U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1996
Commission file number 0-5559
FIRST FINANCIAL CORPORATION
(Exact Name of Small Business Issuer in Its Charter)
Texas 74-1502313
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
800 Washington Avenue, Waco, Texas 76701
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code
(817) 757-2424
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock, No Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes x No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained in
this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.
[ x ]
State issuer's revenue for its most recent fiscal year.
$5,599,016
There is no established trading market for the registrant's
class of voting stock and, therefore, registrant cannot
determine the aggregate value of voting stock held by
nonaffiliates.
The number of shares outstanding of the issuer's no par
value common stock was 173,528 at March 31, 1997.
Documents Incorporated by Reference: See Page 2.
-1-
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-KSB
Incorporated Document
Part III, Item 9 -
Directors, Execu-
tive Officers,
Promoters and
Control Persons;
Compliance with
Section 16(a) of
the Exchange Act
The Information required by
this Item 9, is hereby
incorporated by reference
to the definitive
information statement to be
filed within 120 days after
the end of the last fiscal
year.
Part III, Item 10 -
Executive
compensation
The information required by
this Item 10, is hereby
incorporated by reference
to the definitive
information statement to be
filed within 120 days after
the end of the last fiscal
year.
Part III, Item 11 -
Security ownership
of certain
beneficial owners
and management
The information required by
this Item 11, is hereby
incorporated by reference
to the definitive
information statement to be
filed within 120 days after
the end of the last fiscal
year.
Part III, Item 12 - Certain
relationships
and related
transactions
The information required by
this Item 12, is hereby
incorporated by reference
to the definitive
information statement to be
filed within 120 days after
the end of the last fiscal
year.
Transitional Small Business Disclosure Format (check one)
Yes No X
Total number of pages, including cover pages - 40
-2-
PART I
Item 1. Description of Business
First Financial Corporation ("the Company") was incorporated
in the State of Texas in 1964. During the last three years,
the primary business of the Company, either directly or
through its subsidiaries, has been servicing a portfolio of
manufactured home loans, engaging in a limited amount of
insurance activities, and providing consulting and data
processing services to related companies. The Company also
has a significant investment as a limited partner in another
financial services business. (See discussion below of Key
Group, Ltd.)
As of February 28, 1997, the Company services a portfolio of
manufactured home loans aggregating approximately $4.9
million sold to conventional investors or held for
investment by the Company. This activity generates service
fee and loan administration income, as well as interest
income. A majority of these manufactured home loans carry
some type of insurance against all or a portion of the
credit risk. The Company's servicing activities include
collecting payments from borrowers and remitting such funds
to investors, accounting for loan principal and interest,
investor reporting, holding escrow funds for payment of
mortgage-related expenses such as taxes and insurance,
making advances to cover delinquent payments, making
inspections as required of the mortgage premises, contacting
delinquent borrowers, supervising foreclosures and property
disposition in the event of unremedied defaults and
administrative duties.
In 1987 and 1988, the Company lost its authority to be
involved in loan programs guaranteed by the Government
National Mortgage Association ("GNMA"), the Veterans
Administration ("VA") and the Federal Housing Administration
("FHA") due to its failure to make required pass through
payments. As a result, the Company is no longer in a
position to actively seek to originate new manufactured home
loans, other than loans for the purchase of repossessed
manufactured homes previously financed by the Company.
A wholly-owned subsidiary of the Company, First Financial
Insurance Agency, Inc., sells hazard insurance policies
relating to manufactured home loans serviced by the Company.
This activity generates commission income. Substantially
all of the income relates to insurance written on
manufactured homes financed by the Company.
Apex Lloyds Insurance Company ("Apex Lloyds"), a wholly-
owned subsidiary of the Company, is involved in underwriting
hazard and credit risks relating to manufactured home loans
serviced by the Company. Also, hazard insurance on
residential homes not financed by the Company or any related
company is written by Apex Lloyds through a fronting and
reinsurance agreement with an unrelated third party. The
insurance business is a highly regulated business.
Subsidiaries of the Company compete with other insurance
agencies and companies for the sale of manufactured and
residential home owners hazard insurance policies. Primary
competitive factors in the insurance industry include rates,
quality of service and marketing efforts. There are a large
number of competitors in the geographic area in which the
Company operates.
(continued)
-3-
Item 1. Description of Business (Continued)
The Company owns, as a limited partner, 52.94% of Key Group,
LTD., a Texas limited partnership ("Key Group"). The
general partners of Key Group are Robert A. Mann, who is
Chairman of the Board of the Company, and First Key
Holdings, Inc., a Texas corporation owned by the David W.
Mann 1990 Trust, of which David W. Mann is the trustee and a
beneficiary. David W. Mann, who is the son of Robert A.
Mann, is President of the Company. Bluebonnet Investments,
Ltd., is the other limited partner of Key Group, and owns
47.05% of the partnership. Robert A. Mann and David W. Mann
have direct and indirect interests in Bluebonnet
Investments, Ltd.
Key Group conducts business through its wholly-owned
subsidiary, First Preference Holdings, Inc. ("First
Preference Holdings"), which has three wholly-owned
subsidiaries: First Preference Mortgage Corp., First
Preference Financial Corp. and First Financial Information
Services, Inc. First Preference Mortgage Corp. ("FPMC")
originates and services residential mortgage loans and is an
approved seller/servicer for Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation,
Veterans Administration and Federal Housing Administration.
FPMC currently operates at locations in Waco, Colleyville,
Austin, Dallas, and Tyler, Texas. Each branch office is
staffed with loan originators who actively solicit
residential mortgage loans in their respective market.
