<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 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
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 95-3614463
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
(Address of Principal Executive Offices)
(512) 343-8911
(Issuer's Telephone Number, Including Area Code)
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 [ ]
As of April 30, 1997, there were 8,226,883 shares of common stock of the
issuer outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
The Exhibit Index appears on page 31.
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION
Index to Form 10-QSB
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements.
Consolidated Balance Sheet (Unaudited)
As of March 31, 1997 3
Consolidated Statements of Operations (Unaudited)
For the Six Months Ended March 31, 1997
and 1996 4
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 1997
and 1996 5
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended March 31, 1997
and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or
Plan of Operation. 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
2
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash $ 1,497,708
Cash deposits, restricted 595,070
Loans held for sale, net 3,756,086
Interest-only strip receivable 14,379,230
Prepaid and other assets 892,175
Furniture, fixtures and equipment, net 932,212
Deferred tax assets 384,119
-----------
Total assets $22,436,600
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 108,341
Revolving lines of credit 7,990,588
Capital lease obligations 7,637
Accrued expenses and other liabilities 1,437,578
Allowance for credit losses on loans sold 545,000
Income taxes payable 2,022,629
-----------
Total liabilities 12,111,773
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
Common stock, $.01 par value; authorized 100,000,000 shares;
8,226,883 shares issued and outstanding 82,269
Additional paid-in capital 5,683,710
Retained earnings 4,838,566
Valuation allowance for securities available for sale (237,467)
Notes receivable for stock (57,251)
-----------
Total stockholders' equity 10,324,827
-----------
Total liabilities and stockholders' equity $22,436,600
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Revenues:
Gain on sale of loans $ 8,618,767 $2,559,652
Net unrealized gain on valuation of
interest-only strip receivable 427,975 --
Interest - loans 694,416 174,913
Interest - investments 539,959 --
Loan servicing income 422,482 60,127
Other income 98,714 76,820
----------- ----------
Total revenues 10,802,313 2,871,512
----------- ----------
Costs and Expenses:
Salaries and employee benefits 1,872,780 1,009,159
Servicing costs 179,909 54,129
Loan costs 808,550 114,801
General and administrative 1,313,174 745,972
Occupancy 258,483 134,396
Interest 532,049 167,513
----------- ----------
Total costs and expenses 4,964,945 2,225,970
----------- ----------
Income before income taxes 5,837,368 645,542
Provision for income taxes 2,048,512 --
----------- ----------
Net income $ 3,788,856 $ 645,542
=========== ==========
Income per common and common equivalent share:
Primary:
Earnings per common share $ .43 $ .084
=========== ==========
Weighted average number of common and common
equivalent shares outstanding 8,489,979 7,662,662
=========== ==========
Fully Diluted:
Earnings per common share $ .38 $ .081
=========== ==========
Weighted average number of fully diluted common
shares outstanding 10,058,256 7,966,803
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Revenues:
Gain on sale of loans $ 3,831,648 $1,191,421
Net unrealized gain on valuation of
interest-only strip receivable 427,975 --
Interest - loans 329,973 73,991
Interest - investments 538,723 --
Loan servicing income -- 47,071
Other income 61,643 32,931
----------- ----------
Total revenues 5,189,962 1,345,414
----------- ----------
Costs and Expenses:
Salaries and employee benefits 1,092,831 499,001
Servicing costs -- 44,404
Loan costs 467,723 56,241
General and administrative 815,549 393,656
Occupancy 147,158 69,113
Interest 288,573 81,319
----------- ----------
Total costs and expenses 2,811,834 1,143,734
----------- ----------
Income before income taxes 2,378,128 201,680
Provision for income taxes 833,435 --
----------- ----------
Net income $ 1,544,693 $ 201,680
=========== ==========
Income per common and common equivalent share:
Primary:
Earnings per common share $ .17 $ .026
=========== ==========
Weighted average number of common and common
equivalent shares outstanding 8,810,027 7,696,803
=========== ==========
Fully Diluted:
Earnings per common share $ .15 $ .025
=========== ==========
Weighted average number of fully diluted common
shares outstanding 10,317,394 7,966,803
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,788,856 $ 645,542
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Depreciation and amortization 348,484 68,230
Deferred tax benefit (71,285) --
Provision for credit losses 342,805 --
Gain on sales of loans (8,618,767) (2,559,652)
Unrealized gain from sales of loans (427,975) --
Proceeds from sales of loans 75,397,612 42,454,021
Purchase and origination of loans (75,476,991) (40,445,344)
Change in operating assets and liabilities:
Decrease in cash deposits, restricted 110,682 --
(Increase) decrease in accrued
interest receivable (53,256) 1,379
Increase in prepaid and other assets (624,333) (51,588)
Increase in accrued expenses and
other liabilities 1,090,891 118,184
------------ ------------
Net cash provided by (used in)
operating activities (4,193,277) 230,772
------------ ------------
Cash flows from investing activities:
Purchase of furniture, fixtures and
equipment (392,185) (153,301)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in revolving lines of credit 3,926,408 (908)
Payments on notes payable (49,998) 200,096
Proceeds from exercise of Series A Warrants 1,911,919 --
Proceeds from exercise of other Warrants 92,700 --
Payments on capital lease obligations (6,714) (16,761)
Preferred stock dividends (134,629) --
------------ ------------
Net cash provided by financing
activities 5,739,686 182,427
------------ ------------
Increase in cash 1,154,224 259,898
Cash, beginning of period 343,484 25,716
------------ ------------
Cash, end of period $ 1,497,708 $ 285,614
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
THE COMPANY AND SUBSIDIARY
HomeCapital Investment Corporation, a public holding company, ("Company," or
"HomeCapital") was incorporated in the state of Nevada on October 8, 1980. As a
result of a reverse acquisition transaction with HomeOwners Mortgage & Equity,
Inc. ("Home") in August 1994 (the "Home Transaction"), Home became the wholly-
owned subsidiary of the Company, and the previous shareholders of Home held
approximately 83% of the outstanding common stock of the Company. The Company
currently conducts its business entirely through Home. Home originates and
purchases home improvement loans and is approved to engage in lending activities
under the Department of Housing and Urban Development ("HUD") Title I program.
As such, Home is subject to regulation and examination by that agency.
As of the date of the Home Transaction, the Company was a public company with no
business operations and net liabilities of $7,500. The reverse acquisition was
accounted for as a recapitalization with carryover basis of assets and
liabilities. The financial statements reflect the financial condition and
results of operations of Home consolidated with the Company. All intercompany
transactions and balances have been eliminated in the accompanying consolidated
financial statements.
DESCRIPTION OF OPERATIONS
The Company through its loan correspondents, direct mail solicitation, and home
improvement contractors originates and purchases home improvement loans
("Loans") and is approved to engage in lending activities under the Department
of Housing and Urban Development ("HUD") Title I Program. As such, the Company
is subject to regulation and examination by this agency. Pursuant to that
program, 90% of the principal balances of the Loans are U.S. Government insured
("Title I Loans").
7
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ADJUSTMENTS TO INTERIM FINANCIAL STATEMENT
The interim financial statements of the Company at March 31, 1997 and for the
six months and quarter ended March 31, 1997 and 1996, respectively, reflect all
adjustments (consisting solely of normal recurring adjustments), which in the
opinion of management, are necessary to make the financial statements not
misleading.
CASH DEPOSITS, RESTRICTED
Restricted cash represents unremitted funds received in connection with the
servicing of Loans sold with residual interests retained that have not been
remitted to the purchasers of such Loans as of March 31, 1997. The liability
for these unremitted funds is included in the Balance Sheet under the caption of
accrued expenses and other liabilities.
LOANS HELD FOR SALE, NET
Loans held for sale are carried at the lower of aggregated cost or market value
in the accompanying Balance Sheet. Loans held for sale at March 31, 1997 have
been either originated by the Company or purchased from its Loan Correspondents.
The Company funds these Loans primarily through its warehouse line of credit.
Purchase premiums, discounts, loan origination fees and related direct
origination costs are included in the stated cost of Loans held for sale, and
are deferred until the related Loans are sold.
Provision for credit losses relating to Loans held for sale is charged to income
in amounts sufficient to maintain the allowance at a level considered adequate
to provide for anticipated losses resulting from liquidation of outstanding
Loans. The provision for credit losses is based upon periodic analysis of the
portfolio, economic conditions and trends, historical credit loss experience,
borrowers' ability to repay, collateral values and giving effect to estimated
Federal Housing Administration ("FHA") Insurance recoveries on Title I Loans.
8
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION
Gain on sale of Loans and Mortgage Backed Securities ("MBS") is recognized upon
delivery of Loans or MBS to investors. The gain on sale of Loans and MBS is
calculated based upon the difference between the net proceeds from sale and the
allocated carrying amount of Loans or MBS sold, together with an Interest-only
strip receivable determined on the date of sale. The allocated carrying values
are based upon the relative fair value of Loans or MBS sold and the Interest-
only strip receivable retained. The difference between the fair value and
allocated carrying amounts for securities classified as available for sale is
included as a component of stockholders' equity.
INTEREST-ONLY STRIP RECEIVABLE
The Company adopted Statement of Financial Accounting Standards 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 statement, the Excess servicing receivable
previously shown on the Balance Sheet as of December 31, 1996 has been renamed
as Interest-only strip receivable, and classified as an "available for sale"
security. Interest-only strip receivables arising from sale of Loans and MBS in
the three months ended March 31, 1997, are classified as "trading" securities.
The Company recorded as revenue, a net unrealized gain of $427,975 on the
valuation of the Interest-only strip receivable for Loans and MBS sold in the
quarter ended March 31, 1997.
The fair value of the Interest-only strip receivable is calculated based upon
the present value of the estimated future interest income 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.
9
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INTEREST-ONLY STRIP RECEIVABLE, CONTINUED
For Loans and MBS during the three months ended March 31, 1997, the estimated
fair value of cash flows were discounted using rates that averaged 11%. 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 fair value of the Interest-only strip
receivable. Changes in the fair value of securities available for sale is
recognized as an adjustment to stockholders' equity and changes in the fair
value of trading securities is reflected in operations.
ALLOWANCE FOR CREDIT LOSSES ON LOANS SOLD
Loans sold by the Company are sold with limited recourse. These transactions
are accounted for as sales because 1) the Company surrenders control of the
future economic benefits of the loans, 2) the obligation under the recourse
provision can be reasonably estimated and 3) the purchaser cannot require the
Company to repurchase the loans except pursuant to the recourse provision. The
Company provides an estimate for credit losses related to this recourse
provision. Such amounts are incurred over the period subject to recourse.
Recourse to the Company on sales of Loans and MBS is governed by the agreements
between the purchasers and the Company. The allowance for credit losses on
Loans sold represents the Company's best estimate of its probable future credit
losses to be incurred over the life of the Loans and MBS, giving effect to
estimated FHA Insurance recoveries on Title I Loans. The allowance for losses on
Loans sold with recourse is shown separately as a liability on the Company's
Balance Sheet.
10
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FURNITURE, FIXTURES AND EQUIPMENT, NET
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation. Expenditures for major renewals and improvements are capitalized
while minor replacements, maintenance and repairs which do not improve or extend
the life of such assets are charged to expense. Gains or losses on disposal of
fixed assets are reflected in operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets, ranging from 5 to 7 years. Leasehold
improvements are depreciated over the term of the lease, ranging from 1 to 5
years.
FEDERAL AND STATE INCOME TAXES
The Company and Home file separate Federal and state income tax returns. The
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and measured
using the enacted tax rates and laws.
CREDIT CONCENTRATIONS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, Loans held for sale and Interest-only
strip receivable. Concentration of credit risk and mitigating factors regarding
Loans and Interest-only strip receivable are described above. The Company
places its cash in several major financial institutions thereby limiting the
Company's exposure to concentrations of credit risk. The operating accounts of
the Company exceeded the amount insured by the Federal Deposit Insurance
Corporation by an aggregate of $1,225,950 at March 31, 1997.
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 March 31, 1997, the Company had outstanding commitments to extend
credit or purchase loans in the amounts of approximately $27,167,000.
11
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
IMPAIRMENT OF LONG-LIVED ASSETS
Effective October 1, 1996 the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived 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. The Company
concluded through analysis of these cashflows that there was no impairment of
long lived assets recorded on the financial statements at March 31, 1997.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 establishes fair value-
based financial accounting and reporting standards for all transactions in which
a company acquires goods or services by issuing its equity instruments or by
incurring a liability to suppliers in amounts based on the price of its common
stock or other equity instruments. The Company will continue to account for
stock-based compensation as prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and will make the required
disclosures which include the proforma effect on the income statement in its
1997 fiscal year-end financial statements.
EARNINGS PER SHARE
The computation of primary earnings per share is based on the weighted average
number of common shares outstanding during the period plus, when dilutive,
common equivalent shares which includes stock options (see Note 12) using the
treasury stock method. Fully diluted earnings per share additionally assumes
conversion of the Company's 1,500,000 outstanding shares of Preferred Stock,
Series A. The number of contingent shares used in the fully diluted calculation
is based on the market price of the Company's common stock as of March 31, 1997.
Net earnings used in the computation of primary earnings per share are reduced
by preferred stock dividend requirements.
12
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EARNINGS PER SHARE, CONTINUED
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
specifies the computation, presentation, and disclosure requirements for
earnings per share. The Company has not yet determined the effect that the
implementation of SFAS No. 128 will have on the earnings per share calculation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain accounts and balances in the financial statements for the six months and
quarter ended March 31, 1996, have been reclassified to be consistent with the
1997 account classifications.
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.
13
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
Estimated fair values, carrying values and various methods and assumptions used
in valuing the Company's financial instruments at December 31, 1996 are set
forth below.
<TABLE>
<CAPTION>
Carrying Estimated Fair
Value Value
-------- --------------
<S> <C> <C>
Financial Assets:
Cash (a) $ 1,497,708 $ 1,497,708
Loans held for sale (b) 3,756,086 4,122,178
Interest-only strip receivable (c) 14,379,230 14,379,230
Financial Liabilities:
Debt obligations (d) 8,106,566 8,106,566
</TABLE>
- --------------
(a) The carrying value of cash is considered to be a reasonable estimate of fair
value.
(b) The fair value is estimated by using current investor yields or outstanding
commitments from investors after consideration of non-qualified loans and
the collateral securing such Loans.
(c) The fair value is estimated by discounting future cash flows using rates
available for instruments with similar risks, terms and remaining
maturities.
(d) The debt obligations are primarily adjustable rate instruments and indexed
to the prime rate or Federal Funds rate; therefore, carrying value is a
reasonable estimate of fair value. Capitalized equipment leases have
implicit fixed interest rates ranging from 14.4% to 25.6%, which approximate
fair value in the aggregate.
