provisions of the Section 5.2 in the event that any violation of this
Section 5.2 causes, or threatens to cause, injury to its business or
property.
6. MISCELLANEOUS PROVISIONS.
6.1. Assignability. This Agreement shall not be assignable, except that
in the event of a Change of Control of Employer 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 Change of Control.
6.2 Equitable Remedies. The Employee acknowledges and agrees that in the
event of any breach or threatened breach of the provisions of Section 13 or 14
hereof, the Employer would have no adequate remedy at law, and thus, the
Employer 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 Employer may have at law or in equity.
6.3 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.
6.4 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.
6.5 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.
6.6 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
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<PAGE>
of any action under this Agreement shall be exclusively in the State and Federal
courts located in Travis County, Texas.
6.7 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.
6.8 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the employment of the Employee by the
Employer 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.
6.9 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.
6.10 Definitions.
(a) For purposes of this Agreement the term "Affiliate" means an
entity that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, Employer.
(b) For purposes of this Agreement a "Change of Control" shall mean
any transaction by which 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 Employer or any such entity
shall, directly or indirectly, be sold or otherwise be transferred to
another person or entity.
(c) "Conflict of Interest" means, without limitation, any act or
activity, or any interest in connection with, or benefit from any act or
activity, which knowingly is adverse to the interests of or would in any
way injure Employer or any of its Affiliates, provided that a passive
investment of not more than 5% of the outstanding equity securities of an
entity whose securities are then being regularly traded in open-market
brokerage transactions (either on a stock exchange or over-the-counter)
shall not constitute a Conflict of Interest. In keeping with Employee's
duties to Employer, Employee agrees that Employee shall not knowingly
become involved in a Conflict of Interest with Employer or its Affiliates,
or upon discovery thereof, allow such a conflict to continue. Moreover,
Employee agrees that Employee shall disclose to Employer's general counsel
any facts that might involve such a Conflict of Interest that has not been
approved by Employer's Board of Directors.
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IN WITNESS WHEREOF, the undersigned parties have executed this Employment
Agreement as of the Effective Date first above written.
Employer: Employee:
- -------- --------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation
By: /s/ John W. Ballard /s/ Michael B. Thimmig
-------------------------------- ---------------------------------
JOHN W. BALLARD, President MICHAEL B. THIMMIG
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EXHIBIT 10.16
HOMEOWNERS MORTGAGE & EQUITY, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") dated as of July 1, 1997
("Effective Date"), is by and between HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation (the "Employer"), and THOMAS L. PERRITTE (the "Employee").
WITNESSETH:
WHEREAS, the Employer desires to employ the Employee, and the Employee
desires to accept such employment by the Employer, upon the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises, covenants and agreements
set forth herein, and for other good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES.
1.1 Employment. Employer hereby employs the Employee, and the Employee
hereby accepts such employment by Employer, upon and subject to the terms,
covenants, conditions and agreements set forth herein.
1.2 Authority and Duties. During the Term of Employment, the Employee
shall serve as an Executive Vice President of the Employer with responsibility
for marketing and production, and if elected or appointed by the applicable
board of directors, the Employee shall serve in such additional offices of
Employer or of any parent, subsidiary or Affiliate (as hereinafter defined) of
the Employer to which he may be elected or appointed from time to time, without
any compensation other than as provided in this Agreement; provided that the
election or appointment of Employee to other offices is reasonable in nature and
does not materially expand the scope of the duties required of the Employee
hereunder. During the Term of Employment, Employee shall be subject to the
direction, supervision and control of the President of Employer ("President")
and the Board of Directors of the Employer (the "Board"), the Employee shall
perform the duties and have the powers and authority which are provided in the
Bylaws of the Employer or as otherwise determined by the President or the Board
from time to time and 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 Employee pursuant to this Agreement. Employee shall
at all times comply with and be subject to such policies and procedures as
Employer may establish from time to time.
1.3 Employee Loyalty. Employee acknowledges and agrees that Employee owes
a duty of loyalty, fidelity and allegiance to act at all times during employment
pursuant to this Agreement in the interests of the Employer and Employee shall
not act in any manner which would injure Employer's business, its interests, or
its reputation. Employee shall devote his full business time, attention and
energy to the business of Employer and faithfully and diligently perform the
duties
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required or incident to his employment hereunder and promote the interests of
Employer to be best of the ability, effort and experience of the Employee.
Employee shall not engage in any other business, investment or activity that
interferes with the performance of the duties of Employee hereunder. Employee
shall not, during the Term of this Agreement or any extension or renewal
thereof, engage, directly or indirectly, in any activity which constitutes a
Conflict of Interest (as hereinafter defined).
1.4 Place of Employment. The duties of Employee shall be rendered
primarily at the principal offices of Employer in Austin, Texas, and at such
other place or places as the Employer shall reasonably require or as the
interests, needs, business and opportunities of the Employer shall require or
make advisable from time to time.
2. COMPENSATION AND BENEFITS. The Employer hereby agrees to pay the Employee
and the Employee hereby agrees to accept as compensation for all services
rendered by the Employee in any capacity during the Term of Employment
(including, without limitation, services as any officer, director or member of
any committee of the Employer or any parent, subsidiary and Affiliate thereof)
the following compensation and benefits:
2.1 Base Salary. The Employee shall receive a base salary (the "Base
Salary") for the initial year of the Term of Employment of $200,000 which shall
be payable in installments in accordance with the standard payroll practice of
Employer. The Base Salary for any period of the Term of Employment subsequent
to the initial year shall be reviewed annually by the Compensation Committee of
the Board ("Compensation Committee"), and the Base Salary for each fiscal year
of Employer (or portion thereof) beginning October 1 of each year shall be
determined by the Compensation Committee; provided that (i) the Base Salary
shall not be reduced unless it is reduced for Cause (as hereinafter defined),
and (ii) there is no understanding that the Base Salary will be increased in any
period subsequent to the first year of the Term of Employment.
2.2 Annual Incentive Bonus. The Employer shall pay to executive a bonus
of $50,000 at the end of the first full year of the Term of Employment. In the
event that the Board of the Employer shall establish an incentive bonus plan
covering executive officers of the Employer ("Incentive Bonus Plan"), then the
Employee shall be eligible to receive a discretionary bonus under the Incentive
Bonus Plan for each year (or portion thereof) during the Term of Employment and
any extensions thereof subsequent to the first year, with the actual amount of
any such bonus to be determined in the sole discretion of the Board of the
Employer based upon its evaluation of Employee's performance during such year.
All such bonuses shall be reviewed annually and recommended by the Compensation
Committee.
2.3 Grant of Stock Options. Upon or as soon as practicable after the
Effective Date of this Agreement, the Employer shall arrange for its parent
company, HomeCapital Investment Corporation, a Nevada corporation ("HCAP"), to
grant to the Employee incentive stock options to acquire not less than 150,000
shares of the $.01 par value common stock of HCAP under the HomeCapital
Investment Corporation 1996 Stock Option Plan ("Plan") at the purchase price as
determined by the stock option committee of the Board of HCAP pursuant to the
Plan ("Stock
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Options"). One-fifth (1/5) of the Stock Options shall vest on each succeeding
anniversary of the Effective Date.