Substantially all of the loans originated by FPMC are sold
to governmental or private investors. FPMC retains the
right to service certain loans it sells to investors for
which FPMC is paid a service fee. FPMC funds the loans it
originates prior to the sale of such loans to investors.
The source of money to fund these loans are arrangements
with financial institutions pursuant to which such financial
institutions purchase a participation in the loan. The loan
participation is repurchased from the financial institutions
when the loan is sold to the investor. As of December 31,
1996, and February 28, 1997, FPMC was servicing a portfolio
of conventional residential mortgage loans aggregating
approximately $19.6 million and $19.5 million, respectively
for institutional investors. There are a large number of
competitors in the origination and servicing of residential
mortgage loans, including other mortgage companies, banks
and financial institutions. Compared to its competitors,
FPMC is a small company. The loan products offered by FPMC
is similar to loan products offered by its competitors. As
a small company, FPMC attempts to provide superior service
to attract customers.
First Preference Financial Corp. ("FPFC") was formed to be
an originator and servicer of consumer loans, primarily in
the manufactured home market. FPFC has not sought or
obtained the necessary governmental licenses to originate
and service such consumer loans. At the present time, FPFC
has no active business.
In September 1993, the Company repurchased a group of loans
that it was servicing from the Resolution Trust Corporation
in its capacity as receiver of a failed savings and loan
association. This purchase involved contracts with an
unpaid balance of approximately $1,175,014, and was
purchased for a purchase price of approximately $998,762.
The Company immediately sold the purchased contracts to FPMC
at the same price paid by the Company for such contracts,
with the Company continuing to service the contracts for a
servicing fee. In connection with this transaction, a
related entity made a loan to FPMC to acquire these
contracts. (See "Certain Relationships and Related
Transactions")
(continued)
-4-
Item 1. Description of Business (Continued)
During 1994, FPMC repaid $868,000 of debt to related parties
by selling participations in manufactured home contracts at
face value to the related parties. FPMC realized a gain on
these sales equal to the unamortized discount on these
contracts of approximately $119,500. (See "Certain
Relationships and Related Transactions")
During 1994, FPMC sold a participation in a pool of
manufactured housing installment sales contracts and
installment loan agreements in the amount of $388,000 to
First Preference Holdings, Inc., its parent, at face value
in exchange for a note from First Preference Holdings, Inc.
for $388,000. The company realized a gain related to the
unamortized discount on these loans of approximately
$50,000. The participation interest was immediately
transferred back to FPMC as a contribution to capital.
During 1995, First Preference Holdings, Inc. paid off the
$318,000 remaining balance on the note it owed FPMC. (See
"Certain Relationships and Related Transactions")
During 1995, FPMC repurchased the participation interest
held by a related party in certain manufactured home loans
owned by FPMC for approximately $231,000, the unpaid balance
of the participations. (See "Certain Relationships and
Related Transactions")
The Company and its consolidated subsidiaries employed 87
employees as of December 31, 1996, of which 81 are full-time
employees. Sixty-six (66) of these employees work for First
Preference Mortgage Corp., of which sixty are full-time
employees.
The Company does not spend any significant amounts on
research and development or compliance with environmental
laws.
Item 2. Properties
The Company owns an office building containing approximately
13,500 square feet of office space at 800 Washington Avenue,
Waco, Texas. This office building has served as the
Company's principal office since August 1991 and
approximately 8,500 square feet of this office building is
leased to related companies. The building is in good
condition with no known or anticipated material repairs
being required.
First Preference Mortgage Corp., a second tier subsidiary of
Key Group, LTD., in which the Company is a limited partner,
leases approximately 1,676 square feet of office space
located at 914 Lake Air Drive, Suite G, Waco, Texas for a
lease term of 36 months. This lease expires August 1997.
On January 31, 1994, First Preference Mortgage Corp.
subleased approximately 87 square feet of office space
located at 25232 Grogans Park Drive, The Woodlands, Texas
for a lease term of 12 months. On October 31, 1994, First
Preference Mortgage Corp. leased approximately 2834 square
feet of office space located at 14000 Woodloch Forest Drive,
The Woodlands, Texas for a lease term of 38 months. In
November, 1994, all operations in The Woodlands were moved
to this new location, and the Grogans Park Drive office in
The Woodlands was closed. This office was closed January
31, 1996. In October 1996, First Preference Mortgage Corp.
sub-leased this office space to a third party for a lease
term of 14 months beginning November 1, 1996.
(continued)
-5-
Item 2. Properties (Continued)
On March 1, 1994, First Preference Mortgage Corp. leased
approximately 1,801 square feet of office space located at
4807 Spicewood Springs Road, Austin, Texas for a lease term
of 60 months. On January 31, 1996, this office was closed.
In July 1996, this office was reopened.
On March 30, 1994, First Preference Mortgage Corp. leased
approximately 1,649 square feet of office space located at
6409 Colleyville Blvd., Colleyville, Texas for a lease term
of 60 months.
On May 16, 1994, First Preference Mortgage Corp. leased
approximately 800 square feet of office space located at 102
Old Bowman Road, Round Rock, Texas for a lease term of 12
months. As of October 15, 1995, this office was closed.
In October 1995, First Preference Mortgage Corp. leased
approximately 982 square feet of office space located at
1800 Shiloh Road, Suite 101, Tyler, Texas 75703 for a lease
term of 36 months commencing November 1, 1995.
On June 12, 1996, First Preference Mortgage Corp. sub-leased
approximately 1,899 square feet of office space located at
1221 Abrams Road, Richardson, Texas, for a lease term of 12
months commencing July 1, 1996.