The fair value estimates made at March 31, 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 offering
for sale at one time the entire portion of the financial instrument. Because no
market exists for a portion of the financial instruments, fair value estimates
may be based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
Fair value estimates are based on existing on-and-off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax implications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of the estimates.
14
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
3. LOANS HELD FOR SALE
Loans held for sale consisted of the following at March 31, 1997:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Title I Loans $3,558,435
Conventional loans 134,589
Commercial loans 25,000
Capitalized loan origination fees and
costs, net 135,867
----------
3,853,891
Allowance for credit losses (97,805)
----------
Total $3,756,086
==========
</TABLE>
The serviced Loan portfolio which includes Loans sold to investors and Loans
retained by the Company aggregated approximately $158,101,000 at March 31, 1997.
4. ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for Loans consisted of the following:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Balance at January 1, 1997 $ 498,509
Provisions for credit losses 350,000
Credit losses incurred (205,704)
---------
Balance at March 31, 1997 $ 642,805
=========
Components of Allowance:
Allowance for credit losses on Loans held for sale $ 97,805
Allowance for credit losses on Loans sold 545,000
</TABLE>
15
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
5. INTEREST-ONLY STRIP RECEIVABLE
The activity in the Interest-only strip receivable is summarized as follows
for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 $10,521,807
Additions 4,467,468
Deductions (250,246)
Change in fair value (359,799)
-----------
Balance, March 31, 1997 $14,379,230
===========
</TABLE>
6. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consisted of the following at March 31:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Furniture and fixtures $ 296,792
Equipment 509,510
Leasehold improvements 38,850
Software cost 383,395
-----------
1,228,547
Accumulated depreciation (296,335)
-----------
$ 932,212
===========
</TABLE>
7. REVOLVING LINES OF CREDIT
The Company finances its loans held for sale through a $15,000,000 revolving
line of credit agreement, effective September 17, 1996, which matures January
31, 1998, and had an outstanding balance of $2,990,588 at March 31, 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 the lower of 350 basis points over the Federal Funds
rate (7.07% at March 31, 1997) or 150 basis points over the prime interest rate
(8.50%, at March 31, 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 will fund the
bank directly and the collateral will be released.
16
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
7. REVOLVING LINES OF CREDIT, CONTINUED
On November 8, 1996 the Company entered into a separate working capital line of
credit (servicing collateralized) for $3,000,000 (increased to $5,000,000
effective January 1, 1997) which matures January 31, 1998. The interest rate on
the working capital line of credit is prime plus 2.25%.
In connection with the above borrowings, the Company has agreed to certain
financial covenants regarding tangible net worth, leverage ratios, and
liquidity. The Company is permitted to pay dividends as long as the financial
ratios are maintained.
The composition of the revolving lines of credit was as follows at March 31,
1997:
Payable to financial institution, warehouse line $2,990,588
Payable to financial institution, working capital line 5,000,000
----------
$7,990,588
==========
8. 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.
The Series A Preferred Stock has a cumulative annual preferred dividend of $.18
per share, payable quarterly before any distribution to holders of Common Stock,
with mandatory payment of dividends required for the first year after issue, and
shares of Series A Preferred Stock are convertible at any time into Common Stock
at a conversion rate, subject to certain adjustments, of one share of Common
Stock for each share of Series A Preferred Stock. The Series A Preferred Stock
is redeemable at par, plus accrued, unpaid dividends, at the option of the
Company, at any time after two years from the date of issuance. Each share of
Series A Preferred Stock is entitled to one vote with respect to all matters
submitted to a vote of the stockholders of the Company, and holders of Series A
Preferred Stock are entitled to vote as a class as provided by law in connection
with any amendment to the Articles of Incorporation or Bylaws of the Company, or
any other corporate action that would adversely affect the holders of Series A
Preferred Stock. Shares of Series A Preferred Stock are entitled to a
liquidation preference of $1.50 per share, plus any accrued, unpaid dividends,
before any distribution to holders of Common Stock upon dissolution of the
Company.
17
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
8. PREFERRED STOCK, CONTINUED
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.
9. INCOME TAXES
The provision for income taxes for the three months ended March 31, 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Current:
Federal $763,546
State 31,087
--------
794,633
Deferred provision 38,802
--------
Provision for income taxes $833,435
========
</TABLE>
The components of deferred tax assets and liabilities were as follows at March
31:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Deferred tax liabilities:
Depreciation and amortization $(47,985)
--------
Deferred tax assets:
Net operating loss carry forwards 73,230
Allowance for credit losses 218,554
Unrealized gain 213,550
--------
505,334
Valuation allowance (73,230)
--------
Total deferred tax assets 432,104
--------
Net deferred tax assets $384,119
========
</TABLE>
18
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
9. INCOME TAXES, CONTINUED
The reconciliation between the income tax provision and the income tax expense
using the Federal statutory rate for the three months ended March 31, 1997 is as
follows:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Federal tax at statutory rate of 34% $808,564
State income taxes, net of federal tax benefit 21,591
Expenses not deductible for tax purposes 3,280
--------
Total income tax provision $833,435
========
</TABLE>
There was no income tax provision for the six months and quarter ended March 31,
1996 due to the carryforward of net operating losses from prior years and
accordingly no rate reconciliation is provided.
10. GAIN ON SALE OF LOANS
Gain on sale of Loans, as defined in Note 2, and the related cost is as
follows for the three month period ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Gain on whole Loan sales $ 1,456,121 $1,515,303
Interest-only strip gain 3,864,442 208,205
----------- ----------
5,320,563 1,723,508
Premiums, net (1,488,915) (532,087)
Transaction costs -- --
----------- ----------
Gain on sale of Loans $ 3,831,648 $1,191,421
=========== ==========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company leases its office space at its corporate headquarters and eleven
branch offices through operating leases expiring through 2001. Rent expense for
the three month periods ended March 31, 1997 and 1996 totaled $112,809 and
$56,850, respectively.
19
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, continued
11. 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. Required minimum rental payments
for the remaining terms of the leases are as follows:
<TABLE>
<CAPTION>
Years Ending Capital Leases Operating Leases
------------ -------------- ----------------
<S> <C> <C>
1997 remaining $ 2,229 $ 123,370
1998 6,125 278,155
1999 472 277,912
2000 -- 208,615
2001 -- 177,619
Less amount representing interest (1,189) --
------- ----------
$ 7,637 $1,065,671
======= ==========
</TABLE>
The Loans sold by the Company are sold with limited recourse. In the event that
the borrower defaults on its first payment, the Company is committed to
repurchasing the loan. The Company submits a claim for 90% of the principal
amount of the loan to HUD under the Title I insured loan program for such
repurchased loans after exhausting 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 March 31, 1997, Home had adjusted net worth of $10,386,300.
12. STOCK OPTIONS
In June of 1993, Home issued options to purchase 555 shares of its common stock
at $120 per share to one of its employees. As a result of the acquisition of
HomeCapital, these options were converted into options to purchase 409,668
shares of HomeCapital stock at $.16 per share. The options, which are fully
exercisable as of March 31, 1997, expire in the year 2001. No shares have been
exercised.
20
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
12. STOCK OPTIONS, CONTINUED
Effective March 21, 1996, the Board of Directors of the Company adopted the
HomeCapital Investment Corporation 1996 Stock Option Plan, which was ratified by
stockholder vote on August 16, 1996. The Stock Option Plan provides that up to
500,000 shares of Common Stock may be issued upon exercise of options granted
under the Stock Option Plan, subject to adjustment to reflect stock splits,
stock dividends, mergers and similar transactions. At March 31, 1997, options
to purchase an aggregate of 450,000 shares of Common Stock had been granted
under the Stock Option Plan. Exercise prices per share range from $3.50 to
$9.00.
13. SEGMENT INFORMATION
For the three month periods ended March 31, 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 $31,801,408 89.3 $15,881,280 75.9
Dealer Loans 1,750,588 4.9 4,108,716 19.6
Direct Loans 2,069,664 5.8 944,807 4.5
----------- --- ----------- ----
Total Title I Loans $35,621,660 100 $20,934,803 100
=========== ==== =========== ====
</TABLE>
The Company also originates conventional home improvement Loans through several
arrangements with other home improvement lenders on a pre-approved basis. Total
conventional loans originated for the three months ended March 31, 1997 and 1996
were $1,045,335 and $935,787, respectively. At March 31, 1997 and 1996,
$134,589 and $0, respectively, of conventional loans were held for sale under
firm purchase commitments.
Prior to October 1995, the Company sold all of its loans held for sale on a
servicing released basis. In October 1995, the Company commenced selling the
majority of its loan production to its then warehouse lender on a servicing
retained basis. Additionally, effective March 1, 1996, the Company was approved
as a Seller/Servicer with Fannie Mae to sell Title I Loans to Fannie Mae with
servicing retained. The Company began selling Title I Loans to Fannie Mae in
June 1996. Following is a summary of loans sold during the three month periods
ended March 31, 1997 and 1996:
21
<PAGE>
HOMECAPITAL INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
13. SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
Title I Loans Sold: 1997 1996
- ------------------- ------ ------
<S> <C> <C>
Servicing released $ 609,526 $ --
Servicing retained:
Financial institutions -- 20,159,345
Fannie Mae - Whole loans 22,237,065 --
Fannie Mae - MBS 14,816,156 --
----------- -----------
37,053,221 20,159,345
----------- -----------
Total Title I Loans Sold $37,662,747 $20,159,345
=========== ===========
</TABLE>
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company conducts its operations entirely through its wholly-owned
subsidiary, HomeOwners Mortgage and Equity, Inc. ("Home"). See Note 1 to Notes
to Consolidated Financial Statements.
Home is a specialized consumer finance company organized in 1993 to originate,
purchase, sell and service home improvement and other second mortgage loans
secured by residential property. Home primarily finances Title I home
improvement loans ("Title I Loans") and conventional consumer and home equity
loans that may fund a variety of borrower needs ("Conventional Loans"). Loans
originated or purchased by Home are financed through bank warehouse credit lines
and then sold to the Federal National Mortgage Association ("Fannie Mae"),
secondary market mortgage investors and other financial institutions. Home
originates its loans primarily through a national network of mortgage company
loan correspondents ("Correspondents"), through direct mail solicitation of
individual homeowners ("Direct Loans"), and through pre-qualified home
improvement contractors ("Dealers") principally in the Southwestern and Western
regions of the United States. Additionally, the Company has continued to pursue
special arrangements for loans to customers of home improvement supply and
installation firms ("Corporate Alliances"). The Corporate Alliances
relationships provide another source for Direct Loans.
In November 1996, Home concluded a marketing agreement with Builders Square,
Inc., a subsidiary of Kmart Corporation, under which, on an exclusive basis,
Home will market its MoneyLink loan products through the Builders Square stores.
The agreement called for an initial test period of six months. Effective May
31, 1997, the test period will conclude early and Home will proceed with
implementing the MoneyLink program on a national basis to Builders Square
customers in its 168 stores in the United States and Puerto Rico.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 ("1997 period"), COMPARED TO SIX MONTHS ENDED
MARCH 31, 1996 ("1996 period"):
A comparison of results of operations of the 1997 period to the 1996 period
reflects the substantial shift of the business from cash loan sales to sales of
loans and Mortgage-backed Securities ("MBS") to Fannie Mae, with the retention
of servicing of the assets transferred. It also reflects the significant growth
the Company has attained during the past year in both loan production volume and
geographical diversity of its area of operations. The Company originated $75.5
million of loans during the 1997 period compared to $41.6 million of loans
during the 1996 period, an increase of 81.4%. This increase is a result of an
increase in the number of active Correspondents, increase in the level of Direct
Loan originations and an expansion in the number of states served. At March 31,
1997, the Company had approximately 209 active Correspondents and 237 active
Dealers, compared to approximately 105 active Correspondents and 154 active
Dealers at March 31, 1996. As of March 31, 1997, the Company was approved by
state regulatory authorities for loan originations in 36 states. This
represented an increase of 13 states during the six months ended March 31, 1997.
Additionally, during the six months
23
<PAGE>
ended March 31, 1997, the Company opened 6 new branch offices. New offices were
opened in Seattle, Denver, Chicago, Pittsburgh, Cleveland, and Atlanta. Further,
the Phoenix office was expanded to accommodate direct mail loan solicitations.
Of the $75.5 million of loans originated in the 1997 period, $74.0 million were
Title I Loans and $1.5 were Conventional Loans.
The following table sets forth certain data regarding loans originated by
the Company during the 1997 period and the 1996 period:
<TABLE>
<CAPTION>
Six Month Period
Ended March 31,
1997 1996
------ ------
<S> <C> <C>
Principal amount of loans:
Correspondents:
Title I $63,547,512 $28,141,876
Conventional 1,522,864 1,631,557
----------- -----------
Total Correspondent 65,070,376 29,773,433
Dealers - Title I 4,394,927 9,987,526
Direct - Title I 6,030,052 1,864,649
----------- -----------
Total $75,495,355 $41,625,608
=========== ===========
Number of loans:
Correspondents:
Title I 2,728 1,276
Conventional 74 60
----------- -----------
Total Correspondent 2,802 1,336
Dealers - Title I 331 696
Direct - Title I 337 105
----------- -----------
Total 3,470 2,137
=========== ===========
</TABLE>
Total revenues increased 276% to $10.8 million for the 1997 period from
$2.9 million for the 1996 period. The increase was primarily the result of the
increased volume of loans originated and the sale of such loans, with the
retention of servicing of assets transferred.
24
<PAGE>
The following table sets forth the principal balance of loans sold and
related gain on sale data for the 1997 period and 1996.
<TABLE>
<CAPTION>
Six Month Period
Ended March 31,
1997 1996
------ ------
<S> <C> <C>
Principal amount of loans sold:
Title I $74,779,847 $39,475,564
Conventional 1,442,425 1,631,557
----------- -----------
Total $76,222,272 $41,107,121
=========== ===========
Gain on sale of loans $ 8,618,767 $ 2,559,652
Gain on sale of loans as a percentage
of principal balance of loans sold 11.3% 6.2%
</TABLE>
Gain on sale of loans, as a percentage of the principal balance of loans sold,
increased in the 1997 period over the 1996 period, primarily due to the
Interest-only strip component of the gain in the 1997 period. The increase in
gain on sale of loans increased from $2.6 million in the 1996 period to $8.6
million in the 1997 period. The Interest-only strip component of the gain
totaled $9.5 million in the 1997 period.
On January 1, 1997, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" - FASB Statement No. 125, became
effective and established new accounting rules regarding the computation of gain
on sale of loans and MBS. SFAS No. 125 requires certain reclassifications of
the Company's balance sheet and statement of operations. As a result of adopting
the statement, the Excess servicing receivable previously shown on the Balance
Sheet as of December 31, 1996 has been renamed as Interest-only strip
receivable, and classified as an "available for sale" security. Interest-only
strip receivables arising from sale of Loans and MBS in the three month period
ended March 31, 1997, are classified as "trading" securities. The Company
recorded as revenue, a net unrealized gain of $427,975 on the valuation of the
Interest-only strip receivable for Loans and MBS sold in the quarter ended March
31, 1997.