2.4 Employee Benefit Plans. The Employee shall be eligible to participate
in all employee benefit and deferred compensation plans established by the
Employer for all eligible employees, including family health insurance coverage,
group life insurance, disability insurance, and any defined benefit or defined
contribution retirement plan.
2.5 Expenses. Employer shall pay or reimburse the Employee 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 to Employer of expense statements and such other documentation as
the Employer may reasonably require.
2.6 Automobile. The Employer shall provide to the Employee an automobile
allowance of $500 per month. The Employee shall be responsible for all other
automobile expenses, including insurance, maintenance, operating, parking and
repair expenses.
2.7 Leave. The Employee shall be entitled to vacations and sick leave
with pay in accordance with the published policies of the Employer during each
year during the Term of Employment and any extensions thereof, prorated for
partial years.
2.8 Memberships. For the Term of Employment and any extensions thereof,
the Employer shall pay or reimburse the Employee for payment of the basic
monthly dues for membership of the Employee in the State Bar of Texas and the
American Bar Association, and reasonable fees and expenses required for
continuing legal education courses essential for membership in the State Bar of
Texas and an annual securitization industry seminar.
2.9 Relocation. In connection with the relocation of the Employee from
the Cameron Park, California area to the Austin, Texas, area, the Employer shall
pay and/or reimburse the Employee for the following: (i) all reasonable
preapproved 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) the sum of $68,400 upon
closing of the purchase of a residence in the Austin, Texas area by Employee.
2.10 Payment Deductions. Employer shall be entitled to withhold from any
compensation, benefits or amounts payable under this Agreement all applicable
federal, state and local income taxes, social security payments, health,
retirement or other benefit plan payments and other customary payroll
deductions.
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3. TERM AND TERMINATION.
3.1 Term of Employment. The employment of the Employee under this
Agreement shall be for a term of one (1) year commencing with the Effective Date
of this Agreement, subject to continuation, renewal, extension or early
termination as provided herein (such period, as continued renewed, extended or
terminated early is referred to as the "Term of Employment").
3.2 Renewal of Term of Employment. On the anniversary of the Effective
Date hereof and at the end of each subsequent six (6)-month period (each, a
"Renewal Date"), this Agreement shall be automatically renewed and extended for
an additional term of six (6) months without further action by either party,
unless at least thirty (30) days prior to any such Renewal Date the Employee or
the Employer, as the case may be, 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 parties hereto
to terminate this Agreement pursuant to any other provision hereunder.
3.3 Termination by Employer. Employer shall have the right to terminate
the Term of Employment of Employee under this Agreement at any time prior to the
expiration of the Term of Employment as follows:
(a) Upon the death of Employee;
(b) Upon the Disability of Employee (as hereinafter defined);
(c) For Cause (as hereinafter defined); and
(d) Upon thirty (30) days notice, with or without cause or reason, in the
sole discretion of Employer.
3.4 Termination by Employee. Employee shall have the right to terminate
the Term of Employment under this Agreement at any time prior to the expiration
of the Term of Employment for a material default by Employer in the performance
of any material provision of this Agreement that remains in default for thirty
(30) days following written notice of such default by Employee to Employer. The
right of termination by Employee shall constitute the sole and exclusive remedy
of Employee for default herein by Employer.
3.5 Termination for Cause. For purposes of this Agreement the term
"Cause" for reduction of the Base Salary or termination of the Term of
Employment by Employer shall mean and include the occurrence of any of the
following events in the good faith determination of the President or the Board:
(a) The Employee has participated in embezzlement, theft, larceny or fraud,
or has otherwise acted dishonestly with respect to Employer or any of its
Affiliates or engaged in gross negligence or willful misconduct in the
performance of any of the duties and services required of Employee pursuant
to this Agreement;
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(b) The Employee has breached a fiduciary duty or duty of loyalty or
fidelity owed to the Employer or any of its Affiliates;
(c) The Employee has materially defaulted in observing a published policy
of the Employer communicated to the Employee in writing and that remains in
default for thirty (30) days following written notice of such default by
Employer;
(d) The Employee has been convicted of or entered a plea of nolo contendere
to a felony or a misdemeanor involving moral turpitude;
(e) The Employee has violated any law, regulation or ordinance of a
governmental entity (other than traffic violations and similar minor
offenses), but including any law relating to employment, the environment,
discrimination, libel, slander, assault or other forms of abuse, or has
violated any judicial decree applicable to the Employer or any of its
Affiliates which violation has or may have a material and adverse affect on
the Employer or any of its Affiliates or the ability of the Employee to
perform his duties hereunder; or
(f) The Employee has failed to perform or otherwise defaulted in any of the
material terms of this Agreement or any duties assigned to Employee by the
President or the Board as provided herein that remain in default for thirty
(30) days following written notice of such default by Employer to Employee.
3.6 Disability of Employee. For purposes of this Agreement the
"Disability" of the Employee shall have the same meaning as the term "long-term
disability" or "permanent disability" or similar term in Employee's disability
policy provided by Employer.
3.7 Severance and Termination Payments.
(a) Upon expiration of the Term of Employment pursuant to this Agreement,
or upon termination of the Term of Employment by either party pursuant to
Section 3.2 hereof, or in the event of termination of the Term of
Employment by the Employer as a result of the death or Disability of the
Employee or for Cause, then the Employee shall be entitled to receive any
compensation that has been earned or accrued but not paid through the date
of termination, and any other compensation or benefits to which the
Employee is entitled under any pension, retirement or disability plan
provided as part of the employee benefit programs for eligible employees of
the Employer following such termination, and Employer shall have no further
liability or obligation to the Employee under or pursuant to this
Agreement.
(b) However, if (i) the Employer terminates the Term of Employment other
than for death, Disability or Cause or (ii) the Employee terminates the
Term of Employment as a result of default by Employer as provided for in
Section 3.4 hereof, then the Employer shall pay the Employee an amount (the
"Severance Payment") equal to (x) the Base Salary payable pursuant to
Section 2.1 hereof for one (1) year, if such termination occurs during the
initial year of the Term of Employment, or (y) one-half (1/2) of the Base
Salary then payable pursuant to Section 2.1 hereof, if such termination
occurs at anytime thereafter. The
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Severance Payment shall be paid to the Employee, at the election of the
Employer, (i) in monthly installments at the applicable Base Salary, 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 Employee may
be entitled under any employee benefit program of the Employer pursuant to
this Agreement. Upon payment by the Employer of the Severance Payment and
other amounts payable hereunder to the Employee (or the Employee's estate),
the Employer shall have no other or further liability or obligation
whatsoever under this Agreement to the Employee (or the Employee's estate)
related to the Employee's employment or other capacities and the Employer
or related to the termination of the Employee's employment and the
Employer. As a condition to payment of the Severance Payment and any other
amounts payable to the Employee upon termination of his employment, the
Employee or his estate shall deliver to the Employer a full and
unconditional release of the Employer under this Agreement (in form and
substance satisfactory to the Employer) of any and all claims arising out
of the termination of employment of Employee by the Employer.