In August 1996, First Preference Mortgage Corp. leased
approximately 500 square feet of office space located at
1053 North Pacific, Mineola, Texas, for a lease term of 12
months commencing September 1, 1996.
On April 30, 1993, Apex Lloyds Insurance Company, a
subsidiary of the Company, purchased an office building
containing approximately 14,475 square feet of office space
at 825 Washington Avenue, Waco, Texas. The building is
presently being used to store records and was purchased with
the intent that it will be used as the home office of Apex
in the future.
The Company does not invest in real estate in the normal
course of business and, therefore, no formal real estate
investment policies exist. The Company does, however, own a
limited amount of real estate and, from time to time, may
purchase such either for possible capital gain or for income
purposes.
The Company currently owns an office building mentioned
above, approximately eighty acres of undeveloped land and a
residential lot in McLennan County, Texas, and an interest
in a lodge located in Tyler County, Texas. In addition, the
Company has invested in a limited partnership whose primary
assets are undeveloped real estate holdings in Orange
County, Texas.
The Company does not currently invest in real estate
mortgages but does invest in manufactured home loans as
mentioned previously in Item 1. First Preference Mortgage
Corp., however, originates, services and warehouses first
lien single family residential mortgages which are then sold
to investors. Therefore, these residential mortgages are
not considered to be investments of First Preference
Mortgage Corp.
(continued)
-6-
Item 3. Legal Proceedings
The Company is involved in other routine litigation
incidental to its business, both as plaintiff and defendant.
Management of the Company, after consulting with legal
counsel, feels that liability resulting from this
litigation, if any, will not have a material effect on the
financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
-7-
PART II
Item 5. Market for the Registrants' Common Equity and
Related Security Holder Matters
There is no established public trading market for the
Company's no par value common stock. On March 31, 1997, the
Company had approximately 473 holders of record of its
common stock.
The Company did not pay any cash dividends during the last
two fiscal years. Other than restrictions applicable to
Texas corporations in general, there are no restrictions
that limit the ability to pay dividends on common equity.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company had net income of $226,823 for 1996, compared to
net income of $234,449 for 1995. In general, the Company's
net income is due to the negative provision for losses under
manufactured home servicing agreements. The Company's
results of operations were negatively impacted by the
Company's share of the net loss of Key Group, which
increased to $90,393 in 1996 compared to $61,124 in 1995, as
discussed below.
The Company's manufactured home servicing portfolio at the
end of 1996 was approximately $5.2 million, consisting of
$2.6 million for institutional investors and $2.6 million
held by a second tier subsidiary of Key Group, LTD., in
which the Company is a limited partner, compared to a total
manufactured home servicing portfolio of $6.4 million at the
end of 1995. This reduction of approximately $1.2 million
is attributable to loan foreclosures, loan payoffs and
normal loan run off. In addition, at the end of 1996, First
Preference Mortgage Corp. serviced approximately $19.6
million in residential mortgage loans for governmental and
private investors compared to approximately $20.7 million at
the end of 1995.
Loan administration and production revenue for 1996 were
$2,585,412 compared to $2,565,437 in 1995. The increase in
loan administration and production revenue during 1996, as
compared to 1995, is primarily due to increased loan
originations from the Company's residential mortgage loan
operations. During 1996, First Preference Mortgage Corp.
originated approximately $201 million in new residential
mortgage loans compared to approximately $174 million in
1995.
Interest income for 1996 amounted to $1,361,584 compared to
$1,364,400 in 1995. During 1996, the interest income earned
by the Company on investments declined by approximately
$102,000 or 21%. This decline is primarily due to the
decline in the Company's mortgages held for investments
which decreased by approximately $884,000 from December 31,
1995, to December 31, 1996. First Preference Mortgage Corp.
earns interest from the date the mortgage loan is closed
until the date the mortgage loan is sold to investors.
During 1996, the interest income earned on mortgages held
for sale increased by approximately $100,000, primarily due
to the increased volume of new residential mortgage loans
originated during 1996 as discussed above.
(continued)
-8-
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Interest expense for the year ended December 31, 1996,
amounted to $894,228 compared to $1,030,130 for the same
period in 1995. The decrease in interest expense for 1996
and the significant increase in the spread between interest
income and interest expense from 1995 to 1996 is primarily
due to a new loan participation agreement utilized in 1996.
During 1996, the Company's primary loan participation
agreement provided that the yield earned by the financial
institution was at a specified rate above the federal funds
interest rate. During 1995, the yields earned by the
Company's primary financial institution were at varying
rates above the prime interest rate. (See liquidity and
capital resources.)
During the year ended December 31, 1996, the Company did not
originate any manufactured home loans compared to $95,185 in
1995. The Company only originates new manufactured home
loans to finance the resale of its inventory of repossessed
mobile homes that were originally financed through the
Company.
For the year ended December 31, 1996, the Company realized
gain on sales of assets of $1,320,635 compared to $785,266
in 1995. This increase is attributable to the volume of new
residential mortgage loans sold by First Preference Mortgage
Corp. to governmental and private investors which increased
to approximately $201 million in 1996, compared to $165.5
million in 1995, and an increase in the net margin realized
on the sale of these mortgage loans.
Salaries and related expenses for 1996 were $2,979,991
compared to $2,873,413 in 1995. This increase is the result
of the continued expansion of the residential mortgage loan
origination and servicing operations of First Preference
Mortgage Corp. as discussed above.
For the year ended December 31, 1996, the Company had a
negative provision for losses under servicing agreements of
$508,000 resulting in a balance in the reserve for losses
under servicing agreements at December 31, 1996, of
$1,371,067. In 1995, the negative provision for losses
under servicing agreements was $701,000, resulting in a
balance in the reserve account at year-end of $1,886,283.