In the year ended September 30, 1996, the Company commenced selling loans,
retained the right to service such assets, and additionally retained an
Interest-only receivable associated with the transfer and sale of the assets.
Prior to January 1, 1997, the income from the servicing of the assets was
classified as Loan Servicing Income. With the adoption of SFAS 125, the revenue
will now be classified as interest income on the Statement of Operations.
Loans serviced totaled approximately $158,100,000 at March 31, 1997, as compared
to $38,400,000 March 31, 1996.
Interest income-loans increased 297% to $694,416 during the 1997 period from
$174,913 during the 1996 period. The increase was primarily the result of the
increase in the size of the portfolio of assets serviced and loans held for
sale.
25
<PAGE>
As a result of the adoption of SFAS No. 125, amounts previously reported as
loan servicing income were reported as interest-investments during the three
month period ended March 31, 1997. Accordingly, no servicing costs were
recorded for the three months ended March 31, 1997. Instead, those costs were
netted against the cash flows associated with the Interest-only strip
receivable. Those cash flows are recorded as a deduction of the Interest-only
strip receivable. The investment interest income reflects the accreted income
associated with the discount rate of the Interest-only strip receivable.
The provision for credit losses increased from zero in the 1996 period to
$550,000 in the 1997 period. 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 during the six months ended March 31, 1997. Presently, upon sale of
loans by Home the purchaser assumes all credit risk, except for first payment
default, fraud and certain other limited exceptions. If Home changes its loan
disposition strategy in ways that increase its credit risk by securitizing or
otherwise holding the loans longer in portfolio, then the provision for credit
losses as a percentage of loans originated can be expected to increase.
Salaries and employee benefits increased 86% to $1,872,780 for the 1997
period from $1,009,159 for the 1996 period, primarily as a result of an
increase in the pay rates of employees and the increase in hiring professionals
required for growth. During the 1997 period, 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 when compared to the 1996 period when new hires were
predominately clerical personnel. At the end of the 1997 period, the Company
had total employment of 87 as compared to 43 at the end of the 1996 period.
Loan costs, consisting primarily of costs for credit reports, flood
reports, title reports, inspection fees, and the provision for credit losses,
increased 604% to $808,550 for the 1997 period from $114,801 for the 1996 period
due primarily to the provision for credit losses of $550,000, as well as the
increase in loan production of $33.9 million from the 1996 period to 1997.
Total general and administrative expenses increased 76% to $1,313,174 for
the 1997 period from $745,972 for the 1996 period. The increase was primarily
as a result of increases in postage and courier costs, telecommunication costs,
stationary and office supplies expenses, travel costs, advertising expenses, and
depreciation expense. The increase in these costs was primarily attributable to
the increased volume of loan originations, loans serviced, and the new offices
opened.
Interest expense increased 218% to $532,049 for the 1997 period from
$167,513 for the 1996 period. The increase was the direct result of increased
loan originations, the corresponding increase in the average outstanding balance
of the warehouse credit line, and the financing of the Interest-only strip
receivable.
26
<PAGE>
The provision for income taxes in the 1997 period was $2,048,514. Prior to
June 30, 1996, the Company recorded no tax provisions due to net accumulated
operating losses. For the six month period ended March 31, 1997, the Company had
income before income taxes of $5.8 million as compared to $645,542 for the six
month period ended March 31, 1996. A valuation allowance of $73,230 on deferred
tax assets remains at the end of the 1997 period due to net operating loss
carryforwards generated by the Company which it may not be able to utilize in
future periods. The Company and Home file separate Federal and state income tax
returns.
The effective income tax provision for the 1997 period was 35%. 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 $3.8 million ($.38
per share) for the 1997 period from $645,542 ($.081 per share) for the 1996
period.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996
The net income for the second quarter of fiscal 1997 ended March 31, 1997,
as compared to the first quarter of fiscal 1997 ended December 31, 1996,
declined by $699,467, from $2,244,160 to $1,544,693, respectively. Revenues
declined from $5,612,349 in the first quarter to $5,189,962 in the second
quarter primarily due to the lower gain on sale of the MBS transactions closed
in the quarter ended March 31, 1997, and the additional premium paid associated
with the acquisition of higher credit-quality loans. Total costs and expenses
for the second quarter ended March 31, 1997, were $2,811,834 as compared to
$2,153,112 for the first quarter ended December 31, 1996. The increase of
$658,722, or 31%, resulted primarily from the opening of several new offices,
the increase in personnel and expenses to support the direct mail marketing
program, and the increase in personnel and administrative costs required to
implement the Company's new Corporate Alliance with Builders Square. The Company
anticipates that in future periods it will realize increased loan production
from the personnel and facilities established with these expenditures, beginning
in the third quarter of fiscal 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's 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 line of credit
pending the sale of loans in the secondary market. Substantially all of the
loans originated by the Company are sold. Net cash provided by (used in) the
Company's operating activities for the six months ended March 31, 1997 and 1996
was approximately ($4.2 million) and $.2 million, respectively. The net cash
from the Company's operating activities resulted primarily from the proceeds
from the sale of loans totaling $75.4 million and $42.5 million for the six
month periods ended March 31, 1997 and 1996, respectively.
27
<PAGE>
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans in the secondary market, are essential for
the continuation of the Company's loan origination operations. At March 31,
1997, the Company had a $15 million warehouse line of credit (the "Warehouse
Line"). The Warehouse Line matures January 31, 1998. At March 31, 1997, $3.0
million was outstanding under the Warehouse Line and $12.0 million was
available. The Warehouse Line, as amended, bears interest at the lower of prime
plus 1.5% per year or the Federal funds rate plus 3.5% per year and is
collateralized by loans held for sale. The agreement with the lender requires
the Company to maintain a minimum adjusted tangible net worth of $7.2 million.
In addition, the Company secured a $3.0 million working capital line of credit
(the "Working Capital Line") on November 8, 1996 (increased to $5.0 million
effective January 1, 1997) from the same lender, which is collateralized by a
pledge of the Company's Interest-only strip receivable. The Working Capital
Line has a 12-month revolving credit period, bears interest, payable monthly, at
prime plus 2.25% per year, and requires the Company to maintain a minimum
adjusted tangible net worth of $7.2 million. Borrowings under the Working
Capital Line cannot exceed the lesser of (i) the book value of the Interest-only
strip receivable or, (ii) 50% of the appraised value of the Interest-only strip
receivable as determined by the lender. While the Company believes that it will
be able to maintain its existing credit facilities and obtain replacement
financing as its credit arrangements mature and obtain additional financing, if
necessary, there can be no assurance that such financing will be available on
favorable terms, or at all.
Until October 1995, the Company's principal source of liquidity was the
sale of whole loans, servicing released. While this enabled the Company to meet
its operating cash requirements, it limited the Company's growth potential and
return on its loan originations. To remedy this situation, the Company embarked
on a strategy in fiscal 1995 that would enable the Company to position itself to
retain the servicing rights and the related interest-only spread associated with
its loan originations and look to various other sources to securitize its loan
production, such as sales to Fannie Mae under the Title I Loan program and the
securitized sale of loan pools in the secondary market. The Company was approved
as a Seller/Servicer under the Fannie Mae Title I Loan purchase program in March
1996 and required to obtain expanded warehouse financing and additional capital
to support loan sales to Fannie Mae. During the six month period ended March 31,
1997, the Company sold $71.3 million in loans and MBS to Fannie Mae, retaining
servicing rights and the Interest-only strip receivable. The Company intends to
continue selling substantially all of its qualified Title I Loans to Fannie Mae
until it is able to privately assemble and securitize such loans in the
secondary market on a cost effective basis. Any such securitization program
would necessarily entail its own liquidity demands, including without
limitation, funding of reserves and other credit enhancements, income taxes and
significant issuance costs, and require larger warehouse lines of credit and
additional capital to meet rating agency requirements and the increased
liquidity demands.
While the increase in its Warehouse Line, Working Capital Line, and
additional capital have enabled the Company to significantly increase its loan
originations and Loan sales to Fannie Mae, such sales, with the retention of the
Interest-only strip receivable, create additional short-term cash requirements.
Loan sales to Fannie Mae are generally made at a lower premium, and include the
retention for the life of the loan of up to 500 basis points of the initial
spread
28
<PAGE>
between the coupon rate of the Loans and the pass-through rate to Fannie Mae,
and must be accounted for on a basis, as described above, that generates a much
larger gain on sale for income tax purposes. This gain is subject to federal and
state income tax currently payable, even though the cash interest income from
the related Loan sales will be received over the life of the Loans. Accordingly,
in order for the Company to continue to grow its loan originations and servicing
portfolio, it must constantly raise additional capital through the sale of debt
and/or equity securities until the servicing portfolio is large enough to be
self-funded.
Beginning in the three month period ended March 31, 1997, as an alternative
to whole loan sales to Fannie Mae, the Company began participating in the Fannie
Mae FHA Title I Mortgage-Backed Securities Program ("MBS Program"). Under the
MBS Program, the Company delivers qualifying Title I Loans to Fannie Mae and
mortgage-backed securities are created. This MBS Program allows an interest
spread up to 250 basis points to be retained by the Company and results in a
mortgage-backed security that could be held by the Company or sold in the
secondary market for cash. For the three months ended March 31, 1997, the
Company sold approximately $14.8 million in Fannie Mae FHA Title I MBS. These
transactions generated cash gains of $1.2 million and $.9 million in Interest-
only strip receivables.
In May 1997, Home engaged Prudential Securities Incorporated to assist it
in the implementation of a securitization program. Under this securitization
program, Home intends to convert its loans into mortgage pass-through
securities, and subsequently securitize these mortgage pass-through securities
by issuing asset backed securities collateralized by these mortgage pass-through
securities. Prior to securitization, Home intends to finance the accumulation
of the mortgage pass-through securities under a $50,000,000 repurchase agreement
with Prudential Securities Incorporated.
During the 1997 period, the Company used $392,185 in investing activities,
primarily for furniture, fixtures and equipment, including $90,000 for the
further development of the Lot$Pro computer system, and provided $5.7 million in
financing activities through increasing usage of its revolving lines of credit
and the issuance of Common Stock through the exercise of warrants.
The Company expects to spend approximately $250,000 for additional
furniture, fixtures and equipment through the remainder of fiscal 1997 for the
expansion of its lending network, and approximately $100,000 for additional
upgrades and enhancements to its computer system.
The Company believes that it will need to raise approximately $10 million
in debt and/or equity funds to support its anticipated growth in fiscal 1997.
There can be no assurance that the Company will be able to raise such funds.
The failure to raise such funds may impair the Company's ability to implement
its business strategy and grow its business, and may have a material adverse
effect on the financial condition, results of operations and liquidity of the
Company.
29
<PAGE>
SAFE HARBOR STATEMENT
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995: Some of the statements contained in this document
that are not historical facts are forward looking statements. Actual results
may differ from those projected 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, 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 other risks discussed elsewhere in this document and in other
documents filed by the Company with the Securities and Exchange Commission.
30
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 10.1 Fifth Amendment to the Warehouse Loan Agreement, dated
as of January 1, 1997, among the Company, Home, and
Guaranty Federal Bank, F.S.B.
Exhibit 10.2 First Amendment to the Working Capital Line of Credit
and Security Loan Agreement dated as of January 1, 1997,
among the Company, Home, and Guaranty Federal Bank,
F.S.B.
Exhibit 27 Financial Data Schedule (Electronic Filing Only)
(b) Reports on Form 8-K: None
31
<PAGE>
SIGNATURES
In accordance with the requirements 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: May 14, 1997
By: /s/ John W. Ballard
--------------------------------------
John W. Ballard, President,
Chairman of the Board of Directors and
Chief Executive Officer
Date: May 14, 1997
By: /s/ Michael B. Thimmig
--------------------------------------
Michael B. Thimmig, Executive Vice
President, Chief Financial Officer and
Treasurer
32
<PAGE>
EXHIBIT 10.1
FIFTH AMENDMENT TO THE LOAN AGREEMENT
This FIFTH AMENDMENT TO THE LOAN AGREEMENT ("AGREEMENT") is made
effective as of, although not necessarily on, the 1ST DAY OF JANUARY, 1997, by
and between GUARANTY FEDERAL BANK, F.S.B., a federal savings bank ("BANK") and
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, D/B/A HOME, INC.
("BORROWER") and HOMECAPITAL INVESTMENT CORPORATION, a Nevada corporation
("GUARANTOR").
W I T N E S S E T H :
WHEREAS, on JUNE 1, 1996, Borrower and Bank entered into that certain
Warehouse Loan Agreement (together with all amendments, modifications and
restatements thereof, the "LOAN AGREEMENT") dated of even date therewith
providing for a $2,000,000.00 credit facility (together with all increases,
collectively, the "Loan").
WHEREAS, in connection with the execution of the Loan Agreement,
Borrower executed that certain Promissory Note dated of even date (the "NOTE"),
that certain Security Agreement ("SECURITY AGREEMENT") was executed by Borrower
and Bank and a Financing Statement filed with the Secretary of State of Texas
(the "FINANCING STATEMENT");
WHEREAS, effective as of JULY 9, 1996 Bank and Borrower entered into
that one certain First Amendment to the Loan Agreement whereby the loan amount
was increased $10,000,000.00 and certain other changes were made to the loan
documents;
WHEREAS, effective as of SEPTEMBER 17, 1996 Bank and Borrower entered
into that certain Second Amendment to Loan Agreement;
WHEREAS, Bank, Borrower and Guarantor, 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 and certain other changes were made
to the Loan Documents;
WHEREAS, 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;
WHEREAS, Bank, Borrower and Guarantor desire to amend the Loan
Documents to reflect certain changes to the Loan Agreement. All terms not
defined herein are used as defined in the Loan Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:
1. LOAN AGREEMENT. The following modifications are hereby made to the
Loan Agreement effective as of the date hereof:
(a) PAGE 1, the following new definitions are added in alphabetical
order to the definitions:
""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. _________________ used by
<PAGE>
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) March 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.
"AUSTIN FUNDING ACCOUNT - WIRES" shall mean a certain account
established by Borrower by March 31, 1997 at Frost National Bank,
Austin, Texas, ABA No. 114000093, Credit Home, Inc. Austin Funding
Account - Wires No. _______________, 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 March 31, 1997 at
Frost National Bank, Austin, Texas, ABA No. 114000093, Credit Home,
Inc. Austin Funding Account - Wires No. _______________, 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."
(b) PAGE 1, the following new definition is added in alphabetical
order:
""BASE TITLE I LOAN" shall mean a Title I Loan which is (a) a
Single Family Property Improvement Loan (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."