3.8 Payment by Employee. Upon termination of the Term of Employment,
Employee shall pay Employer or any Affiliate of Employer any amount or amounts
owed by Employee to Employer or any such Affiliate, and Employer and any such
Affiliate shall be entitled to offset against any amounts owed to Employee any
amounts owed by Employee to Employer or any such Affiliate, without prejudice to
any other rights or remedies of Employer or any such Affiliate available at law
or in equity.
4. EMPLOYEE REPRESENTATION
4.1 No Violation of Other Agreements. The Employee hereby represents and
warrants to the Employer 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 Employee and any
other person, firm, corporation or other entity, including, without limitation,
any former employer of the Employee.
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5. CONFIDENTIALITY, NONCOMPETITION AND NON-SOLICITATION COVENANTS.
5.1 Confidentiality. The Employee acknowledges that by reason of the
nature of the Employee's duties, the Employee will or may have access to and
become informed of confidential and secret information which is a competitive
asset of the Employer, 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 Employer financial results and
business condition, and (vii) any of the foregoing which belong to any other
person or company but to which the Employee has had access by reason of his
employment with the Employer (collectively, "Confidential Information"). The
Employee 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 Employee's duties hereunder), any
Confidential Information. The Employee 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 Employer's business and any and all other
documents containing Confidential Information furnished to the Employee by a
representative of the Employer or otherwise acquired or developed by the
Employee in connection with his employment with the Employer (collectively,
"Recipient Materials") shall at all times be the property of the Employer. Upon
termination of the Employee's employment with the Employer, the Employee shall
return to the Employer any Recipient Materials which are in the Employee's
possession, custody or control. The Employee's obligations under this Section
5.1 shall survive such termination of the Employee's employment with the
Employer, but shall not be applicable to (i) any such Confidential Information
which becomes, through no fault of the Employee, 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 Employee's obligations under this Section
5.1 are in addition to, and not in limitation or preemption of, all other
obligations of confidentiality which the Employee may have to the Employer under
general legal or equitable principles.
5.2 Non-Competition.
(a) The Employee acknowledges that during the Term of Employment, the
Employee's access to the Confidential Information will enable the Employee
to benefit from the Employer's goodwill and know-how. The Employee further
acknowledges that it would be inherent in the performance of the Employee's
duties as a director, officer, employee, agent or consultant of any company
which competes with the Employer or any Affiliate, as hereinafter defined,
or which intends to or may compete with the Employer or any such Affiliate,
to disclose or use the Confidential Information, and the Employer's or the
Affiliate Companies' goodwill and know-how, to or for the benefit of such
other company. The Employer'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
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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 Employer,
and the issuance, ownership, sale, acquisition or transfer of securities
backed by Property Improvement Loans. To protect these vital interests of
the Employer and any Affiliate, the Employee agrees that during the Term of
Employment and for a period of one (1) year following the termination of
the Employee's employment hereunder, the Employee will not, without the
prior written consent of the Employer, 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 Employee to the Employer;
(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
Employer or any Affiliate to any person, firm, corporation or other
entity called upon or served by the Employee on behalf of the Employer
or any Affiliate during the Term of Employment;
(iii) solicit, attempt to solicit or seek to divert from the Employer
or any Affiliate, the business or patronage of any person, firm,
corporation or other entity with whom the Employee has had business
relations in connection with the Competitive Business of the Employer
or any Affiliate; 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 Employer or any
Affiliate related to the Competitive Business of the Employer or any
Affiliate.
(b) This covenant not to compete shall apply whether the Employee 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 Employer conducts business, provides services or
sells financial products at any time during the Term of Employment.
Moreover, the restriction herein contained shall prohibit the Employee from
competing with the Employer and any Affiliate only in the line or lines of
a Competitive Business (as defined above) actually conducted in a
particular geographical area by the Employer or any Affiliate. During the
Term of Employment, the Employee shall disclose to the Board of Employer
any investments he may make in businesses which are related in terms of
product line or customer base to products
8
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which, at such time, the Employer or any Affiliate is engaged in marketing
or has definitive plans to market.
(c) The Employee agrees that each Affiliate is a third party
beneficiary to this Section 5.2 and each Affiliate is entitled to enforce
the provisions of the Section 5.2 in the event that any violation of this
Section 5.2 causes, or threatens to cause, injury to its business or
property.
6. MISCELLANEOUS PROVISIONS.
6.1. Assignability. This Agreement shall not be assignable, except that
in the event of a Change of Control of Employer 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 Change of Control.
6.2 Equitable Remedies. The Employee acknowledges and agrees that in the
event of any breach or threatened breach of the provisions of Section 13 or 14
hereof, the Employer would have no adequate remedy at law, and thus, the
Employer 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 Employer may have at law or in equity.
6.3 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.
6.4 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.
6.5 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.
6.6 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.
6.7 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.
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6.8 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the employment of the Employee by the
Employer 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.
6.9 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.
6.10 Definitions.
(a) For purposes of this Agreement the term "Affiliate" means an
entity that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, Employer.
(b) For purposes of this Agreement a "Change of Control" shall mean
any transaction by which 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 Employer or any such entity
shall, directly or indirectly, be sold or otherwise be transferred to
another person or entity.
(c) "Conflict of Interest" means, without limitation, any act or
activity, or any interest in connection with, or benefit from any act or
activity, which knowingly is adverse to the interests of or would in any
way injure Employer or any of its Affiliates, provided that a passive
investment of not more than 5% of the outstanding equity securities of an
entity whose securities are then being regularly traded in open-market
brokerage transactions (either on a stock exchange or over-the-counter)
shall not constitute a Conflict of Interest. In keeping with Employee's
duties to Employer, Employee agrees that Employee shall not knowingly
become involved in a Conflict of Interest with Employer or its Affiliates,
or upon discovery thereof, allow such a conflict to continue. Moreover,
Employee agrees that Employee shall disclose to Employer's general counsel
any facts that might involve such a Conflict of Interest that has not been
approved by Employer's Board of Directors.
IN WITNESS WHEREOF, the undersigned parties have executed this Employment
Agreement as of the Effective Date first above written.
Employer: Employee:
- -------- --------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation
By: /s/ John W. Ballard /s/ Thomas L. Perritte
------------------------------ --------------------------------
JOHN W. BALLARD, President THOMAS L. PERRITTE
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<PAGE>
EXHIBIT 10.17
HOMEOWNERS MORTGAGE & EQUITY, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 1, 1997
("Effective Date"), is by and between HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation (the "Employer"), and GENE V. MORRISON (the "Employee").
WITNESSETH:
WHEREAS, the Employer desires to employ the Employee, and the Employee
desires to accept such employment by the Employer, upon the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises, covenants and agreements
set forth herein, and for other good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES.
1.1 Employment. Employer hereby employs the Employee, and the Employee
hereby accepts such employment by Employer, upon and subject to the terms,
covenants, conditions and agreements set forth herein.