As previously discussed, under the terms of certain of its
servicing agreements, the Company is at risk for any credit
losses and costs of foreclosure, net of credit insurance
proceeds, if any, sustained on default of the borrower. The
Company has analyzed its servicing portfolio
characteristics, including the servicing portfolio balance,
loss experience, maturity and aging of the loans and the
credit insurance coverage on the loans. Based on this
analysis, it is the Company's belief that its exposure to
losses attributable to the servicing agreements continues to
decline.
Operating expenses for 1996 were $2,092,089 compared to
$1,821,494 in 1995. The primary reason for this increase is
the increase in new residential mortgage loan originations
by First Preference Mortgage Corp., which increased by
approximately 16% in 1996 over 1995.
For the year ended December 31, 1996, Key Group had a net
loss of $170,759 compared to a net loss of $115,469 in 1995.
The minority interest in the net income (loss) of Key Group
amounted to ($80,365) in 1996, compared to ($54,345) in
1995. The minority interest represents the ownership of
other entities in the Key Group net income or loss.
(continued)
-9-
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
First Financial Corporation's portfolio of manufactured home
loans held for investment and serviced for investors is a
declining asset due to loan payoffs and normal loan run off.
It is estimated that a majority of these manufactured home
loans will be liquidated over the next 3 to 4 years. This
decline in the manufactured home loans will adversely affect
the Company's loan administration revenue, interest income
and insurance premiums and commissions.
At December 31, 1996, the Company's total assets were
$7,862,462. Included in the Company's total assets are the
assets of Key Group which amounted to $4,228,384 at December
31, 1996. The Key Group assets at December 31, 1996,
consisted primarily of cash and cash equivalents of
$384,030, mortgage loans of $2,378,860, property and
equipment of $263,620 and prepaid expenses and other assets
of $1,201,798. The minority interest in the net assets of
Key Group at December 31, 1996, amounted to $1,725,863.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash are to meet operational
expenses, meet debt service obligations to its lenders, and
make payments due the holders of loans serviced by the
Company. In addition, First Preference Mortgage Corp.
provides interim funding for originated residential mortgage
loans. The Company, under the terms of most of the
Company's manufactured home loan servicing agreements, is
required to make payments to the holders of the serviced
loans even if the borrower does not make the payments due.
On a consolidated basis, cash and cash equivalents
(including restricted cash) were $1,167,803 at December 31,
1996. Included therein was cash and cash equivalents for
Key Group of $384,030 and Apex Lloyds of $741,890. The cash
flow of Key Group is only available to the Company to the
extent that cash is received in the form of partnership
distributions. Key Group has paid no distributions and has
no plans to pay distributions in the foreseeable future.
The cash flow of Apex Lloyds is only available to the
Company as allowed by state insurance regulations.
The Company's primary sources of cash to meet its
operational expenses, meet debt service obligations to its
lenders and advance deficiencies in scheduled payments due
the holders of manufactured home loans serviced by the
Company will be cash on hand, cash generated by liquidation
of existing assets, collection of claims on credit insurance
and servicing fees.
First Preference Mortgage Corp. has a master loan
participation agreement with a financial institution in the
amount of $25,000,000 which was to expire on March 27, 1997.
On March 18, 1997, this agreement was amended to expire on
June 24, 1997. FPMC is in the process of negotiating a
renewal of this agreement past the June 24, 1997, expiration
date. Under this agreement, the financial institution has
the option to purchase an undivided interest in the
residential mortgage loans originated by First Preference
Mortgage Corp. When the subject mortgage loan is sold in
the secondary market, the financial institution recoups its
investment plus a specified yield on its investment. At
December 31, 1996, approximately $10,295,000 in
participations were outstanding under this agreement.
(continued)
-10-
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The Company has no material commitments for capital
expenditures at December 31, 1996. As reflected in the
attached financial statements, the stockholders' equity of
the Company was $3,174,114 at December 31, 1996, and the
stockholders' equity was $2,928,353 at December 31, 1995.
-11-
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page Number
Independent Auditors' Report
....................................... 13
Financial Statements
Consolidated Balance
Sheet.................................... 14
Consolidated Statements of
Income ............................. 15
Consolidated Statements of Stockholders' Equity
(Deficit) .... 16
Consolidated Statements of Cash
Flow .......................... 17
Notes to Consolidated Financial Statements
................... 18 - 32
-12-
PATTILLO, BROWN & HILL, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
Providing Services Since 1923
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
First Financial Corporation
We have audited the accompanying consolidated balance
sheet of First Financial Corporation and Subsidiaries as of
December 31, 1996, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of
the two years on the period ended December 31, 1996. These
consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of First Financial Corporation and
Subsidiaries as of December 31, 1996, and the results of its
operations and its cash flows for each of the two years in
the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/S/Pattillo, Brown & Hill, L.L.P.
April 4, 1997
Waco, Texas
-13-
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Cash and cash equivalents $ 757,279
Restricted cash 410,524
Accounts receivable 852,640
Receivables from related parties 102,157
Marketable investment securities 321,296
Real estate held for investment, at cost 474,074
Mortgage loans held for investment 2,372,436
Mortgage loans held for sale 288,753
Investments in and advances to affiliated companies 384,629
Property and equipment 808,214
Deferred tax benefit 292,996
Cash surrender value of officers' life insurance 345,485
Other assets 451,979
---------
$ 7,862,462
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes payable $ -
Notes payable to related parties -
Estimated reserve for losses under
servicing agreements 1,371,067
Estimated reserve for losses under
insurance policies 278,638
Accounts payable 822,040
Accrued expenses and other liabilities 360,461
Payables to related parties 52,582
Interest payable 77,697
---------
2,962,485
Minority interest 1,725,863
Stockholders' equity
Common stock - no par value; authorized 500,000
shares; issued 183,750 shares, of which 10,222
shares are held in treasury shares 1,000
Additional paid-in capital 518,702
Retained earnings 2,674,003
Unrealized gain (loss) on securities
net of applicable taxes 15,718
---------
3,209,423
Less: Treasury stock - at cost 35,309
---------
3,174,114
$ 7,862,462
==========
See accompanying notes to consolidated financial statements.