(c) PAGE 3, the definition of "COLLATERAL VALUE" is hereby modified to
read in its entirety:
""COLLATERAL VALUE" shall mean as of any date of determination,
an amount equal to (y) with respect to Base Title I Loans ninety-eight
percent (98%) and (z) with respect to Other Title I Loans and with
respect to Non-Title I Loans, ninety-seven percent (97%), of the least
of: (i) the actual out of pocket costs to Borrower of such Mortgage
Collateral (or in the case of any Mortgage Note funded by Borrower,
the original principal amount of such Mortgage Note minus any discount
points paid to Borrower upon the closing of the 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
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<PAGE>
Note; provided, however, that (a) in no event shall the calculation
above cause Bank to fund an amount in excess of par for any Mortgage
Loan, (b) any Mortgage 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 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 attributable to Second Lien Mortgage Loans which are
Conventional Loans shall be limited to $2,000,000, and (f) the
cumulative Collateral Value at any time attributable to Other Title I
Loans shall be limited to $750,000.00, (g) the cumulative Collateral
Value at any time attributable to Unsecured Loans shall be limited to
$750,000.00, and (h) the cumulative Collateral Value at any time
attributable to Non-Title I Loans shall be limited to $2,000,000.00
and (g) no Pending Loan shall be utilized in the calculation of
Collateral Value until such Mortgage Loan qualifies as a Warehoused
Loan."
(d) PAGE 3, the definition of "COMMITMENT TERMINATION DATE" is hereby
modified to read:
""COMMITMENT TERMINATION DATE" (or the Maturity Date of the Loan)
shall be January 31, 1998 or such earlier date on which the Commitment
terminates as provided in this Agreement."
(e) PAGE 4, the definition of "COVERED MORTGAGE LOAN" is hereby
modified to read:
""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)."
(f) PAGE 4, the following new definition is added in alphabetical
order:
""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."
(g) PAGE 5, the definition of "EXCESS SERVICING RECEIVABLE" is hereby
modified to read:
""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."
(h) PAGE 9, the definition of "MORTGAGE COLLATERAL", CLAUSE (XI) is
hereby modified to read:
"(xi) which are one of the following: Base Title I Loan, an
Other Title I Loan or a Non-Title I Loan."
(i) PAGE 9, the definition of "MORTGAGE NOTE" is hereby modified to
read as follows:
-3-
<PAGE>
""MORTGAGE NOTE" shall mean a promissory note evidencing a Base
Title I Loan, Other Title I Loan or a Non-Title I Loan."
(j) The definition of "NON-TITLE I LOAN" is hereby modified to add a
comma in the last line before the word "not".
(k) PAGE 10, the following new definitions are added in alphabetical
order:
""OTHER TITLE I LOAN" shall mean a Title I Loan which is not a
Base Title I Loan but is a Covered Mortgage Loan.
"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 2.03 and
3.02 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
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."
(l) PAGE 12, the following new definition is added in alphabetical
order:
""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."
(m) PAGE 12, the following new definition is added in alphabetical
order:
""UNSECURED LOAN" shall mean a Title I Loan which is unsecured
but is a Covered Mortgage Loan."
(n) PAGE 13, the following new definition is added in alphabetical
order:
""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."
(o) PAGE 22, SECTION 3.06(F) shall be amended to read as follows:
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<PAGE>
"(f) 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."
(p) PAGE 29, SECTION 6.01(A), the following provisions are added to
the end of such subparagraph:
"and 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
-5-
<PAGE>
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;"
(q) PAGE 35, SECTION 7.06(D) is hereby modified to replace the figure
of "$100,000.00" with the figure of "$500,000.00."
(r) SECTION 7.11 is hereby modified as follows:
"SECTION 7.11. NET WORTH. Borrower's Net Worth shall not be
less than the sum of (a) Net Worth as reflected in the most recent
financial statements delivered to Bank pursuant to SECTION 6.01(A),
(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."
(s) SECTION 7.13 is hereby modified as follows:
"SECTION 7.13. ADJUSTED TANGIBLE NET WORTH. Borrower's Adjusted
Tangible Net Worth shall not be less than the greater of (a) the
Adjusted Tangible Net Worth required of Borrower for the preceding
calendar quarter [with the requirement for the final calendar quarter
of 1996 being $3,705,899.00] and (b) Borrower's actual Adjusted
Tangible Net Worth on the current Determination Date (January 1, April
1, July 1 and October 1, in each case, a "DETERMINATION DATE")
multiplied by eighty percent (80%)."
(t) PAGE 42, SECTION 11.03 is hereby modified to read in its entirety:
""CUSTODIAN FEES. Borrower shall pay to Bank Custodian Fees
(herein so called) of $10.00 per Mortgage Loan."
(u) EXHIBIT "A" is hereby modified to read as shown on EXHIBIT "A"
attached hereto and incorporated herein by this reference.
(v) EXHIBIT "B" is hereby modified to read as shown on EXHIBIT "B"
attached hereto and incorporated herein by this reference.
(w) EXHIBIT "D" is hereby modified to read in its entirety as shown on
EXHIBIT "D" attached hereto and incorporated herein by this reference.
(x) EXHIBIT G is hereby modified to read in its entirety as shown on
EXHIBIT "G" attached hereto and incorporated herein by this reference.
-6-
<PAGE>
(y) SCHEDULE H is hereby modified to read as shown on EXHIBIT "H"
attached hereto and incorporated herein by this reference.
(z) EXHIBIT "I" attached hereto is hereby added as EXHIBIT "I" to the
Loan Agreement and shall be executed simultaneously with this Agreement by
Borrower and Frost National Bank.
1. NOTE. The following modification is hereby made to the Note
effective as of the date hereof:
(a) The date of "FEBRUARY 28, 1997" appearing on the fourth paragraph
of Page 1 is hereby changed to "JANUARY 31, 1998".
2. ONE TIME WAIVER OF NEGATIVE COVENANT BREACHES. Borrower has breached
the following financial covenants: (i) SECTION 7.06(D) of the Loan Agreement and
(ii) SECTION 7.13 of the Loan Agreement. Bank hereby waives such defaults
provided (a) with respect to SECTION 7.06(D) the repurchased owned real estate
and Mortgage Loans did not exceed $500,000.00 from July 1, 1996 to December 31,
1996 and (b) Borrower's Adjusted Tangible Net Worth was equal to or greater than
$3,705,899.00 from September 30, 1996 through December 31, 1996.
3. ACKNOWLEDGEMENT BY BORROWER. Except as otherwise specified herein,
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Borrower hereby acknowledges, agrees and represents that (i) Borrower is
indebted to the Bank pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, valid and subsisting liens, security interests and assignments of
the respective dignity and priority recited in the Loan Documents; (iii) the
representations and warranties contained in the Loan Documents are true and
correct representations and warranties of Borrower, as of the date hereof and no
defaults exist under the Loan Documents; and (iv) Borrower has no set-offs,
counterclaims, defenses or other causes of action against the Bank arising out
of the Loan Documents, the modification and extension of the Loan, any documents
mentioned herein or otherwise and to the extent any such set-offs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by Borrower.
4. ACKNOWLEDGEMENT BY GUARANTOR. Except as otherwise specified herein,
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Guarantor hereby acknowledges, agrees and represents that (i) Guarantor
is indebted to the Bank pursuant to the terms of the Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan Documents
are, respectively, valid and subsisting liens, security interests and
assignments of the respective dignity and priority recited in the Loan
Documents; (iii) the representations and warranties contained in the Loan
Documents are true and correct representations and warranties of Guarantor, as
of the date hereof and no defaults exist under the Loan Documents; and (iv)
Guarantor has no set-offs, counterclaims, defenses or other causes of action
against the Bank arising out of the Loan Documents, the modification and
extension of the Loan, any documents mentioned herein or otherwise and to the
extent any such set-offs, counterclaims, defenses or other causes of action may
exist, whether known or unknown, such items are hereby waived by Guarantor.
5. NO WAIVER OF REMEDIES. Nothing contained in this Agreement shall
prejudice, act as, or be deemed to be a waiver of any right or remedy available
to the Bank by reason of the occurrence or existence of any fact, circumstance
or event constituting a default under the Note or the other Loan Documents.
6. COSTS AND EXPENSES. Contemporaneously with the execution and delivery
hereof, Borrower shall pay, or cause to be paid, all costs and expenses incident
to the preparation, execution and recordation
-7-
<PAGE>
hereof and the consummation of the transaction contemplated hereby, including,
but not limited to, recording fees and reasonable fees and expenses of legal
counsel to the Bank. The attorney's fees and expenses of the Bank's law firm,
Jackson & Walker, L.L.P., shall be paid.
7. ADDITIONAL DOCUMENTATION. From time to time, Borrower shall execute
or procure and deliver to Bank such other and further documents and instruments
evidencing, securing or pertaining to the Loan or the Loan Documents as shall be
reasonably requested by the Bank so as to evidence or effect the terms and
provisions hereof.
8. EFFECTIVENESS OF THE LOAN DOCUMENTS. Except as expressly modified by
the terms and provisions hereof, each of the terms and provisions of the Loan
Documents are hereby ratified and shall remain in full force and effect;
provided, however, that any reference in any of the Loan Documents to the Loan,
the amount constituting the Loan, any defined terms, or to any of the other Loan
Documents shall be deemed, from and after the date hereof, to refer to the Loan,
the amount constituting the Loan, defined terms and to such other Loan
Documents, as modified hereby.
9. GOVERNING LAW. THE BORROWER HEREBY AGREES THAT THE OBLIGATIONS
CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL PARTIES HERETO
AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION MAY BE FILED IN DALLAS
COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN
THE LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION
SHALL BE IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE COMMENCED AGAINST BORROWER IN DALLAS
COUNTY, (V) SUCH ACTION MAY BE INSTITUTED IN THE COURTS OF THE STATE OF TEXAS
LOCATED IN DALLAS COUNTY, TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS, AT THE OPTION OF THE
BANK AND (VI) THE BORROWER HEREBY WAIVES ANY OBJECTION TO THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO BE
SUED ELSEWHERE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF EACH BANK TO
ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10. TIME. Time is of the essence in the performance of the covenants
contained herein and in the Loan Documents.
11. BINDING AGREEMENT. This Agreement and the Loan Documents shall be
binding upon the heirs, executors, administrators, personal representatives,
successors and assigns of the parties hereto; provided, however, the foregoing
shall not be deemed or construed to (i) permit, sanction, authorize or condone
the assignment of all or any part of the Collateral or any of Borrower's rights,
titles or interest in and to the Collateral or any rights, titles or interests
in and to Borrower, except as expressly authorized in the Loan Documents, or
(ii) confer any right, title, benefit, cause of action or remedy upon any person
or entity not a party hereto, which such party would not or did not otherwise
possess.
12. HEADINGS. The section headings hereof are inserted for convenience of
reference only and shall in no way alter, amend, define or be used in the
construction or interpretation of the text of such section.
13. CONSTRUCTION. Whenever the context hereof so required, reference to
the singular shall include the plural and likewise, the plural shall include the
singular; words denoting gender shall be construed to mean the masculine,
feminine or neuter, as appropriate; and specific enumeration shall not exclude
the general but shall be construed as cumulative of the general recitation.
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<PAGE>
14. COUNTERPARTS. To facilitate execution, this Agreement may be executed
in as many counterparts as may be convenient or required. It shall not be
necessary that the signature and acknowledgement of, or on behalf of, each party
or that the signature and acknowledgement of all persons required to bind any
party appear on each counterpart. All counterparts shall collectively
constitute a single document containing the respective signatures and
acknowledgement of, or on behalf of, each of the parties hereto. Any signature
and acknowledgement page to any counterpart may be detached from such
counterpart without impairing the legal effect of the signatures and
acknowledgements thereon and thereafter attached to another counterpart
identical thereto except having attached to it additional signature and
acknowledgement pages.
THIS AGREEMENT AND THE LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
BANK:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ W. James Meintjes
----------------------
W. James Meintjes,
Assistant Vice President
BORROWER:
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By: /s/ Tommy M. Parker
--------------------
Tommy M. Parker,
Executive Vice President
GUARANTOR:
HOMECAPITAL INVESTMENT CORPORATION,
a Nevada corporation
By: /s/ John W. Ballard
---------------------
Name: John W. Ballard
Title: President and CEO
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<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 14th day of April, 1997, by
W. James Meintjes, Assistant Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said bank.
/s/ Jean Turner
-----------------
Notary Public - State of Texas
My Commission expires: ________________________
01-17-2001 Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 24th day of February, 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
/s/ Anna M. Walker
My Commission expires: -------------------
7-15-2000 Printed Name of Notary
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 24th day of February, 1997,
by John W. Ballard, President and CEO of HOMECAPITAL INVESTMENT CORPORATION, a
Nevada corporation, on behalf of said corporation.
-------------------------------
Notary Public - State of Texas
/s/ Anna M. Walker
My Commission expires: ---------------------
7-15-2000 Printed Name of Notary
-10-
<PAGE>
EXHIBIT "A"
MORTGAGE WAREHOUSE CREDIT REQUEST
From: HomeOwners Mortgage & Equity, Inc. d/b/a Home, Inc.
6836 Austin Center Blvd.
Suite 280
Austin, Texas 78731
Phone (512) 343-8911
Fax (512) 343-1837
TO: Guaranty Federal Bank, F.S.B.
1. HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A HOME, INC. requests an Advance in
the amount and on the date specified from the Bank (cumulatively, a
"Borrowing") in the cumulative amount and on the date herein specified,
pursuant to the Warehouse Loan Agreement among Borrower, GUARANTY FEDERAL
BANK, F.S.B. ("Bank"), dated as of June 1, 1996, as amended to date (the
"Agreement"), and hereby grants to Bank, in accordance with the provisions
of that certain Security Agreement, dated as of even date with the
Agreement, between Borrower and the Bank, as amended to date, a security
interest and Lien in the Mortgage Collateral described on 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: Maximum of $2,000,000 comprised of Second
Lien Mortgage Loans which are Conventional Loans presently in the
Borrowing Base including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(f) Requirement of Agreement: Cumulative Collateral Value at any time
attributable to Other Title I Loans limited to $750,000.00 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
Unsecured Loans limited to $750,000.00 presently in the Borrowing Base
including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(h) Requirement of Agreement: Cumulative Collateral Value attributable to
Non-Title I Loans limited to $2,000,000.00 presently in the Borrowing
Base including those related to this proposed Advance.
Requirement satisfied _______.
Requirement not satisfied _______.
(i) 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 _______.
-2-
<PAGE>
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;
(c) all Mortgage Collateral offered hereby conforms in all respects with
the applicable requirements set forth in the Agreement and the
Security Agreement;
(d) no Default has occurred and is continuing under the Agreement;
(e) no change or event which constitutes a Material Adverse Effect has
occurred;
(f) each Mortgage Loan has been closed and funded with advance(s) (an
"Advance") made by the Bank pursuant to the Agreement, such Advance
constituting "new value" as that term is used in Section 9.304(d) of
the Texas Business and Commerce Code (or the corresponding provision
of the Code of any other applicable jurisdiction).