1.2 Authority and Duties. During the Term of Employment, the Employee
shall serve as an Executive Vice President of the Employer, and if elected or
appointed by the applicable board of directors, the Employee shall serve in such
additional offices of Employer or of any parent, subsidiary or Affiliate (as
hereinafter defined) of the Employer to which he may be elected or appointed
from time to time, without any compensation other than as provided in this
Agreement; provided that the election or appointment of Employee to other
offices is reasonable in nature and does not materially expand the scope of the
duties required of the Employee hereunder. During the Term of Employment,
Employee shall be subject to the direction, supervision and control of the
President of Employer ("President") and the Board of Directors of the Employer
(the "Board"), the Employee shall perform the duties and have the powers and
authority which are provided in the Bylaws of the Employer or as otherwise
determined by the President or the Board from time to time and 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 Employee
pursuant to this Agreement. Employee shall at all times comply with and be
subject to such policies and procedures as Employer may establish from time to
time.
1.3 Employee Loyalty. Employee acknowledges and agrees that Employee owes
a duty of loyalty, fidelity and allegiance to act at all times during employment
pursuant to this Agreement in the interests of the Employer and Employee shall
not act in any manner which would injure
<PAGE>
Employer's business, its interests, or its reputation. Employee shall devote
his full business time, attention and energy to the business of Employer and
faithfully and diligently perform the duties required or incident to his
employment hereunder and promote the interests of Employer to be best of the
ability, effort and experience of the Employee. Employee shall not engage in
any other business, investment or activity that interferes with the performance
of the duties of Employee hereunder. Employee shall not, during the Term of
this Agreement or any extension or renewal thereof, engage, directly or
indirectly, in any activity which constitutes a Conflict of Interest (as
hereinafter defined).
1.4 Place of Employment. The duties of Employee shall be rendered
primarily at the principal offices of Employer in Austin, Texas, and at such
other place or places as the Employer shall reasonably require or as the
interests, needs, business and opportunities of the Employer shall require or
make advisable from time to time.
2. COMPENSATION AND BENEFITS. The Employer hereby agrees to pay the Employee
and the Employee hereby agrees to accept as compensation for all services
rendered by the Employee in any capacity during the Term of Employment
(including, without limitation, services as any officer, director or member of
any committee of the Employer or any parent, subsidiary and Affiliate thereof)
the following compensation and benefits:
2.1 Base Salary. The Employee shall receive a base salary (the "Base
Salary") for the initial year of the Term of Employment of $125,000 which shall
be payable in installments in accordance with the standard payroll practice of
Employer. The Base Salary for any period of the Term of Employment subsequent
to the initial year shall be reviewed annually by the Compensation Committee of
the Board ("Compensation Committee"), and the Base Salary for each fiscal year
of Employer (or portion thereof) beginning October 1 of each year shall be
determined by the Compensation Committee; provided that there is no
understanding that the Base Salary will be increased in any period subsequent to
the first year of the Term of Employment.
2.2 Employee Benefit Plans. The Employee shall be eligible to participate
in all employee benefit and deferred compensation plans established by the
Employer for all eligible employees, including family health insurance coverage,
group life insurance, disability insurance, and any defined benefit or defined
contribution retirement plan.
2.3 Expenses. Employer shall pay or reimburse the Employee 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 to Employer of expense statements and such other documentation as
the Employer may reasonably require.
2.4 Leave. The Employee shall be entitled to vacations and sick leave
with pay in accordance with the published policies of the Employer during each
year during the Term of Employment and any extensions thereof, prorated for
partial years.
2
<PAGE>
2.5 Payment Deductions. Employer shall be entitled to withhold from any
compensation, benefits or amounts payable under this Agreement all applicable
federal, state and local income taxes, social security payments, health,
retirement or other benefit plan payments and other customary payroll
deductions.
3. TERM AND TERMINATION.
3.1 Term of Employment. The employment of the Employee under this
Agreement shall be for a term of one (1) year commencing with the Effective Date
of this Agreement, subject to continuation, renewal, extension or early
termination as provided herein (such period, as continued renewed, extended or
terminated early is referred to as the "Term of Employment").
3.2 Renewal of Term of Employment. On the anniversary of the Effective
Date hereof and at the end of each subsequent six (6)-month period (each, a
"Renewal Date"), this Agreement shall be automatically renewed and extended for
an additional term of six (6) months without further action by either party,
unless at least thirty (30) days prior to any such Renewal Date the Employee or
the Employer, as the case may be, 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 parties hereto
to terminate this Agreement pursuant to any other provision hereunder.
3.3 Termination by Employer. Employer shall have the right to terminate
the Term of Employment of Employee under this Agreement at any time prior to the
expiration of the Term of Employment as follows:
(a) Upon the death of Employee;
(b) Upon the Disability of Employee (as hereinafter defined);
(c) For Cause (as hereinafter defined); and
(d) Upon thirty (30) days notice, with or without cause or reason, in
the sole discretion of Employer.
3.4 Termination by Employee. Employee shall have the right to terminate
the Term of Employment under this Agreement at any time prior to the expiration
of the Term of Employment for a material default by Employer in the performance
of any material provision of this Agreement that remains in default for thirty
(30) days following written notice of such default by Employee to Employer. The
right of termination by Employee shall constitute the sole and exclusive remedy
of Employee for default herein by Employer.
3.5 Termination for Cause. For purposes of this Agreement the term
"Cause" for termination of the Term of Employment by Employer shall mean and
include the occurrence of any of the following events in the good faith
determination of the President or the Board:
3
<PAGE>
(a) The Employee has participated in embezzlement, theft, larceny or
fraud, or has otherwise acted dishonestly with respect to Employer or any
of its Affiliates or engaged in gross negligence or willful misconduct in
the performance of any of the duties and services required of Employee
pursuant to this Agreement;
(b) The Employee has breached a fiduciary duty or duty of loyalty or
fidelity owed to the Employer or any of its Affiliates;
(c) The Employee has materially defaulted in observing a published
policy of the Employer communicated to the Employee in writing and that
remains in default for thirty (30) days following written notice of such
default by Employer;
(d) The Employee has been convicted of or entered a plea of nolo
contendere to a felony or a misdemeanor involving moral turpitude;
(e) The Employee has violated any law, regulation or ordinance of a
governmental entity (other than traffic violations and similar minor
offenses), but including any law relating to employment, the environment,
discrimination, libel, slander, assault or other forms of abuse, or has
violated any judicial decree applicable to the Employer or any of its
Affiliates which violation has or may have a material and adverse affect on
the Employer or any of its Affiliates or the ability of the Employee to
perform his duties hereunder; or
(f) The Employee has failed to perform or otherwise defaulted in any
of the material terms of this Agreement or any duties assigned to Employee
by the President or the Board as provided herein that remain in default for
thirty (30) days following written notice of such default by Employer to
Employee.
3.6 Disability of Employee. For purposes of this Agreement the
"Disability" of the Employee shall have the same meaning as the term "long-term
disability" or "permanent disability" or similar term in Employee's disability
policy provided by Employer.
3.7 Severance and Termination Payments.
(a) Upon expiration of the Term of Employment pursuant to this
Agreement, or upon termination of the Term of Employment by either party
pursuant to Section 3.2 hereof, or in the event of termination of the Term
of Employment by the Employer as a result of the death or Disability of the
Employee or for Cause, then the Employee shall be entitled to receive any
compensation that has been earned or accrued but not paid through the date
of termination, and any other compensation or benefits to which the
Employee is entitled under any pension, retirement or disability plan
provided as part of the employee benefit programs for eligible employees of
the Employer following such termination, and Employer shall have no further
liability or obligation to the Employee under or pursuant to this
Agreement.