-14-
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
1996 1995
REVENUE
Loan administration and production $ 2,585,412 $ 2,565,437
Interest income 1,361,584 1,364,400
Insurance premiums and commissions 45,857 78,879
Consulting fees 256,464 331,675
Realized gain (losses) on sale of assets 1,320,635 785,266
Other 29,064 23,482
--------- ---------
5,599,016 5,149,139
COST AND EXPENSES
Salaries and related expenses 2,979,991 2,873,413
Interest expense 894,228 1,030,130
Provision for losses under servicing
agreements and other ( 508,000) ( 701,000)
Operating expenses
Insurance claim losses and loss
expenses 85,048 83,100
Professional fees 95,799 136,853
Depreciation and amortization 169,721 200,289
General and administrative expense 1,741,521 1,401,252
-------- ---------
5,458,308 5,024,037
INCOME BEFORE INCOME TAXES, EQUITY IN EARNINGS
OF AFFILIATES, AND EXTRAORDINARY ITEMS 140,708 125,102
INCOME TAXES
Current - -
Deferred - -
--------- --------
- -
INCOME BEFORE MINORITY INTEREST 140,708 125,102
MINORITY INTEREST (EARNINGS) LOSS 80,365 54,345
INCOME BEFORE EQUITY IN EARNINGS OF
AFFILIATES AND EXTRAORDINARY ITEMS 221,073 179,447
EQUITY IN EARNINGS OF AFFILIATES 5,750 55,002
NET INCOME $ 226,823 $ 234,449
========== ==========
INCOME PER COMMON SHARE $ 1.31 $ 1.28
========== ==========
See accompanying notes to consolidated financial statements.
-15-
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net
Unrealized
Loss on
Additional Marketable
Common Paid-in Retained Treasury Investment
Stock Capital Earnings Stock Securities Total
Balance, December 31, 1994
$ 1,000 $ 518,702 $2,212,731 $( 35,309) $( 5,561) $2,691,563
Net income
- - 234,449 - - 234,449
Unrealized loss on marketable
investment securities
- - - - 2,341 2,341
Balance, December 31, 1995
1,000 518,702 2,447,180 ( 35,309) ( 3,220) 2,928,353
Net Income
- - 226,823 - - 226,823
Unrealized loss on marketable
investment securities
- - - - 18,938 18,938
Balance, December 31, 1996
$ 1,000 $ 518,702 $2,674,003 $( 35,309) $ 15,718 $3,174,114
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
-16-
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended December 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 226,823 $ 234,449
Adjustments to reconcile net income
(loss) to net cash provided for operating
activities
Realized (gain) losses on sale of assets ( 1,361,584) ( 785,266)
Depreciation and amortization 187,435 200,080
Equity in net (earnings) loss of
affiliates 6,751 ( 55,002)
Provision for losses under servicing
agreements and other ( 515,216) ( 701,000)
Increase in restricted cash used in operating
activities - net ( 83,394) ( 711)
Sale of stock interest in subsidiary - -
(Increase) decrease in accounts receivable 90,909 ( 378,690)
Increase (decrease) in accounts payable ( 438,918) 1,021,948
Increase (decrease) in minority interest ( 80,366) ( 54,344)
Mortgage loans funded (201,158,954) (174,133,861)
Mortgage loans sold 202,917,657 166,021,115
Change in mortgage loan participation sold ( 334,054) 8,345,385
Other 9,886 ( 108,994)
Uncollectible receivables 67,999 -
NET CASH USED BY OPERATING ACTIVITIES ( 465,026) ( 394,891)
CASH FLOWS FROM INVESTING ACTIVITIES
Gain on sale of marketable investment
securities 1,289 -
Proceeds from sale of marketable investment
securities 13,157 2,996
Purchases of marketable investment securities - ( 48,000)
Amortization of discount on mortgage loans
purchased ( 45,273) ( 68,932)
Principal received on mortgage loans 929,647 858,787
Purchases of property and equipment ( 61,206) ( 116,036)
Proceeds from sales of property and equipment - -
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 837,614 628,815
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 35,000
Payments on notes payable ( 371,000) ( 236,634)
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES ( 371,000) ( 201,634)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,588 32,290
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 755,691 723,401
CASH AND CASH EQUIVALENTS, END OF YEAR $ 757,279 $ 755,691
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 894,228 $ 964,878
============ ============
Federal income taxes paid $ - $ -
============ ============
SIGNIFICANT NON-CASH TRANSACTIONS
Net change in unrealized holding gains on
available-for-sale securities $ 28,694 $( 3,547)
============ ============
See accompanying notes to consolidated financial statements.
-17-
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
First Financial Corporation ("the Company") was
incorporated in the State of Texas in 1964. During
the last three years, the primary business of the
Company, either directly or through its
subsidiaries, has been servicing a portfolio of
manufactured home loans, engaging in a limited
amount of insurance activities, and providing
consulting and data processing services to related
companies.