(g) Bank has a first perfected security interest in and first lien upon
said Mortgage Loan, including, without limitation, in the promissory
note evidencing such Mortgage Loan (the "Mortgage Note").
(h) the Mortgage Note and all other documents, instruments and agreements
required to be delivered to Bank pursuant to Section 2.03 of the
Agreement with respect to such Mortgage Loan (the "Required
Documents"), have been delivered to Bank.
Borrower hereby acknowledges and agrees that any Advance relating to the
Mortgage Loan described below is secured by all Collateral in which Bank has a
security interest under the Agreement and Loan Documents.
4. Borrower represents and warrants that Borrower holds with respect to each
of the Mortgage Notes hereby offered the following:
(a) unless delivered herewith, the original filed copy of the Mortgage
relating to such Mortgage Note;
(b) if applicable, mortgagee policies of title insurance conforming to the
requirements of the Bank or binding commitments for the issuance of
same;
(c) if applicable, insurance policies insuring the mortgaged premises as
required by the Bank; and
(d) unless delivered herewith, an original executed Take-Out Commitment
relating to such Mortgage Note.
Borrower agrees that it holds the above items in trust for the Bank, and
will at any time deliver the same to the Bank upon request or, upon written
instructions from the Bank, to any Person designated by the Bank. Borrower
further agrees that it will not deliver any of the above items, nor give,
transfer, or assign any interest in same, to any Person other than the Bank
(or the Person or Persons designated by the Bank) without the prior written
consent of the Bank.
-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 Interest Maturity Loan
Loan Date Amount Collateral Value Maker Payee Rate Date Number Originator
- --------- ---- --------- ---------------- ----- ----- -------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LEGEND:
Base - Base Title I Loans (98% advance rate)
Other - Other Title I Loans (97% advance rate)
Unsecured - Unsecured Loans (97% advance rate)
Non-Title I - Non-Title I Loans (97% advance rate)
</TABLE>
-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 Loan
Agreement dated as of JUNE 1, 1996 (as amended, extended and replaced from time
to time, the "AGREEMENT"), between Borrower and the Bank (as defined therein)
that with respect to the Mortgage Loan referred to below:
( ) Such Mortgage Loan was funded and closed on ____________________: or
( ) Such Mortgage Loan will close and fund no later than __________ ( )
Business Day(s) from the date hereof.
Borrower hereby acknowledges, agrees and confirms with respect to such
Mortgage Loan as follows:
1. Such Mortgage Loan has been, or will be, closed and funded with
advance(s) (an "Advance") made by the Bank pursuant to the Agreement, such
Advance constituting "new value" as that term is used in Section 9.304(d) of the
Texas Business and Commerce Code (or the corresponding provision of the Code of
any other applicable jurisdiction).
2. 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 2.03 AND 3.02 of the
Agreement with respect to such Mortgage Loan (the "Required Documents"), either
have been delivered to Bank or are being transmitted to Bank and will be in the
possession of Bank on or before the fifth (5th) Business Day after the date
hereof.
4. Until the required documents for such Mortgage Loan are delivered to
Bank, they will be held in trust for Bank, segregated and conspicuously marked
to show the interest of Bank therein. Borrower assumes all responsibility for
loss, damage or deterioration of such Mortgage Loan and the Required Documents
relating thereto until the same are in the possession of Bank and will make no
disposition of such Mortgage Loan and Required Documents other than to Bank.
5. In the event the required documents for such Mortgage Loan are not
received by Bank by the date required under Paragraph 3 above, Borrower shall
immediately (a) prepay the full amount of any Advance relating to such Mortgage
Loan (and Bank may debit the Borrower's Funding Account for the full amount
thereof) or (b) deliver additional Mortgage Collateral, the Collateral Value of
which is equal to or greater than the amount of such Advance, all as set forth
in Section 2.04 of the Agreement. Borrower hereby acknowledges and agrees that
any Advance relating to the Mortgage Loan described below is secured by all
Collateral in which Bank has a security interest under the Agreement and Loan
Documents.
6. Capitalized terms not otherwise defined herein shall have the meanings
assigned such terms in the Agreement.
<PAGE>
7. Identifying Information:
Loan Number: Note Date: Note Amount:
____________ __________ ____________
Mortgagor: Note Rate:
__________ __________
PROPERTY ADDRESS: LOAN TYPE:
_____________________ ______ BASE TITLE I
_____________________ ______ OTHER TITLE I
______ UNSECURED
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
<PAGE>
EXHIBIT "D"
APPROVED INVESTORS
1. FNMA
2. Green Country Bank
3. Pacific Southwest
4. Keystone National Bank
5. Cityscape
<PAGE>
EXHIBIT "G"
EXISTING AND PROPOSED INDEBTEDNESS
Existing Indebtedness:
Description Amount
----------- ------
Revolving note payable to a
____________________, maturing
July 29, 1996, bearing an interest
rate of prime plus 2.00% 1,354,031
Capital lease obligations 23,199
----------
$
==========
$ __________ loan from
______________________________
$ __________ loan from
______________________________ [shall not be permitted indebtedness
under Section 7.02 after April 30, 1997]
Proposed Indebtedness:
$_______________ loan from
______________________________
$_______________ loan from
______________________________
<PAGE>
[WH]
EXHIBIT "H"
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Loan Agreement dated as of JUNE 1,
1996 (as from time to time amended, the "AGREEMENT"), by and between HOMEOWNERS
MORTGAGE & EQUITY, INC. D/B/A HOME, INC. ("BORROWER") and GUARANTY FEDERAL BANK,
F.S.B. ("BANK"), which Agreement is in full force and effect on the date hereof.
Terms which are defined in the Agreement are used herein with the meanings given
them in the Agreement.
This Certificate is furnished pursuant to Sections 6.01(a) or 6.01(b)
of the Agreement. Together herewith Borrower is furnishing to Bank Borrower's
audited annual financial statements or monthly financial statement (the
"Financial Statements") dated ______________ (the "Reporting Date"). Borrower
hereby represents, warrants, and acknowledges to Bank that:
(a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting ___________________________ of
Borrower and as such is Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c) attached hereto is SCHEDULE H-1 showing Borrower's compliance as
of the Reporting Date with the requirements of Sections 7.01
through 7.20 of the Agreement and Borrower's non-compliance as of
such date with the requirements of Section(s)
____________________ of the Agreement;
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements
of Section 6.01 of the Agreement, and no Default otherwise
existed on the Reporting Date or otherwise exists on the date of
this instrument [except for Default(s) under Section(s)
____________________ of the Agreement, which (is/are] more fully
described on a schedule attached hereto).
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of _______________,
19______.
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
Page 1 of 6
<PAGE>
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 __________,
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
Page 2 of 6
<PAGE>
EXHIBIT H
Schedule H-1
Financial Covenants Required Actual or
- ------------------- -------- ---------
[IN COMPLIANCE]*
---------------
1) No Merger [7.01]: [YES] or [NO] *
2) Limitation on Indebtedness
of Borrower [7.02]: [YES] or [NO] *
3) Fiscal Year Method of
Accounting [7.03]: [YES] or [NO] *
4) Lines of Business [7.04]: [YES] or [NO] *
5) Negative Pledge [7.05]: [YES] or [NO] *
6) Loans, Advances and
Investments of Borrower
and Affiliates [7.06]: [YES] or [NO] *
7) Use of Proceeds [7.07]: [YES] or [NO] *
8) Actions Mortgage Collateral [7.08]: [YES] or [NO] *
9) Operational Changes [7.09]: [YES] or [NO] *
10) Compliance with ERISA [7.10]: [YES] or [NO] *
11) Net Worth of Borrower Not less than
[7.11]: 6.2(A) figure plus
7.11(B) & (C) _______
12) Tangible Net Worth of Not less than
Borrower [7.12]: HUD, FNMA, GNMA,
FHLMC minimum _______
13) Adjusted Tangible Net
Worth of Borrower Not less than the
[7.13]: greater of (a) ATNW
requirement for preceding
quarter and (b) 80% of
present ATNW _______
Page 3 of 6
<PAGE>
14) Total Liabilities to
Adjusted Tangible Net Not less than
Worth [7.14]: 3.5 to 1.0 _______
15) Management [7.15]: [YES] or [NO] *
16) Interested Transactions [7.16]: [YES] or [NO] *
17) Transfer of Stock [7.17]: [YES] or [NO] *
18) Investor Information [7.18]: [YES] or [NO] *
19) No Subsidiaries [7.19]: [YES] or [NO] *
20) Liquidity [7.20]: Not less than
$500,000.00 _______
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By: _______________________________
__________________, ___________
______________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by _________________, _________________ of HOMEOWNERS MORTGAGE & EQUITY,
INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
Page 4 of 6
<PAGE>
A Continuation of Schedule H-1
------------------------------------------------------
Most
Recent
Quarter-
end
------------------------------------------------------
12/31/96
------------------------------------------------------
GAAP Net Worth $ 8,726,493
LESS:
Capitalized Servicing (10,521,807)
Account Receivable - Parent (441,888)
Intangibles (1,295)
PLUS:
90% of Capitalized Servicing 9,469,626
------------
Adjusted Tangible Net Worth $ 7,231,129
(A) Current Covenant (calculated at $ 3,705,399
previous quarter end)
(B) 80% of ATNW (calculated at this $ 5,784,903
quarter)
(C) New Covenant for next three months $ 5,784,903
(greater of A and B)
------------------------------------------------------
NET WORTH
GAAP Net Worth at last FYE _______________
PLUS:
80% OF Cumulative Quarterly Net Income since FYE _______________
PLUS:
100% of Capital Contributions since FYE _______________
EQUALS:
Covenant Required Net Worth _______________
Net Worth _______________
In Compliance? Y/N
_______________
ADJUSTED TANGIBLE NET WORTH
GAAP Net Worth _______________
LESS:
Capitalized Servicing _______________
Account Receivable - Parent _______________
Intangibles _______________
PLUS: _______________
90% of Capitalized Servicing _______________
Adjusted Tangible Net Worth _______________
Covenant (see table above) _______________
In Compliance? Y/N
_______________
Page 5 of 6
<PAGE>
LEVERAGE RATIO
Total Liabilities _______________
Adjusted Tangible Net Worth _______________
Leverage _______________
Covenant (not to exceed) 3.5:1
_______________
In Compliance? Y/N
_______________
LIQUIDITY
Unrestricted Cash _______________
PLUS:
Net Collateral Surplus _______________
LESS:
Warehouse Borrowings _______________
EQUALS:
Liquidity _______________
Covenant $500,000
_______________
In Compliance? Y/N
_______________
REPURCHASED/INVESTMENT LOANS
Repurchased/Investment Loans on Balance Sheet _______________
Covenant (maximum) $500,000
_______________
In Compliance? Y/N
_______________
LTV (FOR WORKING CAPITAL LINE)
(A) UPS of FNMA Excess Servicing Rights _______________
(B) Most Recent Quarterly Valuation %
Dated (Date of Valuation) _______________
(C) Value of FNMA Excess Servicing Rights
(A) x (B) _______________
(D) (C) x .50 _______________
(E) Capitalized FNMA Excess Servicing _______________
(F) Lesser of (D) or (E) _______________
(G) Working Capital Principal Balance _______________
Loan to Value (G) - (F) %
_______________
Page 6 of 6
<PAGE>
"EXHIBIT "I"
PLEDGE AGREEMENT
[BANK ACCOUNT]
THIS PLEDGE AGREEMENT ("AGREEMENT") is made as of the ____ day of FEBRUARY,
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.
PLEDGE AGREEMENT - PAGE 1
<PAGE>
(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.
(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:
PLEDGE AGREEMENT - PAGE 2
<PAGE>
(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.
(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.
PLEDGE AGREEMENT - PAGE 3
<PAGE>
(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 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
PLEDGE AGREEMENT - PAGE 4
<PAGE>
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 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
PLEDGE AGREEMENT - PAGE 5
<PAGE>
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
PLEDGE AGREEMENT - PAGE 6
<PAGE>
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.
(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
PLEDGE AGREEMENT - PAGE 7
<PAGE>
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 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
PLEDGE AGREEMENT - PAGE 8
<PAGE>
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 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:
PLEDGE AGREEMENT - PAGE 9
<PAGE>
(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 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,
PLEDGE AGREEMENT - PAGE 10
<PAGE>
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.
(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
PLEDGE AGREEMENT - PAGE 11
<PAGE>
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
PLEDGE AGREEMENT - PAGE 12
<PAGE>
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.
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 February,
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 ______________, 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.
_________________.
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.
_______________.
3. "Austin Funding Account - Checks" shall mean that certain account,
established by Borrower at Frost National Bank, Austin, Texas, ABA No.
114000093, Credit Home, Inc. Austin Funding Account -Checks No.
_______________.
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. _______________.
SCHEDULE "A"
<PAGE>
EXHIBIT "B"
TO
PLEDGE AGREEMENT
DATED ______________, 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. ___________;
(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. _________;
(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. _________; 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. _________
(collectively, the "Accounts").
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 February
__, 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
<PAGE>
such notice, Bank shall immediately without the request 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 February,
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 February,
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 February,
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>
[WH]
EXHIBIT "L"
COMPLIANCE CERTIFICATE
Reference is made to that certain Warehouse Loan Agreement dated as of JUNE
1, 1996 (the "LOAN AGREEMENT"), between HOMEOWNERS MORTGAGE & EQUITY, INC. D/B/A
HOME, INC., a Delaware corporation ("BORROWER") and GUARANTY FEDERAL BANK,
F.S.B. ("BANK"). Terms which are defined in the Loan Agreement and which are
used but not defined herein shall have the meanings given them in the Loan
Agreement. The undersigned, ______________________________ does hereby certify
that he/she has made a thorough inquiry into all matters certified herein and,
based upon such inquiry, experience, and the advice of counsel, does hereby
further certify that:
1. He/she is the duly elected, qualified, and acting 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
<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
<PAGE>
EXHIBIT L
Schedule L-1
Financial Covenants Required Actual or
- ------------------- -------- ---------
[IN COMPLIANCE]*
---------------
1) No Merger [7.01]: [YES] or [NO] *
2) Limitation on Indebtedness
of Borrower [7.02]: [YES] or [NO] *
3) Fiscal Year Method of
Accounting [7.03]: [YES] or [NO] *
4) Lines of Business [7.04]: [YES] or [NO] *
5) Negative Pledge [7.05]: [YES] or [NO] *
6) Loans, Advances and
Investments of Borrower
and Affiliates [7.06]: [YES] or [NO] *
7) Use of Proceeds [7.07]: [YES] or [NO] *
8) Actions Mortgage Collateral [7.08]: [YES] or [NO] *
9) Operational Changes [7.09]: [YES] or [NO] *
10) Compliance with ERISA [7.10]: [YES] or [NO] *
11) Net Worth of Borrower Not less than
[7.11]: 6.2(A) figure plus
7.11(B) & (C) _______
12) Tangible Net Worth of Not less than
Borrower [7.12]: HUD, FNMA, GNMA,
FHLMC minimum _______
13) Adjusted Tangible Net
Worth of Borrower Not less than the
[7.13]: greater of (a) ATNW
requirement for preceding
quarter and (b) 80% of
present ATNW _______
<PAGE>
14) Total Liabilities to
Adjusted Tangible Net Not less than
Worth [7.14]: 3.5 to 1.0 _______
15) Management [7.15]: [YES] or [NO] *
16) Interested Transactions [7.16]: [YES] or [NO] *
17) Transfer of Stock [7.17]: [YES] or [NO] *
18) Investor Information [7.18]: [YES] or [NO] *
19) No Subsidiaries [7.19]: [YES] or [NO] *
20) Liquidity [7.20]: Not less than
$500,000.00 _______
HOMEOWNERS MORTGAGE & EQUITY, INC.