4
<PAGE>
(b) However, if (i) the Employer terminates the Term of Employment
other than for death, Disability or Cause or (ii) the Employee terminates
the Term of Employment as a result of default by Employer as provided for
in Section 3.4 hereof, then the Employer shall pay the Employee an amount
(the "Severance Payment") equal to the remaining Base Salary then
applicable pursuant to Section 2.1 hereof for the remainder of the Term of
Employment then in effect. The Severance Payment shall be paid to the
Employee, at the election of the Employer, (i) in monthly installments at
the applicable Base Salary, 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 Employee may be entitled under any employee benefit
program of the Employer pursuant to this Agreement. Upon payment by the
Employer of the Severance Payment and other amounts payable hereunder to
the Employee (or the Employee's estate), the Employer shall have no other
or further liability or obligation whatsoever under this Agreement to the
Employee (or the Employee's estate) related to the Employee's employment or
other capacities and the Employer or related to the termination of the
Employee's employment and the Employer. As a condition to payment of the
Severance Payment and any other amounts payable to the Employee upon
termination of his employment, the Employee or his estate shall deliver to
the Employer a full and unconditional release of the Employer under this
Agreement (in form and substance satisfactory to the Employer) of any and
all claims arising out of the termination of employment of Employee by the
Employer.
3.8 Payment by Employee. Upon termination of the Term of Employment,
Employee shall pay Employer or any Affiliate of Employer any amount or amounts
owed by Employee to Employer or any such Affiliate, and Employer and any such
Affiliate shall be entitled to offset against any amounts owed to Employee any
amounts owed by Employee to Employer or any such Affiliate, without prejudice to
any other rights or remedies of Employer or any such Affiliate available at law
or in equity.
4. EMPLOYEE REPRESENTATION
4.1 No Violation of Other Agreements. The Employee hereby represents and
warrants to the Employer 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 Employee and any
other person, firm, corporation or other entity, including, without limitation,
any former employer of the Employee.
5
<PAGE>
5. CONFIDENTIALITY, NONCOMPETITION AND NON-SOLICITATION COVENANTS.
5.1 Confidentiality. The Employee acknowledges that by reason of the
nature of the Employee's duties, the Employee will or may have access to and
become informed of confidential and secret information which is a competitive
asset of the Employer, 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 Employer financial results and
business condition, and (vii) any of the foregoing which belong to any other
person or company but to which the Employee has had access by reason of his
employment with the Employer (collectively, "Confidential Information"). The
Employee 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 Employee's duties hereunder), any
Confidential Information. The Employee 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 Employer's business and any and all other
documents containing Confidential Information furnished to the Employee by a
representative of the Employer or otherwise acquired or developed by the
Employee in connection with his employment with the Employer (collectively,
"Recipient Materials") shall at all times be the property of the Employer. Upon
termination of the Employee's employment with the Employer, the Employee shall
return to the Employer any Recipient Materials which are in the Employee's
possession, custody or control. The Employee's obligations under this Section
5.1 shall survive such termination of the Employee's employment with the
Employer, but shall not be applicable to (i) any such Confidential Information
which becomes, through no fault of the Employee, 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 Employee's obligations under this Section
5.1 are in addition to, and not in limitation or preemption of, all other
obligations of confidentiality which the Employee may have to the Employer under
general legal or equitable principles.
5.2 Non-Competition.
(a) The Employee acknowledges that during the Term of Employment, the
Employee's access to the Confidential Information will enable the Employee
to benefit from the Employer's goodwill and know-how. The Employee further
acknowledges that it would be inherent in the performance of the Employee's
duties as a director, officer, employee, agent or consultant of any company
which competes with the Employer or any Affiliate, as hereinafter defined,
or which intends to or may compete with the Employer or any such Affiliate,
to disclose or use the Confidential Information, and the Employer's or the
Affiliate Companies' goodwill and know-how, to or for the benefit of such
other company. The Employer'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
6
<PAGE>
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 Employer,
and the issuance, ownership, sale, acquisition or transfer of securities
backed by Property Improvement Loans. To protect these vital interests of
the Employer and any Affiliate, the Employee agrees that during the Term of
Employment and for a period of one (1) year following the termination of
the Employee's employment hereunder, the Employee will not, without the
prior written consent of the Employer, 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 Employee to the Employer;
(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
Employer or any Affiliate to any person, firm, corporation or other
entity called upon or served by the Employee on behalf of the Employer
or any Affiliate during the Term of Employment;
(iii) solicit, attempt to solicit or seek to divert from the
Employer or any Affiliate, the business or patronage of any person,
firm, corporation or other entity with whom the Employee has had
business relations in connection with the Competitive Business of the
Employer or any Affiliate; 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 Employer or any
Affiliate related to the Competitive Business of the Employer or any
Affiliate.
(b) This covenant not to compete shall apply whether the Employee 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 Employer conducts business, provides services or
sells financial products at any time during the Term of Employment.
Moreover, the restriction herein contained shall prohibit the Employee from
competing with the Employer and any Affiliate only in the line or lines of
a Competitive Business actually conducted in a particular geographical area
by the Employer or any Affiliate. During the Term of Employment, the
Employee shall disclose to the Board of Employer any investments he may
make in businesses
7
<PAGE>
which are related in terms of product line or customer base to products
which, at such time, the Employer or any Affiliate is engaged in marketing
or has definitive plans to market.
(c) The Employee agrees that each Affiliate is a third party
beneficiary to this Section 5.2 and each Affiliate is entitled to enforce
the provisions of the Section 5.2 in the event that any violation of this
Section 5.2 causes, or threatens to cause, injury to its business or
property.
6. MISCELLANEOUS PROVISIONS.
6.1. Assignability. This Agreement shall not be assignable, except that
in the event of a Change of Control of Employer 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 Change of Control.
6.2 Equitable Remedies. The Employee acknowledges and agrees that in the
event of any breach or threatened breach of the provisions of Section 13 or 14
hereof, the Employer would have no adequate remedy at law, and thus, the
Employer 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 Employer may have at law or in equity.
6.3 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.
6.4 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.
6.5 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.
6.6 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.
6.7 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.
8
<PAGE>
6.8 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the employment of the Employee by the
Employer 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.
6.9 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.
6.10 Definitions.
(a) For purposes of this Agreement the term "Affiliate" means an
entity that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, Employer.
(b) For purposes of this Agreement a "Change of Control" shall mean
any transaction by which 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 Employer or any such entity
shall, directly or indirectly, be sold or otherwise be transferred to
another person or entity.
(c) "Conflict of Interest" means, without limitation, any act or
activity, or any interest in connection with, or benefit from any act or
activity, which knowingly is adverse to the interests of or would in any
way injure Employer or any of its Affiliates, provided that a passive
investment of not more than 5% of the outstanding equity securities of an
entity whose securities are then being regularly traded in open-market
brokerage transactions (either on a stock exchange or over-the-counter)
shall not constitute a Conflict of Interest. In keeping with Employee's
duties to Employer, Employee agrees that Employee shall not knowingly
become involved in a Conflict of Interest with Employer or its Affiliates,
or upon discovery thereof, allow such a conflict to continue. Moreover,
Employee agrees that Employee shall disclose to Employer's general counsel
any facts that might involve such a Conflict of Interest that has not been
approved by Employer's Board of Directors.