Basis for Financial Presentation
The Company's financial statements have been
prepared in conformity with generally accepted
accounting principles. In preparing those
financial statements, management is required to
make estimates and assumptions that affect the
reported amounts of assets and liabilities as of
the date of the balance sheet and revenue and
expenses for the period. Actual results could
differ significantly from those estimates.
Insurance Related Activities
The Company owns 100% of a property and casualty
insurance company which is included in the
consolidated financial statements. The policies
below relate specifically to the insurance
activities of the company.
Premium Revenues - Premiums on property and
casualty contracts are recognized as earned
primarily on a prorata basis over the contract
period.
Unpaid Losses and Loss Expenses - Unpaid losses and
loss expenses are based on case-basis estimates for
reported claims, and on estimates, based on
experience, for unreported claims and loss
expenses. The provisions for unpaid losses and
loss expenses at December 31, 1996 and 1995, have
been established to cover the estimated net cost of
insured losses. The amounts are necessarily based
on estimates and, accordingly, there can be no
assurance that the ultimate liability will not
exceed such estimates.
Acquisition Cost - Acquisition cost includes such
things as commissions, premium taxes and other
items, which are charged to current operations as
incurred. Amounts are deferred based upon the
capitalization and unearned premium rates.
Deferred costs are amortized over the contract
period on a prorata basis.
(continued)
-18-
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Insurance Related Activities (Continued)
Reinsurance - The Company cedes 100% of the
insurance written on residential homes to a
reinsurer under a fronting and reinsurance
agreement. This reinsurance arrangement provided
greater diversification of business and minimized
the Company's losses arising from large risks or
from hazards of an unusual nature. Although the
ceding of insurance does not discharge the original
insurer from its primary liability to its
policyholder, the insurance company that assumes
the coverage assumes the related liability, and it
is the practice of insurers for accounting purposes
to treat insured risks, to the extent of the
reinsurance ceded, as though they were risks for
which the original insurer is not liable. During
1996, substantially all of the Company's insurance
was written under this fronting and reinsurance
agreement.
Principles of Consolidation
The accompanying consolidated financial statements
include the financial statements of First Financial
Corporation, and all of its wholly owned and
majority owned subsidiaries. Minority interest
represents ownership of other entities in the net
assets of Key Group, Ltd. (See Note 11). All
significant intercompany transactions and balances
have been eliminated in the consolidation.
Cash Equivalents
For the purposes of the 1996 and 1995 consolidated
statements of cash flows, the Company considers all
highly liquid instruments with original maturities
of three months or less to be cash equivalents.
Marketable Investment Securities
Marketable investment securities classified as
available for sale are adjusted to market value at
the year-end. The unrealized gain is recorded net
of income taxes to stockholder's equity. Realized
gains or losses on sale of securities are
calculated based on the specific identification
method.
Investment in Affiliated Companies
Investment in a limited partnership, limited-
liability company, and unincorporated joint
ventures at December 31, 1996, are accounted for by
the equity method.
Property and Equipment
Property and equipment are stated at cost.
Depreciation is computed using accelerated and
straight-line methods over the estimated useful
lives of the assets.
(continued)
-19-
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Held For Investment
Real estate held for investment is carried at the
lower of cost or market in accordance with FASB
121. As of year-end, no permanent impairments to
this property had occurred.
Mortgage Loans Held For Sale
Mortgage loans held for sale are carried at the
lower of aggregate cost or market as determined by
outstanding commitments from investors or current
investment yield requirements calculated on the
aggregate loan basis.
Mortgage Loans Held For Investment
Mortgage loans held for investment are carried at
historical cost unless otherwise permanently
impaired.
Income Taxes
Income taxes are provided for the tax effects of
transactions reported in the financial statements
and consist of taxes currently due plus deferred
taxes related primarily to differences between the
basis of the loan loss reserve for financial and
income tax reporting. The deferred tax assets and
liabilities represent the future tax return
consequences of those differences, which will
either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses that
are available to offset future taxable income and
tax credits that are available to offset future
federal income taxes.
Foreclosed Manufactured Homes and Claims Receivable
Foreclosed manufactured homes and claims
receivable, which consists of manufactured homes
acquired by foreclosures, is valued at the lower of
cost or net realizable value.
Loan Administration Revenue
Loan administration revenue represents net fees
earned for servicing manufactured home loans owned
by institutional investors. The fees are generally
calculated on the outstanding principal balances of
the loans serviced and are recorded as income when
earned. Loan production revenue, representing fees
earned for originating residential mortgage loans,
is also included in loan administration revenue.
Earnings Per Common Share
Earnings per common share were computed by dividing
net income by the weighted average number of shares
outstanding.
(continued)
-20-
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage Loan Servicing Rights
For mortgage loans sold, the Company retains the
right to service certain loans. Those rights are
capitalized and amortized over the life of the loan
on a straight-line basis.
Reclassifications
Certain reclassifications have been made to prior
periods' financial statements in order for them to
be better compared to the December 31, 1996,
financial statements.
2. CONTINGENCIES AND THE CURRENT OPERATING ENVIRONMENT
First Financial Corporation (FFC) participated in the
Government National Mortgage Association (GNMA)
Mortgage-Backed Securities (GNMA-MBS) program for
manufactured homes through 1987. Under the GNMA-MBS
program, the Company collected monthly principal and
interest payments from the mortgagor and remitted the
payment to the security holder, after deducting a
service fee. The security holder of a GNMA-MBS was
guaranteed monthly payment of principal and interest
regardless of whether the Company collected the
necessary amount from the mortgagor. Therefore, First
Financial Corporation made advances to security
holders using its own funds for scheduled principal
and interest payments due that were delinquent or in
the process of repossession. Substantially all loans
were originated with some credit risk protection;
however, a portion of the loss remained uninsured and
had to be sustained by the Company.