D/B/A HOME, INC., a Delaware corporation
By: _______________________________
__________________, ___________
______________________________
[Date]
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of __________,
199__, by _________________, _________________ of HOMEOWNERS MORTGAGE & EQUITY,
INC. D/B/A HOME, INC., a Delaware corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
Schedule L-1 continued
------------------------------------------------------
Most
Recent
Quarter-
end
------------------------------------------------------
12/31/96
------------------------------------------------------
GAAP Net Worth $ 8,726,493
LESS:
Capitalized Servicing (10,521,807)
Account Receivable - Parent (441,888)
Intangibles (1,295)
PLUS:
90% of Capitalized Servicing 9,469,626
------------
Adjusted Tangible Net Worth $ 7,231,129
(A) Current Covenant (calculated at
previous quarter end) $ 3,705,399
(B) 80% of ATNW (calculated at this
quarter) $ 5,784,903
(C) New Covenant for next three months
(greater of A and B) $ 5,784,903
------------------------------------------------------
NET WORTH
GAAP Net Worth at last FYE _______________
PLUS:
80% OF Cumulative Quarterly Net Income since FYE _______________
PLUS:
100% of Capital Contributions since FYE _______________
EQUALS:
Covenant Required Net Worth _______________
Net Worth _______________
In Compliance? Y/N
_______________
ADJUSTED TANGIBLE NET WORTH
GAAP Net Worth _______________
LESS:
Capitalized Servicing _______________
Account Receivable - Parent _______________
Intangibles _______________
PLUS: _______________
90% of Capitalized Servicing _______________
Adjusted Tangible Net Worth _______________
Covenant (see table above) _______________
In Compliance? Y/N
_______________
Page 5 of 6
<PAGE>
LEVERAGE RATIO
Total Liabilities _______________
Adjusted Tangible Net Worth _______________
Leverage _______________
Covenant (not to exceed) 3.5:1
_______________
In Compliance? Y/N
_______________
LIQUIDITY
Unrestricted Cash _______________
PLUS:
Net Collateral Surplus _______________
LESS:
Warehouse Borrowings _______________
EQUALS:
Liquidity _______________
Covenant $500,000
_______________
In Compliance? Y/N
_______________
REPURCHASED/INVESTMENT LOANS
Repurchased/Investment Loans on Balance Sheet _______________
Covenant (maximum) $500,000
_______________
In Compliance? Y/N
_______________
LTV (FOR WORKING CAPITAL LINE)
(A) UPS of FNMA Excess Servicing Rights _______________
(B) Most Recent Quarterly Valuation %
_______________
Dated (Date of Valuation) _______________
(C) Value of FNMA Excess Servicing Rights
(A) x (B) _______________
(D) (C) x .50 _______________
(E) Capitalized FNMA Excess Servicing _______________
(F) Lesser of (D) or (E) _______________
(G) Working Capital Principal Balance _______________
Loan to Value (G) - (F) %
_______________
Page 6 of 6
<PAGE>
EXHIBIT 10.2
------------
FIRST AMENDMENT TO THE LOAN AGREEMENT
-------------------------------------
This FIRST AMENDMENT TO THE LOAN AGREEMENT ("AGREEMENT") is made
effective as of, although not necessarily on, the 1ST DAY OF JANUARY, 1997, by
and between GUARANTY FEDERAL BANK, F.S.B., a federal savings bank ("BANK") and
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, D/B/A HOME, INC.
("BORROWER") and HOMECAPITAL INVESTMENT CORPORATION, a Nevada corporation
("GUARANTOR").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, effective as of NOVEMBER 8, 1996, Borrower and Bank entered
into that certain WORKING CAPITAL LINE OF CREDIT AND SECURITY LOAN AGREEMENT
[SERVICING SECURED] (together with all amendments, modifications and
restatements thereof, the "LOAN AGREEMENT") dated of even date therewith
providing for a $3,000,000.00 credit facility (together with all increases,
collectively, the "LOAN").
WHEREAS, in connection with the execution of the Loan Agreement,
Borrower executed that certain Promissory Note dated of even date (the "NOTE"),
and a Financing Statement filed with the Secretary of State of Texas (the
"FINANCING STATEMENT") (the Loan Agreement, Note, Financing Statement and all
other documents representing, evidencing and/or securing the Loan are
hereinafter referred to as the "LOAN DOCUMENTS");
WHEREAS, Bank, Borrower and Guarantor desire to amend the Loan
Documents to reflect certain changes to the Loan Documents. All terms not
defined herein are used as defined in the Loan Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:
1. LOAN AGREEMENT. The following modifications are hereby made to
the Loan Agreement effective as of the date hereof:
(a) PAGE 3, the definition of "COLLATERAL VALUE" is hereby modified to
read in its entirety:
""COLLATERAL VALUE" shall mean the lesser of (A) fifty percent
(50%) of the Appraised Value of the Excess Servicing Receivables
relating to Eligible Collateral pledged to Bank, as determined on the
date hereof, on the date of any Advance and on 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."
(b) PAGE 4, the definition of "ELIGIBLE COLLATERAL" is hereby modified
to read in its entirety:
""ELIGIBLE COLLATERAL" means 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."
(c) PAGE 4, the definition of "EXCESS SERVICING RECEIVABLES" is hereby
modified to read:
<PAGE>
""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 FNMA. The cash flow streams that are discounted 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 and (B) the sum of (i) the rate paid with
respect to such Mortgage Loan to FNMA under such Agency Servicing
Agreement plus (ii) the subservicing fee payable to the Subservicer
attributable to such Mortgage Loan."
(d) PAGE 7, the definition of "MATURITY DATE" is hereby modified to
read in its entirety:
""MATURITY DATE" shall mean JANUARY 31, 1998."
(e) PAGE 9, the definition of "OPERATING ACCOUNT" is hereby deleted.
(f) PAGE 9, a new definition of "PROPOSED INDEBTEDNESS" is hereby
added in alphabetical order:
""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."
(g) PAGE 11, SECTION 2.1(A), fifth line, the figure of "Three Million
and No/100 Dollars ($3,000,00.00)" is hereby modified to read "FIVE MILLION
AND NO/100 DOLLARS ($5,000,000.00)."
(h) PAGE 12, SECTION 2.2(B)(VI) is hereby modified to read:
"(vi) the Funding Account and the Settlement Account shall be
established and in existence; and"
(i) PAGE 13, SECTION 2.2(C)(I) is hereby modified to read in its
entirety:
"(i) if requested by Bank, an Appraisal showing the Collateral
Value for the Eligible Collateral including the new Eligible
Collateral being pledged in connection with the Advance Request;"
(j) PAGE 16, SECTION 2.11 is hereby modified to read:
"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 (i) the amount of $3,750.00 each on November 8, 1996 and
January 1, 1997, (ii) on February 25, 1997 in the amount of $944.44
and (iii) on the first day of each calendar quarter thereafter
(January 1, April 1, July 1, October 1) the Commitment Fee equal
payments of $6,250.00 each."
(k) PAGE 18, SECTION 3.1, the final paragraph thereof, is hereby
modified to read:
"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
-2-
<PAGE>
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."
(l) PAGE 25, SECTION 5.28(A) is hereby revised to replace the phrase
"second to last" with the word "final" in the second line.
(m) PAGE 26, SECTION 5.28(D) is hereby revised to replace the phrase
"second to last" with the word "final" in the first line.
(n) PAGE 27, SECTION 6.2(A) is hereby modified to add the following
language to the end of such section:
"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;"
(o) PAGE 30, SECTION 6.10, the first two lines are hereby modified to
read: "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..."
(p) PAGE 32, SECTION 7.1(III) is hereby modified to read: "(iii)
Existing Indebtedness and Proposed Indebtedness listed on EXHIBIT "G"
attached hereto and incorporated herein by this reference,"
(q) PAGE 33, SECTION 7.6(D) is hereby is hereby modified to read:
"(d) Owned real estate and Mortgage Loans, required to be repurchased
by Investors, not to exceed at any one time $500,000."
(r) SECTION 7.9 is hereby modified to read in its entirety:
"SECTION 7.9. NET WORTH. Borrower's Net Worth shall not be less
than the sum of (a) Net Worth as reflected in the most recent
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."
-3-
<PAGE>
(s) SECTION 7.11 is hereby modified to read in its entirety:
"SECTION 7.11. 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 [with the requirement for the final calendar quarter
of 1996 of $3,705,899.00] and (b) Borrower's actual Adjusted Tangible
Net Worth on the current Determination Date (January 1, April 1, July
1 and October 1 in each case, a "DETERMINATION DATE") multiplied by
eighty percent (80%)."
(t) EXHIBIT "A" is hereby modified to read in its entirety as shown on
EXHIBIT "A" attached hereto and incorporated herein by this reference.
(u) EXHIBIT "B" is hereby modified to read in its entirety as shown on
EXHIBIT "B" attached hereto and incorporated herein by this reference.
(v) EXHIBIT "C" is hereby modified to read in its entirety as shown on
EXHIBIT "C" attached hereto and incorporated herein by this reference.
(w) EXHIBIT "D" is hereby modified to read in its entirety as shown on
EXHIBIT "D" attached hereto and incorporated herein by this reference.
(x) EXHIBIT "F" is hereby modified to read in its entirety as shown on
EXHIBIT "F" attached hereto and incorporated herein by this reference.
(y) EXHIBIT "I" is hereby modified to read in its entirety as shown on
EXHIBIT "I" as attached hereto and incorporated herein by this reference.
(z) EXHIBIT "K" is hereby modified to read in its entirety as shown on
EXHIBIT "K" attached hereto and incorporated herein by this reference.
2. NOTE. Borrower shall execute a Note in the form attached hereto as
EXHIBIT "A" in modification of the existing Note.
3. GUARANTY. Guarantor shall execute a Guaranty in the form attached
hereto as EXHIBIT "B" in modification of the existing Guaranty.
4. ONE TIME WAIVER OF NEGATIVE COVENANT BREACH. Borrower has breached
the following financial covenants: (i) SECTION 7.06(D) of the Loan Agreement and
(ii) SECTION 7.11 of the Loan Agreement. Bank hereby waives such defaults
provided (a) with respect to SECTION 7.06(D) the repurchased owned real estate
and repurchased Mortgage Loans did not exceed $500,000.00 from July 1, 1996 to
December 31, 1996 and (b) Borrower's Adjusted Tangible Net Worth was equal to or
greater than $3,705,899.00 from September 30, 1996 through December 31, 1996.
5. ACKNOWLEDGEMENT BY BORROWER. Except as otherwise specified herein,
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Borrower hereby acknowledges, agrees and represents that (i) Borrower is
indebted to the Bank pursuant to the terms of the Note; (ii) the liens, security
interests and assignments created and evidenced by the Loan Documents are,
respectively, valid and subsisting liens, security interests
-4-
<PAGE>
and assignments of the respective dignity and priority recited in the Loan
Documents; (iii) the representations and warranties contained in the Loan
Documents are true and correct representations and warranties of Borrower, as of
the date hereof and no defaults exist under the Loan Documents; and (iv)
Borrower has no set-offs, counterclaims, defenses or other causes of action
against the Bank arising out of the Loan Documents, the modification and
extension of the Loan, any documents mentioned herein or otherwise and to the
extent any such set-offs, counterclaims, defenses or other causes of action may
exist, whether known or unknown, such items are hereby waived by Borrower.
6. ACKNOWLEDGEMENT BY GUARANTOR. Except as otherwise specified herein,
the terms and provisions of the Loan Documents are ratified and confirmed and
shall remain in full force and effect, enforceable in accordance with their
terms. Guarantor hereby acknowledges, agrees and represents that (i) Guarantor
is indebted to the Bank pursuant to the terms of the Note; (ii) the liens,
security interests and assignments created and evidenced by the Loan Documents
are, respectively, valid and subsisting liens, security interests and
assignments of the respective dignity and priority recited in the Loan
Documents; (iii) the representations and warranties contained in the Loan
Documents are true and correct representations and warranties of Guarantor, as
of the date hereof and no defaults exist under the Loan Documents; and (iv)
Guarantor has no set-offs, counterclaims, defenses or other causes of action
against the Bank arising out of the Loan Documents, the modification and
extension of the Loan, any documents mentioned herein or otherwise and to the
extent any such set-offs, counterclaims, defenses or other causes of action may
exist, whether known or unknown, such items are hereby waived by Guarantor.
7. NO WAIVER OF REMEDIES. Nothing contained in this Agreement shall
prejudice, act as, or be deemed to be a waiver of any right or remedy available
to the Bank by reason of the occurrence or existence of any fact, circumstance
or event constituting a default under the Note or the other Loan Documents.
8. COSTS AND EXPENSES. Contemporaneously with the execution and delivery
hereof, Borrower shall pay, or cause to be paid, all costs and expenses incident
to the preparation, execution and recordation hereof and the consummation of the
transaction contemplated hereby, including, but not limited to, recording fees
and reasonable fees and expenses of legal counsel to the Bank. The attorney's
fees and expenses of the Bank's law firm, Jackson & Walker, L.L.P., shall be
paid.
9. ADDITIONAL DOCUMENTATION. From time to time, Borrower shall execute
or procure and deliver to Bank such other and further documents and instruments
evidencing, securing or pertaining to the Loan or the Loan Documents as shall be
reasonably requested by the Bank so as to evidence or effect the terms and
provisions hereof.