IN WITNESS WHEREOF, the undersigned parties have executed this Employment
Agreement as of the effective date first above written.
Employer: Employee:
- -------- --------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation
By: /s/ John W. Ballard /s/ Gene V. Morrison
----------------------------- --------------------
JOHN W. BALLARD, President GENE V. MORRISON
9
<PAGE>
EXHIBIT 10.18
MASTER AGREEMENT NO. MD01724
April 1, 1997
Mr. John Ballard
Home, Inc.
6836 Austin Center Blvd.
Austin, TX 78731
Dear Mr. Ballard:
This letter shall constitute the master agreement ("Master Agreement") between
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
<PAGE>
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. However,
should Fannie Mae decline to enforce payment of this fee, such action will not
imply a waiver of its right to collect a similar fee at a subsequent time.
Fannie Mae's right to receive such a 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 FORM, TERMS, AND PROVISIONS OF THIS MASTER AGREEMENT, AS WELL AS ALL
INFORMATION REGARDING THE NEGOTIATION OF THE FORM, TERMS, AND PROVISIONS OF THIS
MASTER AGREEMENT, ARE CONFIDENTIAL. THE LENDER SHALL NOT DISCLOSE OR
DISSEMINATE, DIRECTLY OR INDIRECTLY, THE FORM, TERMS, OR PROVISIONS OF THIS
MASTER AGREEMENT, OR SUCH OTHER INFORMATION REGARDING THE NEGOTIATION OF THIS
MASTER AGREEMENT, TO ANY PARTY OTHER THAN THE LENDER'S EMPLOYEES OR AGENTS WHO
NEED TO KNOW THE SAME IN ORDER TO PERFORM THEIR DUTIES FOR THE LENDER AND WHO
ARE LEGALLY OBLIGATED NOT TO FURTHER DISCLOSE OR DISSEMINATE SUCH FORM, TERMS,
PROVISIONS, AND INFORMATION UPON RECEIPT THEREOF. THE LENDER SHALL TAKE ALL
NECESSARY AND REASONABLE ACTION TO PRESERVE THE CONFIDENTIALITY OF SUCH FORM,
TERMS, PROVISIONS, AND INFORMATION AND SHALL USE AT LEAST THE SAME DEGREE OF
CARE IN SUCH EFFORTS AS IT EMPLOYS WHEN PRESERVING THE CONFIDENTIALITY OF ITS
OWN INFORMATION OF A SIMILAR NATURE. SUCH NECESSARY AND REASONABLE ACTION THAT
MUST BE TAKEN BY THE LENDER SHALL INCLUDE, WITHOUT LIMITATION, PROVIDING
INSTRUCTION TO SUCH EMPLOYEES AND AGENTS REGARDING THE CONFIDENTIAL NATURE OF
THE FORM, TERMS, AND PROVISIONS OF THIS MASTER AGREEMENT AND THE NEGOTIATIONS
SURROUNDING THIS MASTER AGREEMENT.
NOTWITHSTANDING THE PROVISIONS OF THE IMMEDIATELY PRECEDING PARAGRAPH, THE
LENDER MAY DISCLOSE OR DISSEMINATE SUCH FORM, TERMS, PROVISIONS, AND INFORMATION
IF IT IS REQUIRED TO DO SO BY LAW (INCLUDING A SUBPOENA, OR JUDICIAL OR
GOVERNMENTAL REQUIREMENT OR ORDER) AND HAS GIVEN FANNIE MAE PRIOR WRITTEN NOTICE
OF SUCH REQUIREMENT AND OF THE INFORMATION REQUIRED TO BE DISSEMINATED OR
DISCLOSED.
Master No. MD01724
MA - 2
<PAGE>
THE LENDER ACKNOWLEDGES THAT THE UNAUTHORIZED DISCLOSURE OR DISSEMINATION OF THE
FORM, TERMS, OR PROVISIONS OF THE MASTER AGREEMENT, OR OTHER INFORMATION
REGARDING THE NEGOTIATION OF THE MASTER AGREEMENT, IS LIKELY TO CAUSE
IRREPARABLE HARM TO FANNIE MAE AND THAT MONETARY DAMAGES MAY BE INADEQUATE TO
COMPENSATE FANNIE MAE FOR SUCH BREACH. ACCORDINGLY, IN ADDITION TO AND NOT IN
LIMITATION OF ANY OTHER RIGHTS AND REMEDIES AVAILABLE TO FANNIE MAE AT LAW OR IN
EQUITY, FANNIE MAE SHALL BE ENTITLED TO INJUNCTIVE RELIEF IN ORDER TO PREVENT OR
RESTRAIN SUCH UNAUTHORIZED DISCLOSURE OR DISSEMINATION. THE OBLIGATIONS OF THE
LENDER REGARDING CONFIDENTIALITY SHALL SURVIVE TERMINATION OF THIS MASTER
AGREEMENT.
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. If the Agreed Amount, as adjusted by the minus 5.00%
delivery tolerance, is not sold to Fannie Mae prior to the Expiration Date of
the Master Agreement, Lender shall be in breach of the provisions of the 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:
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
Master No. MD01724
MA - 3
<PAGE>
(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,
FANNIE MAE
By: /s/ Jerome Brister
-------------------------------------------------
Jerome Brister
Regional Vice President
Agreed, acknowledged, and accepted this 2nd day of April, 1997.
HOME, INC.
By: /s/ Tommy M. Parker
------------------------------------------------
Name: Tommy M. Parker
------------------------------------------------
Title: Executive Vice President
------------------------------------------------
Master No. MD01724
MA - 4
<PAGE>
EXHIBIT 1
Master Agreement Number: MD01724
Effective Date: APRIL 1, 1997
Expiration Date: DECEMBER 31, 1997
Parties to Agreement: HOME, INC. AND FANNIE MAE
Lender Number: 23772-000-8
Agreed Amount: $50,000,000.00, PLUS OR MINUS 5.00% (MANDATORY)
$50,000,000.00 (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.
Master No. MD01724
MA - 5
<PAGE>
FIXED-RATE PRODUCT
VARIANCES APPLICABLE TO FIXED-RATE MORTGAGES
Please refer to the attachments under the "Variances" tab of this Agreement for
product eligibility for applicable variances.
HOUSING IMPACT PROGRAMS APPLICABLE TO FIXED-RATE MORTGAGES
Please refer to the attachments under the "Housing Impact" tab of this Agreement
for product eligibility for applicable Housing Impact programs.
Master No. MD01724
FRM - 1
<PAGE>
CONTRACT NO.: D03070
FHA TITLE I FIXED-RATE MORTGAGE POOL PURCHASE CONTRACT
- --------------------------------------------------------------------------------
Lender: HOME, INC. Lender Number: 23772-000-8
- --------------------------------------------------------------------------------
For a complete set of the terms of this transaction, this Pool Purchase Contract
between Fannie Mae and the Lender must be read in conjunction with the Master
Agreement No. MD01724.