The declining economies and increased unemployment
rates of the Southwest in 1986 and 1987 caused
delinquent loans and loans in repossession status to
increase significantly. These high levels of
delinquent loans and loans in repossession status
placed a serious strain on the Company's liquidity.
Beginning in 1986 and on numerous occasions throughout
1987, management met and discussed with and made
various proposals to representatives of GNMA in an
effort to reduce the losses being sustained by the
Company on the loans serviced under the GNMA-MBS
Program.
None of the proposals were accepted by GNMA. In
September 1987, the Company advised GNMA that it would
not be able to meet the scheduled payments to security
holders on September 15, 1987, and made application
requesting funds to meet the payments. The advance of
funds by GNMA constitutes default under the guaranty
agreements between the Company and GNMA. As a result
of the default, the Company's rights, title and
interests in mortgages pooled under its GNMA-MBS
Program were extinguished.
Subsequent to its extinguishment, the Company entered
into an Interim Servicing Agreement with GNMA with
respect to the mortgages pooled under the GNMA-MBS
Program. Under the agreement, the Company continued
to service the mortgages on behalf of GNMA through
March 1, 1988.
(continued)
-21-
2. CONTINGENCIES AND THE CURRENT OPERATING ENVIRONMENT
(Continued)
Between September 15, 1987 and March 1, 1988, GNMA
made advances of approximately $15,100,000 to the
Company in order to meet scheduled payments to
security holders. On September 12, 1988, GNMA made
demand on the Company for approximately $21,129,000 in
losses incurred by GNMA as a result of the default and
GNMA assuming the issuer obligations of the Company.
Further, GNMA anticipated that it would incur
additional losses in connection with assuming the
Company's issuer responsibilities. There has been no
reassertion of these claims since that time.
FFC's management and legal counsel are not aware of
any facts which would lead them to believe that it is
probable GNMA will or intends to assert or reassert
any claims against FFC. The Company's position is it
has no liability to GNMA. Legal counsel has advised
FFC that if GNMA does assert or reassert any claims,
FFC should in addition to its defense it has no
liability, raise other defenses such as the expiration
of the statute of limitations and laches. It is not
possible to determine, at this time, the ultimate
outcome of these matters and the effects, if any, on
the accompanying consolidated financial statements
since the final resolution depends on circumstances
which cannot currently be evaluated with certainty.
3. LOAN ADMINISTRATION
The Company was servicing loans owned by institutional
investors aggregating approximately $2,085,000 at
December 31, 1996. The Company was also servicing
loans owned by the Company's majority owned
subsidiary, Key Group, Ltd., aggregating approximately
$3,150,000 at December 31, 1996. Related trust funds
of approximately $13,000 at December 31, 1996, on
deposit in special bank accounts are not included in
the consolidated financial statements.
The Company's majority owned subsidiary, Key Group,
Ltd., was servicing residential loans held for sale or
owned by institutional investors aggregating
approximately $19,608,000 at December 31, 1996.
Related trust funds of approximately $130,000 at
December 31, 1996, on deposit in special bank accounts
are not included in the financial statements.
4. MARKETABLE INVESTMENT SECURITIES
Marketable investment securities at December 31, 1996,
consist of:
December 31, 1996
Unrealized Unrealized Market
Cost Gain Loss Value
Marketable equity securities - available-for-sale
$124,075 $ 23,813 $ - $147,888
Corporate bonds - held-to-maturity
173,406 2 - 173,408
------- ------- ------- -------
$297,481 $ 23,815 $ - $321,296
======= ======= ======= =======
A realized loss of $1,289 was recognized in current
year due to sale of marketable equity securities. The
unrealized gain relating to securities available-for-
sale is $6,892.
(continued)
-22-
4. MARKETABLE INVESTMENT SECURITIES (Continued)
The corporate bonds mature as follows:
1997 $ -
1998 50,000
1999 -
2000 -
2001 -
2002 and thereafter 125,000
5. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANIES
Investment in and advances to affiliated companies
consists of a 24.99% interest in Vidor, Ltd. (a
limited partnership) and a 25% interest in Whispering
Pines, L.L.C. (a limited liability company) at
December 31, 1996. Summary financial information of
Vidor, Ltd. and Whispering Pines, L.L.C. for the year
ended December 31, 1996, is as follows:
1996 1995
Vidor, Ltd.
Assets $1,605,140 $1,590,002
Liabilities 112,096 105,031
Equity $1,493,044 $1,484,971
========= =========
Revenue $ 36,809 $ 384,691
Expenses 28,736 266,106
Net Income $ 8,073 $ 118,585
========= =========
Whispering Pines
Assets $ 386,930 $ 426,922
Liabilities - 4,920
Equity $ 386,930 $ 422,002
========= =========
Revenue $ 22,519 $ 89,243
Expenses 7,590 28,738
Net Income $ 14,929 $ 60,505
========= =========
-23-
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at
December 31, 1996:
Estimated
Useful Lives
Land $ 25,524
Buildings and
improvements 1,004,881 10 to 40 years
Equipment, furniture
and fixtures 901,907 3 to 10 years
---------
1,932,312
Less accumulated
depreciation (1,124,099)
$ 808,213
==========
7. ESTIMATED RESERVE FOR LOSSES UNDER SERVICING
AGREEMENTS
Under the terms of certain of its existing servicing
agreements, the Company is at risk for any credit
losses and costs of foreclosure, net of credit
insurance proceeds, sustained on default of the
borrower. During 1987 and 1986, as a result of the
declining economies and other matters discussed in
Note 2, the Company made substantial loss provisions
to raise the estimated reserve for losses under
servicing agreements to levels that adequately reflect
management's estimate of future losses that may be
incurred under the Company's current and prior
servicing agreements. Beginning in 1990, the Company
changed its reserve estimate for losses under
servicing agreements as a result of decreases in the
amount of serviced loans outstanding. An analysis of
the reserve follows:
December 31,
1996 1995
Balance, beginning $ 1,886,283 $ 2,673,445
Current provisions ( 508,000) ( 701,000)
Losses - net ( 7,216) ( 86,162)
Balance, ending $ 1,371,067 $ 1,886,283
========== ==========
The losses incurred above are shown net of credit
insurance proceeds and other payments received as
further discussed in Note 2.