10. EFFECTIVENESS OF THE LOAN DOCUMENTS. Except as expressly modified by
the terms and provisions hereof, each of the terms and provisions of the Loan
Documents are hereby ratified and shall remain in full force and effect;
provided, however, that any reference in any of the Loan Documents to the Loan,
the amount constituting the Loan, any defined terms, or to any of the other Loan
Documents shall be deemed, from and after the date hereof, to refer to the Loan,
the amount constituting the Loan, defined terms and to such other Loan
Documents, as modified hereby.
11. GOVERNING LAW. THE BORROWER HEREBY AGREES THAT THE OBLIGATIONS
CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ALL PARTIES HERETO
AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION MAY BE FILED IN DALLAS
COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN
THE LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION
SHALL BE IN DALLAS COUNTY, TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE COMMENCED AGAINST BORROWER IN DALLAS
COUNTY, (V) SUCH ACTION MAY BE INSTITUTED IN THE COURTS OF THE STATE OF
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<PAGE>
TEXAS LOCATED IN DALLAS COUNTY, TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS, AT THE OPTION OF
THE BANK AND (VI) THE BORROWER HEREBY WAIVES ANY OBJECTION TO THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO
BE SUED ELSEWHERE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF EACH BANK TO
ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
12. TIME. Time is of the essence in the performance of the covenants
contained herein and in the Loan Documents.
13. BINDING AGREEMENT. This Agreement and the Loan Documents shall be
binding upon the heirs, executors, administrators, personal representatives,
successors and assigns of the parties hereto; provided, however, the foregoing
shall not be deemed or construed to (i) permit, sanction, authorize or condone
the assignment of all or any part of the Collateral or any of Borrower's rights,
titles or interest in and to the Collateral or any rights, titles or interests
in and to Borrower, except as expressly authorized in the Loan Documents, or
(ii) confer any right, title, benefit, cause of action or remedy upon any person
or entity not a party hereto, which such party would not or did not otherwise
possess.
14. HEADINGS. The section headings hereof are inserted for convenience of
reference only and shall in no way alter, amend, define or be used in the
construction or interpretation of the text of such section.
15. CONSTRUCTION. Whenever the context hereof so required, reference to
the singular shall include the plural and likewise, the plural shall include the
singular; words denoting gender shall be construed to mean the masculine,
feminine or neuter, as appropriate; and specific enumeration shall not exclude
the general but shall be construed as cumulative of the general recitation.
16. COUNTERPARTS. To facilitate execution, this Agreement may be executed
in as many counterparts as may be convenient or required. It shall not be
necessary that the signature and acknowledgement of, or on behalf of, each party
or that the signature and acknowledgement of all persons required to bind any
party appear on each counterpart. All counterparts shall collectively constitute
a single document containing the respective signatures and acknowledgement of,
or on behalf of, each of the parties hereto. Any signature and acknowledgement
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures and acknowledgements thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature and acknowledgement pages.
THIS AGREEMENT AND THE LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-6-
<PAGE>
EXECUTED as of the date first above written.
BANK:
----
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ W. James Meintjes
------------------------
W. James Meintjes,
Assistant Vice President
BORROWER:
--------
HOMEOWNERS MORTGAGE & EQUITY, INC.,
a Delaware corporation d/b/a HOME, INC.
By: /s/ Tommy M. Parker
---------------------------
Tommy M. Parker,
Executive Vice President
GUARANTOR:
---------
HOMECAPITAL INVESTMENT CORPORATION,
a Nevada corporation
By: /s/ John W. Ballard
-------------------------------
Name: John W. Ballard
-----------------------
Title:President and CEO
----------------------
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<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the 14th day of April, 1997, by
W. James Meintjes, Assistant Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said bank.
/s/ Jean Turner
-----------------------------------
Notary Public - State of Texas
My Commission expires: ________________________________
01-17-2001 Printed Name of Notary
- ----------------------
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 24th day of February, 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: /s/ Anna M. Walker
--------------------------------
7-15-2000 Printed Name of Notary
--------------------
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the 24th day of February, 1997,
by John W. Ballard, President & CEO of HOMECAPITAL INVESTMENT CORPORATION, a
Nevada corporation, on behalf of said corporation.
----------------------------------
Notary Public - State of Texas
My Commission expires: /s/ Anna M. Walker
7-15-2000 ----------------------------------
- ---------------------- Printed Name of Notary
-8-
<PAGE>
EXHIBIT "K"
-----------
EXISTING AND PROPOSED INDEBTEDNESS
Existing Indebtedness:
- ---------------------
Description Amount
----------- ------
Revolving note payable to
_____________________, maturing
July 29, 1996, bearing an interest
rate of prime plus 2.00% 1,354,031
Capital lease obligations 23,199
----------
$
==========
$_______________ loan from
________________________________________
$_______________ loan from
Keystone [shall not be permitted indebtedness
under Section 7.1(iii) after April 30, 1997]
Proposed Indebtedness:
- ---------------------
$_______________ loan from
________________________________________
$_______________ loan from
Keystone
-9-
<PAGE>
EXHIBIT "A" [WC]
-----------
PROMISSORY NOTE
---------------
$5,000,000.00 DALLAS, TEXAS January 1, 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 FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) or, if less, the aggregate unpaid principal amount of
the Loan made under this Note by Bank to Borrower pursuant to the terms of the
WORKING CAPITAL LINE OF CREDIT AND SECURITY AGREEMENT [SERVICING SECURED]
together with all amendments, modifications and extensions thereto ("LOAN
AGREEMENT") dated 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 day of each month, beginning
JANUARY 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 JANUARY 31, 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.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Loan Agreement which more fully set out the limitations on how
interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Maximum Rate and
__________
INITIALED FOR
IDENTIFICATION
-1-
<PAGE>
for all other purposes. The term "applicable law" as used in this Note shall
mean the laws of the State of Texas or the laws of the United States, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court of in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, diligence in
collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
Maker reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Loan Agreement.
This Note is executed in renewal, extension and modification (but not in
extinguishment) of that certain Promissory Note dated as of November 8, 1996
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,
__________
INITIALED FOR
IDENTIFICATION
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<PAGE>
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
HOMEOWNERS MORTGAGE & EQUITY, INC., a
Delaware corporation, d/b/a HOME, INC.
By:______________________________________
Tommy M. Parker,
Executive Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was ACKNOWLEDGED before me the ____ day of February, 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
-3-
<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 FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) (collectively, the "LOAN"); and
WHEREAS, said borrowings are to be made by the Borrower pursuant to and
under the terms of that Working Capital Line of Credit and Security Agreement
[Servicing Secured] dated effective as of NOVEMBER 8, 1996, between the Borrower
and the Bank together with all amendments thereof (hereinafter called the "LOAN
AGREEMENT") and all promissory notes executed by Borrower in connection
therewith; and
WHEREAS, the 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;
__________
INITIALED FOR
IDENTIFICATION
<PAGE>
(2) The time for the Borrower's performance of or compliance with any
covenant or agreement contained in the Loan Agreement, the Note and/or any
other instrument evidencing, securing or governing the disbursement of the
Loan, whether presently existing or hereinafter entered into, may be
extended or such performance or compliance may be waived;
(3) The maturity of the Note may be accelerated as provided therein or
in the Loan Agreement and/or any other instrument evidencing, securing or
governing the disbursement of the Loan, whether presently existing or
hereinafter entered into;
(4) The Loan Agreement, the Note and/or any other instrument
evidencing, securing or governing the disbursement of the Loan, whether
presently existing or hereinafter entered into, may be modified or amended
by the Bank and the Borrower in any respect, including, but not limited to,
an increase in the principal amount; and
(5) Any security for the Loan may be modified, exchanged, surrendered
or otherwise dealt with and/or additional security may be pledged or
mortgaged for the Loan;
all without affecting the liability of the Guarantor.
The Guarantor hereby acknowledges that the withdrawal from, or termination
of, any ownership interest in Borrower shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
If this Guaranty shall be placed in the hands of an attorney for collection
or should it be collected by legal proceedings or through any probate or
bankruptcy court, the Guarantor agrees to pay to the Bank's reasonable
attorneys' or collection fees.
The Bank may assign its rights hereunder in whole or in part; and upon any
such assignment, all the terms and provisions of this Guaranty shall inure to
the benefit of such assignee to the extent so assigned. The terms used to
designate any of the parties herein shall be deemed to include the heirs, legal
representatives, successors and assigns of such parties; and the term "Bank"
shall include, in addition to the Bank, any lawful owner, holder or pledgee of
any indebtedness guaranteed hereby.
The Bank is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly, if any provision or provisions of
this instrument should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
The Guarantor acknowledges that the Loan represents money which will be
advanced to the Borrower in a series of advances to be made from time to time
pursuant to the Loan Agreement. To induce the Bank to make the advances
thereunder, the Guarantor hereby agrees that in the event of the termination,
liquidation or dissolution of the Borrower, this Guaranty shall continue in full
force and effect.
The Guarantor hereby represents and warrants to the Bank that the financial
statements and information regarding the Guarantor heretofore delivered to the
Bank are true and correct in all material respects, having been applied on a
consistent basis throughout the period covered thereby, and fairly present the
financial position of the Guarantor as of the dates thereof, and that no
material adverse change has occurred in the financial condition of the Guarantor
reflected therein since the date thereof.
The Guarantor hereby represents and warrants to the Bank that:
(a) Neither the execution and delivery of this Guaranty, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, will materially contravene or conflict with any provision of law,
statute or
__________
INITIALED FOR
IDENTIFICATION
-2-
<PAGE>
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 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
__________
INITIALED FOR
IDENTIFICATION
-3-
<PAGE>
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 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 (but not extinguishment) of that
certain Unconditional Guaranty dated effective as of November 8, 1996.
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,
__________
INITIALED FOR
IDENTIFICATION
-4-
<PAGE>
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned, effective as of, although not necessarily on, the 1st day of
January, 1997.
Address of Guarantor:
- --------------------
6836 Austin Center Blvd. HOMECAPITAL INVESTMENT CORPORATION,
Suite 280 a Nevada corporation
Austin, Texas 78731
By:___________________________________
Name:______________________________
Title:_____________________________
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of February, 1997,
by _________________________, _____________________ of HOMECAPITAL INVESTMENT
CORPORATION, a Nevada corporation, on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
-5-
<PAGE>
EXHIBIT "C" [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 Working Capital Line of Credit and Security
Agreement [Servicing Secured] among Borrower and the Bank, dated as of
NOVEMBER 8, 1996, as amended to date (the "AGREEMENT"), and hereby grants
to Bank, in accordance with the provisions of that Agreement, between
Borrower and the Bank, as amended to date, a security interest and Lien in
each Mortgage Loan described on the attached SCHEDULE 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 described on SCHEDULE I attached hereto.
Requirement of Agreement: Maximum of $5,000,000.00.
Requirement satisfied _______.
Requirement not satisfied _______.
3. The undersigned officer of Borrower represents and warrants to the Bank:
(a) Borrower is entitled to receive the requested Advance under the terms
and conditions of the Agreement;
(b) all items which Borrower is required to furnish to the Bank pursuant
to the Agreement accompany this Advance Request;
(c) all Collateral offered hereby conform in all respects with the
applicable requirements set forth in the Agreement;
(d) no Event of Default has occurred and is continuing under the
Agreement;
(e) no change or event which with notice and/or the passage of time would
constitute an Event of Default; and
<PAGE>
(f) attached hereto is the COMPLIANCE SCHEDULE 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: $_________________
4. The representations and warranties of Borrower contained in the Agreement
and those contained in each other Loan Document to which Borrower is a
party are true and correct in all respects on and as of the date hereof.
HomeOwners Mortgage & Equity, Inc.,
a Delaware corporation, d/b/a Home, Inc.
Date:____________, 199___ By:________________________________________
Tommy M. Parker,
Executive Vice President
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of
________________, 199___, by Tommy M. Parker, Executive Vice President, of
HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a HOME, INC., on
behalf of said corporation.
------------------------------------
Notary Public - State of Texas
My Commission expires: ____________________________________
_____________________ Printed Name of Notary
-2-
<PAGE>
SCHEDULE C-I
SERVICING AGREEMENTS
-3-
<PAGE>
[WC]
COMPLIANCE SCHEDULE C-II
------------------------
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
---------------
1) Limitation on Indebtedness
of Borrower [7.1]: [YES] or [NO] *
2) No Merger [7.2]: [YES] or [NO] *
3) Fiscal Year [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Liquidations, etc. [7.5]: [YES] or [NO] *
6) Loans [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) Net Worth [7.9]: Not less than
6.2(A) figure
------
plus 7.1(B) & (C) _______
------------
10) Tangible Net Worth [7.10]: [YES] or [NO] *
11) Adjusted Tangible Net Worth [7.11]: Not less than the
greater of (a) ATNW
requirement for preceding
quarter and (b) 80% of
present ATNW _______
12) Debt to Adjusted Tangible Net Not more than
Worth [7.12]: 3.5 to 1.0 _______
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _______
14) Management [7.14]: [YES] or [NO] *
15) Interested Transactions [7.15]: [YES] or [NO] *
16) Transfer of Stock [7.16]: [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
-4-
<PAGE>
18) Sale or pledge of servicing
contracts [7.18]: [YES] or [NO] *
19) Loss of Eligiblity [7.19]: [YES] or [NO] *
20) Negative Covenants/
Collateral [7.20]: [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
-5-
<PAGE>
Schedule C-II
(Continued)
<TABLE>
<CAPTION>
Most
Recent
Quarter-
end
- ------------------------------------------------------
12/31/96
- ------------------------------------------------------
<S> <C>
GAAP Net Worth $ 8,726,493
LESS:
Capitalized Servicing (10,521,807)
Account Receivable - Parent (441,888)
Intangibles (1,295)
PLUS:
90% of Capitalized Servicing 9,469,626
------------
Adjusted Tangible Net Worth $ 7,231,129
(A) Current Covenant (calculated at $ 3,705,399
previous quarter end)
(B) 80% of ATNW (calculated at this $ 5,784,903
quarter)
(C) New Covenant for next three months $ 5,784,903
(greater of A and B)
- ------------------------------------------------------
</TABLE>
NET WORTH
GAAP Net Worth at last FYE _______________
PLUS:
80% OF Cumulative Quarterly Net Income since FYE _______________
PLUS:
100% of Capital Contributions since FYE _______________
EQUALS:
Covenant Required Net Worth _______________
Net Worth _______________
In Compliance? Y/N
---------------
ADJUSTED TANGIBLE NET WORTH
GAAP Net Worth _______________
LESS:
Capitalized Servicing _______________
Account Receivable - Parent _______________
Intangibles _______________
PLUS: _______________
90% of Capitalized Servicing _______________
Adjusted Tangible Net Worth _______________
Covenant (see table above) _______________
In Compliance? Y/N
---------------
Page 5 of 6
<PAGE>
LEVERAGE RATIO
Total Liabilities _______________
Adjusted Tangible Net Worth _______________
Leverage _______________
Covenant (not to exceed) 3.5:1
---------------
In Compliance? Y/N
---------------
LIQUIDITY
Unrestricted Cash _______________
PLUS:
Net Collateral Surplus _______________
LESS:
Warehouse Borrowings _______________
EQUALS:
Liquidity _______________
Covenant $500,000
---------------
In Compliance? Y/N
---------------
REPURCHASED/INVESTMENT LOANS
Repurchased/Investment Loans on Balance Sheet _______________
Covenant (maximum) $500,000
---------------
In Compliance? Y/N
---------------
LTV (FOR WORKING CAPITAL LINE)
(A) UPS of FNMA Excess Servicing Rights _______________
(B) Most Recent Quarterly Valuation %
---------------
Dated (Date of Valuation) _______________
(C) Value of FNMA Excess Servicing Rights
(A) x (B) _______________
(D) (C) x .50 _______________
(E) Capitalized FNMA Excess Servicing _______________
(F) Lesser of (D) or (E) _______________
(G) Working Capital Principal Balance _______________
Loan to Value (G) - (F) %
---------------
Page 6 of 6
<PAGE>
EXHIBIT D
---------
1. Description of all FNMA Eligible Servicing Contracts
(a) Unpaid Principal Balance
(b) Pools and related gains on sale
2. Borrowing Base Calculations
A UPB of FNMA Servicing Rights $_______________
B Appraised Value as of _________. $_______________
C 50% of Appraised Value (.50xB) $_______________
D Book Value as of _________. $_______________
E Lesser of C or D $_______________
F Current Loan Balance $_______________
G Requested Advance $_______________
H New Loan Balance $_______________
I Excess (Deficit) after
Advance (E-H) $_______________
<PAGE>
[WC]
EXHIBIT "F"
-----------
1 of 6
COMPLIANCE CERTIFICATE
----------------------
Reference is made to that certain Working Capital Line of Credit and
Security Agreement [Servicing Secured] dated as of NOVEMBER 8, 1996 (the "LOAN
AGREEMENT"), between HomeOwners Mortgage & Equity, Inc., a Delaware corporation,
d/b/a Home, Inc. ("BORROWER") and Guaranty Federal Bank, F.S.B. Terms which are
defined in the Loan Agreement and which are used but not defined herein shall
have the meanings given them in the Loan Agreement. The undersigned,
_____________________ does hereby certify that he/she has made a thorough
inquiry into all matters certified herein and, based upon such inquiry,
experience, and the advice of counsel, does hereby further certify that:
1. He/she is the duly elected, qualified, and acting officer of Borrower.
2. All representations and warranties made by any Related Person in any
Loan Document delivered on or before the date hereof are true on and as of the
date hereof (except to the extent that the facts upon which such representations
are based have been changed by the transactions contemplated in the Loan
Agreement) as if such representations and warranties had been made as of the
date hereof.
3. No Event of Default exists on the date hereof and no event has occurred
and is continuing which with notice and/or opportunity to cure would become an
Event of Default.
4. Each Related Person has performed and complied with all agreements and
conditions required in the Loan Documents to be performed or complied with by it
on or prior to the date hereof.
5. Attached hereto is the COMPLIANCE SCHEDULE showing Borrower's
compliance as of the date hereof with the requirements of ARTICLE VII of the
Loan Agreement and Borrower's non-compliance as of the date hereof with the
requirements of SECTION(S) ________________ of the Loan Agreement.
6. No Net Collateral Deficit exists.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
__________________, 1996.
_________________________________________
Tommy M. Parker, Executive Vice President
<PAGE>
EXHIBIT "F" [WC]
-----------
2 of 6
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was ACKNOWLEDGED before me the ____ day of
___________________, 1996, by Tommy M. Parker, in his capacity as Executive Vice
President of HOMEOWNERS MORTGAGE & EQUITY, INC., a Delaware corporation, d/b/a
HOME, INC., on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
[WC]
EXHIBIT "F"
-----------
3 of 6
Compliance Schedule
-------------------
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
---------------
1) Limitation on Indebtedness
of Borrower [7.1]: [YES] or [NO] *
2) No Merger [7.2]: [YES] or [NO] *
3) Fiscal Year [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Liquidations, etc. [7.5]: [YES] or [NO] *
6) Loans [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) Net Worth [7.9]: Not less than
6.2(A) figure
plus 7.11(B) & (C) ------
10) Tangible Net Worth [7.10]: [YES] or [NO] *
11) Adjusted Tangible Net Worth Not less than the greater
[7.11]: of (a) ATNW requirement
for preceding quarter and
(b) 80% of present ATNW
_______
12) Debt to Adjusted Tangible
Net Worth [7.12]: Not more than
3.5 to 1.0 _______
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _______
14) Management [7.14]: [YES] or [NO] *
15) Interested Transactions [7.15]: [YES] or [NO] *
16) Transfer of Stock [7.16]: [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Sale or pledge of servicing
contracts [7.18]: [YES] or [NO] *
<PAGE>
EXHIBIT "F" [WC]
-----------
4 of 6
19) Loss of Eligiblity [7.19]: [YES] or [NO] *
20) Negative Covenants/
Collateral [7.20]: [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
<PAGE>
Exhibit F continued
(Compliance Schedule Method of Calculation)
(5 of 6)
<TABLE>
<CAPTION>
Most
Recent
Quarter-
end
- ------------------------------------------------------
<S> <C>
12/31/96
- ------------------------------------------------------
GAAP Net Worth $ 8,726,493
LESS:
Capitalized Servicing (10,521,807)
Account Receivable - Parent (441,888)
Intangibles (1,295)
PLUS:
90% of Capitalized Servicing 9,469,626
------------
Adjusted Tangible Net Worth $ 7,231,129
(A) Current Covenant (calculated at $ 3,705,399
previous quarter end)
(B) 80% of ATNW (calculated at this $ 5,784,903
quarter)
(C) New Covenant for next three months $ 5,784,903
(greater of A and B)
- ------------------------------------------------------
</TABLE>
NET WORTH
GAAP Net Worth at last FYE _______________
PLUS:
80% OF Cumulative Quarterly Net Income since FYE _______________
PLUS:
100% of Capital Contributions since FYE _______________
EQUALS:
Covenant Required Net Worth _______________
Net Worth _______________
In Compliance? Y/N
---------------
ADJUSTED TANGIBLE NET WORTH
GAAP Net Worth _______________
LESS:
Capitalized Servicing _______________
Account Receivable - Parent _______________
Intangibles _______________
PLUS: _______________
90% of Capitalized Servicing _______________
Adjusted Tangible Net Worth _______________
Covenant (see table above) _______________
In Compliance? Y/N
---------------
<PAGE>
(Compliance Schedule Method of Calculation)
(6 of 6)
LEVERAGE RATIO
Total Liabilities _______________
Adjusted Tangible Net Worth _______________
Leverage _______________
Covenant (not to exceed) 3.5:1
---------------
In Compliance? Y/N
---------------
LIQUIDITY
Unrestricted Cash _______________
PLUS:
Net Collateral Surplus _______________
LESS:
Warehouse Borrowings _______________
EQUALS:
Liquidity _______________
Covenant $500,000
---------------
In Compliance? Y/N
---------------
REPURCHASED/INVESTMENT LOANS
Repurchased/Investment Loans on Balance Sheet _______________
Covenant (maximum) $500,000
---------------
In Compliance? Y/N
--------------
LTV (FOR WORKING CAPITAL LINE)
(A) UPS of FNMA Excess Servicing Rights _______________
(B) Most Recent Quarterly Valuation %
---------------
Dated (Date of Valuation) _______________
(C) Value of FNMA Excess Servicing Rights
(A) x (B) _______________
(D) (C) x .50 _______________
(E) Capitalized FNMA Excess Servicing _______________
(F) Lesser of (D) or (E) _______________
(G) Working Capital Principal Balance _______________
Loan to Value (G) - (F) %
---------------
<PAGE>
EXHIBIT "G"
-----------
12/31/96
EXISTING AND PROPOSED INDEBTEDNESS
Existing Indebtedness:
Description Amount
----------- ------
Working Capital Loan $ 3,000,000
$ 5,437,870
Capital lease obligations 11,456
-----------
$ 8,449,326
===========
$5,249,067 loan from
Guaranty Federal Bank
$188,803 loan from
Keystone [shall not be permitted
indebtedness under Section
7.02 after April 30, 1997]
Proposed Indebtedness:
$_________ loan from
________________________
$_________ loan from
________________________
<PAGE>
[WC]
EXHIBIT "I"
-----------
CERTIFICATE ACCOMPANYING
------------------------
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Working Capital Line of Credit and
Security Agreement dated as of NOVEMBER 8, 1996 (as from time to time amended,
the "AGREEMENT"), by and between HOMEOWNERS MORTGAGE & EQUITY, INC., A DELAWARE
CORPORATION, D/B/A HOME, INC. ("BORROWER"), GUARANTY FEDERAL BANK, F.S.B.
("BANK"), which Agreement is in full force and effect on the date hereof. Terms
which are defined in the Agreement are used herein with the meanings given them
in the Agreement.
This Certificate is furnished pursuant to SECTIONS 4.1(A)(7) OR (8) OR 6.2
of the Agreement. Together herewith Borrower is furnishing to Bank Borrower's
audited annual financial statements or 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
<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
<PAGE>
Compliance Schedule
-------------------
Financial Covenants Required Actual or
- ------------------- -------- ------ --
[IN COMPLIANCE]*
---------------
1) Limitation on Indebtedness
of Borrower [7.1]: [YES] or [NO] *
2) No Merger [7.2]: [YES] or [NO] *
3) Fiscal Year [7.3]: [YES] or [NO] *
4) Lines of Business [7.4]: [YES] or [NO] *
5) Liquidations, etc. [7.5]: [YES] or [NO] *
6) Loans [7.6]: [YES] or [NO] *
7) Operational Changes [7.7]: [YES] or [NO] *
8) Compliance with ERISA [7.8]: [YES] or [NO] *
9) Net Worth [7.9]: Not less than
6.2(A) figure
plus 7.11(B) & (C) _______
10) Tangible Net Worth [7.10]: [YES] or [NO] *
11) Adjusted Tangible Net Not less than the
Worth [7.11]: greater of (a) ATNW
requirement for preceding
quarter and (b) 80% of
present ATNW _______
12) Debt to Adjusted Tangible Not more than
Net Worth [7.12]: 3.5 to 1.0 _______
13) Minimum Liquidity [7.13]: Not less than
$500,000.00 _______
14) Management [7.14]: [YES] or [NO] *
15) Interested Transactions [7.15]: [YES] or [NO] *
16) Transfer of Stock [7.16]: [YES] or [NO] *
17) Subsidiaries [7.17]: [YES] or [NO] *
18) Sale or pledge of servicing
contracts [7.18]: [YES] or [NO] *
<PAGE>
19) Loss of Eligiblity [7.19]: [YES] or [NO] *
20) Negative Covenants/
Collateral [7.20]: [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 November, 1996,
by Tommy M. Parker, Executive Vice President of HOMEOWNERS MORTGAGE & EQUITY,
INC., a Delaware corporation, d/b/a HOME, INC., on behalf of said corporation.
________________________________
Notary Public - State of Texas
My Commission expires: ________________________________
_____________________ Printed Name of Notary
<PAGE>
EXHIBIT I continued
<TABLE>
<CAPTION>
Most
Recent
Quarter-
end
- ------------------------------------------------------
12/31/96
- ------------------------------------------------------
<S> <C>
GAAP Net Worth $ 8,726,493
LESS:
Capitalized Servicing (10,521,807)
Account Receivable - Parent (441,888)
Intangibles (1,295)
PLUS:
90% of Capitalized Servicing 9,469,626
------------
Adjusted Tangible Net Worth $ 7,231,129
(A) Current Covenant (calculated at $ 3,705,399
previous quarter end)
(B) 80% of ATNW (calculated at this $ 5,784,903
quarter)
(C) New Covenant for next three months $ 5,784,903
(greater of A and B)
- ------------------------------------------------------
</TABLE>
NET WORTH
GAAP Net Worth at last FYE _______________
PLUS:
80% OF Cumulative Quarterly Net Income since FYE _______________
PLUS:
100% of Capital Contributions since FYE _______________
EQUALS:
Covenant Required Net Worth _______________
Net Worth _______________
In Compliance? Y/N
---------------
ADJUSTED TANGIBLE NET WORTH
GAAP Net Worth _______________
LESS:
Capitalized Servicing _______________
Account Receivable - Parent _______________
Intangibles _______________
PLUS: _______________
90% of Capitalized Servicing _______________
Adjusted Tangible Net Worth _______________
Covenant (see table above) _______________
In Compliance? Y/N
---------------
Page 5 of 6
<PAGE>
Exhibit I continued
LEVERAGE RATIO
Total Liabilities _______________
Adjusted Tangible Net Worth _______________
Leverage _______________
Covenant (not to exceed) 3.5:1
---------------
In Compliance? Y/N
---------------
LIQUIDITY
Unrestricted Cash _______________
PLUS:
Net Collateral Surplus _______________
LESS:
Warehouse Borrowings _______________
EQUALS:
Liquidity _______________
Covenant $500,000
---------------
In Compliance? Y/N
---------------
REPURCHASED/INVESTMENT LOANS
Repurchased/Investment Loans on Balance Sheet _______________
Covenant (maximum) $500,000
---------------
In Compliance? Y/N
---------------
LTV (FOR WORKING CAPITAL LINE)
(A) UPS of FNMA Excess Servicing Rights _______________
(B) Most Recent Quarterly Valuation %
---------------
Dated (Date of Valuation) _______________
(C) Value of FNMA Excess Servicing Rights
(A) x (B) _______________
(D) (C) x .50 _______________
(E) Capitalized FNMA Excess Servicing _______________
(F) Lesser of (D) or (E) _______________
(G) Working Capital Principal Balance _______________
Loan to Value (G) - (F) %
---------------
Page 6 of 6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AT MARCH 31, 1997 AND STATEMENTS OF OPERATIONS FOR THE PERIODS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,497,708
<SECURITIES> 0
<RECEIVABLES> 18,233,121
<ALLOWANCES> 97,805
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,228,547
<DEPRECIATION> 296,335
<TOTAL-ASSETS> 22,436,600
<CURRENT-LIABILITIES> 0
<BONDS> 0
82,269
0
<COMMON> 15,000
<OTHER-SE> 10,227,558
<TOTAL-LIABILITY-AND-EQUITY> 22,436,600
<SALES> 8,618,767
<TOTAL-REVENUES> 10,802,313
<CGS> 0
<TOTAL-COSTS> 4,964,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 550,000
<INTEREST-EXPENSE> 532,049
<INCOME-PRETAX> 5,837,368
<INCOME-TAX> 2,048,512
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,788,856
<EPS-PRIMARY> .43
<EPS-DILUTED> .38
</TABLE>