<TABLE>
<CAPTION>
<S> <C>
Date of Contract: April 2, 1997 (Date executed by Lender)
Total Amount of Pool Purchase
Transactions for OPTIONAL Delivery: $50,000,000.00 plus or minus 5%
Eligible Products: 3- TO 20-YEAR FIXED-RATE LEVEL-PAYMENT MORTGAGES
Guaranty Fee: 50 BASIS POINTS
Latest Issue Date for Pools formed
under this Contract: DECEMBER 1, 1997
</TABLE>
- --------------------------------------------------------------------------------
Servicing Option: SPECIAL
Buyup/Buydown Ratios: GRID 3
Mortgage Type: FHA
Remittance Cycle: STANDARD
Seasoning Requirements: CURRENT
Special Feature Codes: 001 AND 089
FOR SUBORDINATE MORTGAGES, 015 MUST ALSO BE
USED
Foreclosure Loss Risk Code: M
Additional Terms: Except as modified by this Contract, all FHA Title I
Mortgages must conform to the requirements of the Selling Guide and Servicing
Guide as amended by Fannie Mae Announcement 96-03. Additional terms and
representations are attached.
Master No. MD01724
FRM - 2
<PAGE>
ADDITIONAL TERMS
Section of the Act: 201s (secured and direct) and 201sd (secured and
dealer)
Lien Type: First or subordinate mortgages. Unsecured loans
are not eligible. Cooperative share loans are not
eligible.
Amortization: Only FHA Title I Mortgages utilizing the standard
monthly amortization method for principal and
interest application (as described in the Selling
Guide, Part V, Section 2, Exhibit 3) are eligible.
Mortgages utilizing the daily accrual, payment-to-
payment, or simple interest methods must be
converted to a standard monthly amortization
schedule via a written agreement, that is executed
by the borrower, prior to the Issue Date of the
related pool.
Minimum Servicing Fee: 125 basis points
Pooling parameters: Each Pool delivered pursuant to this Contract will
be comprised entirely of FHA Title I Mortgages
with original terms that fall within one of the
following ranges:
POOL PREFIX ORIGINAL TERM RANGE
TJ 36 months - 60 months
TK 61 months - 120 months
TQ 121 months - 180 months
TT 181 months - 240 months
FHA Title I Mortgages may not be commingled with
other mortgages in a Pool.
Maximum Note Rate: The maximum mortgage interest rate eligible for
inclusion in a Pool is a rate that is no greater
than the sum of the pass-through rate, the
guaranty fee and 250 basis points.
REPRESENTATIONS
The Lender makes the following representations in connection with each FHA Title
I Mortgage delivered to Fannie Mae pursuant to this Contract:
(i) As of the Issue Date, the proceeds of the Mortgage have been fully
disbursed and there is no requirement for future advances thereunder, and
any and all applicable requirements set forth in the Mortgage documents
have been complied with;
(ii) There is no default, breach, violation or event of acceleration existing
under the Mortgage and there is no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration;
Master No. MD01724
FRM - 3
<PAGE>
(iii) The Mortgage is an FHA Title I property improvement loan (as defined in
24 C.F.R. section 201.2), underwritten and originated by an approved
lender in accordance with FHA requirements for the Title I Loan Program
as set forth in 24 C.F.R. Parts 201 and 202, and the applicable approved
lender has transmitted a loan report with respect to such Mortgage to FHA
so that such Mortgage will be included in the Title I Program;
(iv) The Mortgage is secured by a mortgage or deed of trust on the related
improved property (the "Mortgaged Property.") The Mortgage is not, and
has not been, secured by any collateral except the lien of the
corresponding mortgage;
(v) Substantially all of the proceeds of the Mortgage were used to improve or
protect an interest in the Mortgaged Property that, at the origination
date, is the only security for the Mortgage;
(vi) The mortgage or deed of trust meets the security requirements of 24
C.F.R. section 201.24 and contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security provided thereby, including, (A) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (B) otherwise by
judicial foreclosure;
(vii) The improvements to the Mortgaged Property relating to each Mortgage have
been, or will be, inspected by the related lender or servicer within the
time period and to the extent required by the provisions of 24 C.F.R.
section 201.40(c);
(viii) The Mortgage was purchased and underwritten in accordance with the
underwriting criteria established by FHA and HUD in instances where
Lender is not the originator of the Mortgage.
Master No. MD01724
FRM - 4
<PAGE>
A. MBS GUARANTY FEE AND BUYUP/BUYDOWN INFORMATION
The guaranty fee due Fannie Mae for any FHA Title I Mortgage delivered pursuant
to this Contract shall be at the annual rate specified in this Contract, payable
monthly. The guaranty fee is set forth in this Contract before giving effect to
(i) any reduction of the guaranty fee through use of the rapid payment method of
remittances, if applicable, and (ii) any increases or decreases of the guaranty
fee relating to any buyups or buydowns of such fee as set forth in this
Contract, if applicable.
GRID 3:
1. Any adjustment through buyups or buydowns to guaranty fees of FHA Title I
Mortgages delivered pursuant to this Contract must be carried out using the
delivery parameters set forth in Part II, Section 204.01 of the Selling
Guide.
2. The Lender may access the grid ratios through MORNET as follows:
. Sign on to an Interactive Session from any MORNET mailbox
. At the "Command?" prompt, type "C FANNIEMAE.INFO"
. At the main menu, select option 4 for "MBS Information"
. Select option 11 for "Buyup/Buydown Ratios"
. Select option 6 for "Title I"
3. A buyup or buydown of the guaranty fee of a FHA Title I Mortgage must be
indicated with respect to each such FHA Title I Mortgage on the Schedule of
Mortgages (the most current version of the Form 2005).
Master No. MD01724
FRM - 5
<PAGE>
EXHIBIT 10.18a
August 5, 1997
Mr. John Ballard
Home, Inc.
6836 Austin Center Blvd.
Austin, TX 78731
Subject: Master Agreement Number: MD01724
Amendment: FIRST
Pool Purchase Contract Number: D03070
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.
The amended terms and conditions are set forth below. If applicable, the Lender
and Fannie Mae shall rely also on any attached pages for a complete description
of the amended terms and conditions.
The amended terms and conditions:
1. AMENDED TERM: add the ability to deliver seasoned Title 1 mortgages under
Pool Purchase Contract Number D03070.
INSTRUCTIONS: (1) Under the "Fixed-Rate" tab, replace page FRM-2 with the
enclosed page FRM-2.
(2) All replaced pages, along with this letter, should be
inserted under the "Amendment History" tab.
<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,
FANNIE MAE
By: /s/ Jerome Brister
-------------------------------------------------
(Authorized Signature)
Name: Jerome Brister, Regional Vice President
-------------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this 5th day of August, 1997.
HOME, INC.
By: /s/ John Ballard
-------------------------------------------------
(Authorized Signature)
Name: John Ballard, C.E.O.
-------------------------------------------------
(Name and Title)
Page 2
Master No. MD01724 - Amd. No. 1
<PAGE>
CONTRACT NO.: D03070
FHA TITLE I FIXED-RATE MORTGAGE POOL PURCHASE CONTRACT
- --------------------------------------------------------------------------------
Lender: HOME, INC. Lender Number: 23772-000-8
- --------------------------------------------------------------------------------
For a complete set of the terms of this transaction, this Pool Purchase Contract
between Fannie Mae and the Lender must be read in conjunction with the Master
Agreement No. MD01724.
<TABLE>
<CAPTION>
<S> <C>
Date of Contract: __________(Date executed by Lender)
Total Amount of Pool Purchase
Transactions for OPTIONAL Delivery: $50,000,000.00 plus or minus 5%
Eligible Products: 3- TO 20-YEAR FIXED-RATE LEVEL-PAYMENT MORTGAGES
Guaranty Fee: 50 BASIS POINTS
Latest Issue Date for Pools formed
under this Contract: DECEMBER 1, 1997
</TABLE>
- --------------------------------------------------------------------------------
Servicing Option: SPECIAL
Buyup/Buydown Ratios: GRID 3
Mortgage Type: FHA
Remittance Cycle: STANDARD
Seasoning Requirements: CURRENT/SEASONED
Special Feature Codes: 001 AND 089
FOR SUBORDINATE MORTGAGES, 015 MUST
ALSO BE USED
- --------------------------------------------------------------------------------
Foreclosure Loss Risk Code: M
Additional Terms: Except as modified by this Contract, all FHA Title I
Mortgages must conform to the requirements of the Selling Guide and Servicing
Guide as amended by Fannie Mae Announcement 96-03. Additional terms and
representations are attached.
Master No. MD01724 - Amd. No. 1
FRM - 2
<PAGE>
EXHIBIT 10.18b
September 17, 1997
Home, Inc.
6836 Austin Center Blvd.
Austin, TX 78731
Attention: Mr. John Ballard
Subject: Master Agreement Number: MD01724
Amendment: SECOND
Pool Purchase Contract Number: D03070
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.
The amended terms and conditions are set forth below. If applicable, the Lender
and Fannie Mae shall rely also on any attached pages for a complete description
of the amended terms and conditions.
The amended terms and conditions:
1. AMENDED TERM: add Pooling Parameters Prefixes for 15 and 20 year Products
for FHA Title I Pool Purchase Contract.
INSTRUCTIONS: (1) Replace page FRM-3 in the "Fixed-Rate" section of your
Master Agreement binder with the enclosed page FRM-3.
(2) All replaced pages, along with this letter, should be
inserted under the "Amendment History" tab.
<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,
FANNIE MAE
By: /s/ Jerome Brister
-------------------------------------------------
(Authorized Signature)
Name: Jerome Bristers, Regional Vice President
-------------------------------------------------
(Name and Title)
Agreed, acknowledged and accepted this 22nd day of September, 1997.
HOME, INC.
By: /s/ Tommy M. Parker
-------------------------------------------------
(Authorized Signature)
Name: Tommy M. Parker, Executive Vice President
-------------------------------------------------
(Name and Title)
Page 2
Master No. MD01724-Amd. 2
<PAGE>
ADDITIONAL TERMS
Section of the Act: 201s (secured and direct) and 201sd (secured and
dealer)
Lien Type: First or subordinate mortgages. Unsecured loans are not
eligible. Cooperative share loans are not eligible.
Amortization: Only FHA Title I Mortgages utilizing the standard
monthly amortization method for principal and interest
application (as described in the Selling Guide, Part V,
Section 2, Exhibit 3) are eligible. Mortgages utilizing
the daily accrual, payment-to-payment, or simple
interest methods must be converted to a standard
monthly amortization schedule via a written agreement,
that is executed by the borrower, prior to the Issue
Date of the related pool.
Minimum Servicing Fee: 125 basis points
Pooling parameters: Each Pool delivered pursuant to this Contract will be
comprised entirely of FHA Title I Mortgages with
original terms that fall within one of the following
ranges:
POOL PREFIX ORIGINAL TERM RANGE
TJ 36 months - 60 months
TK 61 months - 120 months
TT 121 months - 240 months
FHA Title I Mortgages may not be commingled with other
mortgages in a Pool.
Maximum Note Rate: The maximum mortgage interest rate eligible for
inclusion in a Pool is a rate that is no greater than
the sum of the pass-through rate, the guaranty fee and
250 basis points.
REPRESENTATIONS
The Lender makes the following representations in connection with each FHA Title
I Mortgage delivered to Fannie Mae pursuant to this Contract:
(i) As of the Issue Date, the proceeds of the Mortgage have been fully
disbursed and there is no requirement for future advances thereunder, and
any and all applicable requirements set forth in the Mortgage documents
have been complied with;
(ii) There is no default, breach, violation or event of acceleration existing
under the Mortgage and there is no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration;
Master No. MD01724-Amd. 2
FRM - 3
<PAGE>
EXHIBIT 11
HOMECAPITAL INVESTMENT CORPORATION
EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
---------- ----------
PRIMARY EARNINGS PER COMMON SHARE:
<S> <C> <C>
Net income $5,178,737 $2,566,223
Less preferred stock dividends $ (270,000) $ (76,932)
Less beneficial conversion feature on preferred stock 0 (3,000,000)
---------- ----------
Net income (loss) for common shareholders $4,908,737 $ (510,709)
========== ==========
Weighted average shares outstanding during the period 8,061,131 7,010,884
Common stock equivalents 594,120 0
---------- ----------
Weighted average common shares outstanding 8,655,251 7,010,884
========== ==========
Primary earnings (loss) per common share $ 0.57 $ (0.073)
========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net income for common shareholders $5,178,737
==========
Weighted average shares outstanding during the period 8,061,131
Common stock equivalents 592,508
Assume conversion of preferred stock 1,500,000
----------
Weighted average common shares outstanding 10,153,639
==========
Fully diluted earnings (loss) per common share $ 0.51 $ (0.073) (1)
========== ==========
(1) Calculation of fully diluted EPS is not presented for the year ended September 30, 1996 as it is anti-dilutive.
</TABLE>
<PAGE>
Exhibit 21
HOMECAPITAL INVESTMENT CORPORATION
Subsidiaries of the Company
Name Place of Incorporation
- ------------------------------------------ -----------------------------
HomeOwners Mortgage & Equity, Inc. Delaware
(dba) Home, Inc.)
Home Securities One LLC
(a single member limited liability
corporation) Delaware
Home Securitization Trust I
(a series business trust) Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AT SEPTEMBER 30, 1997 AND STATEMENT OF OPERATIONS OF 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-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 4,202
<SECURITIES> 45,962,796
<RECEIVABLES> 9,504,970
<ALLOWANCES> 250,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,842,474
<DEPRECIATION> 476,788
<TOTAL-ASSETS> 60,732,003
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
15,000
<COMMON> 82,269
<OTHER-SE> 11,391,562
<TOTAL-LIABILITY-AND-EQUITY> 60,732,003
<SALES> 15,128,171
<TOTAL-REVENUES> 23,968,818
<CGS> 0
<TOTAL-COSTS> 15,795,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,075,000
<INTEREST-EXPENSE> 1,925,434
<INCOME-PRETAX> 8,173,733
<INCOME-TAX> 2,994,996
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,178,737
<EPS-PRIMARY> .57
<EPS-DILUTED> .51
</TABLE>