8. ACCOUNTS PAYABLE
Included in accounts payable at December 31, 1995, is
$645,360 due to Fleet Mortgage Company. In March
1996, the Company paid $245,360 to Fleet. The
remaining $400,000 was set up as a note payable due in
four monthly installments of $100,000 plus 5.17%
interest beginning April 20, 1996. At December 31,
1996, the amount had been paid in full.
-24-
9. NOTES PAYABLE
Note payable at December 31, 1996 and 1995, consists
of the following:
Note payable to a bank, which
bears interest at the bank's base
rate (9% at December 31, 1994),
secured by mortgage loans,
maturing September 3, 1996,
interest and principal payable
monthly.
1996 1995
$ - $ -
$ - $ -
========= =========
Notes payable to related parties at December 31, 1996
and 1995, consist of the following:
Note payable to a company owned
by related parties, which bears
interest at prime plus 1.5% (10%
at December 31, 1994), secured by
mortgage loans, maturing November
15, 1996, interest payable
monthly.
1996 1995
$ - $ 125,000
Note payable to a company owned
by a related party, which bears
interest at prime plus .75% (9.25% at
December 31, 1994), secured by
mortgage loans, maturing November
15, 1996, interest payable
monthly.
1996 1995
- 36,000
Note payable to a company owned
by a related party, which bears
interest at prime plus 1% (9.5% at
December 31, 1994), secured by
mortgage loans, maturing November
15, 1996, interest payable
monthly.
1996 1995
- 210,000
Total
$ - $ 371,000
========= =========
-25-
10. LEASES
The Company maintains various equipment under long-
term operating leases. Future minimum rental payments
required under these leases are approximately:
1997 $ 58,461
1998 40,643
1999 11,826
The rental expense for equipment leases was $66,016
and $76,570 for December 31, 1996 and 1995,
respectively.
The Company also leases office space for its locations
under various operating leases. The future minimum
rental payments required are approximately:
1997 $ 122,000
1998 62,000
1999 28,000
2000 9,500
The rental expense for office space was $175,641 and
$193,015 for 1996 and 1995, respectively. Also, the
Company sub-leased the office in The Woodlands
beginning in 1996 for $2,350 per month. This sub-
lease expires December 1997.
11. RELATED PARTY TRANSACTIONS
As described below, the Company is involved in a
number of other transactions with companies owned or
managed by related parties.
At the end of December 31, 1995, the Company was
indebted to certain related entities for $371,000.
During 1996 this debt was repaid in full. The Company
recorded interest expense of $18,523 and $53,591 for
the years ended 1996 and 1995, respectively.
On September 30, 1991, the Company executed a Limited
Partnership Agreement (the "Agreement") to form a
limited partnership with the name "Key Group, Ltd." A
certificate of Limited Partnership for Key Group, Ltd.
("Key Group") was filed with and approved by the
Secretary of State of Texas on October 2, 1991. The
limited partners in Key Group are the Company and
Bluebonnet Investments, Ltd. ("Bluebonnet"). The
general partners are Robert A. Mann and First Key
Holdings, Inc.
(continued)
-26-
11. RELATED PARTY TRANSACTIONS (Continued)
Pursuant to the Agreement, on September 30, 1991, the
Company, as a limited partner in Key Group,
contributed to Key Group certain mobile home notes
payable to and held by the Company having an aggregate
unpaid balance of approximately $1,750,000, plus an
amount of cash on hand equal to the difference between
$2,249,780 and the unpaid balance of such notes as of
the date transferred to Key Group. In exchange for
its contribution, the Company received 52,936
partnership units ("Units") out of a total of 100,000
Units representing approximately 52.94% of Key Group.
Bluebonnet, a Texas limited partnership in which
Robert A. Mann and David W. Mann have direct and
indirect interest (as described below), contributed
cash or cash equivalents equal to $1,999,795 in
exchange for 47,054 Units representing approximately
47.05% of Key Group.
Robert A. Mann, individually, and First Key Holdings,
Inc., a Texas corporation which is owned by the David
W. Mann 1990 Trust, of which David W. Mann is the
trustee and a beneficiary, each contributed $212.50
for 5 Units each in Key Group.
Key Group executed a Servicing Agreement with the
Company pursuant to which the Company will continue to
service the notes the Company contributed to Key
Group.
Key Group conducts business through its wholly-owned
subsidiary, First Preference Holdings, Inc. ("First
Preference Holdings"). First Preference Holdings owns
three wholly-owned subsidiaries: First Preference
Mortgage Corp., First Preference Financial Corp. and
First Financial Information Services, Inc. First
Preference Mortgage Corp. originates and services
residential mortgage loans and is an approved
Seller/Servicer for Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("Freddie Mac"), Veterans Administration
("VA") and Federal Housing Administration ("FHA").
First Preference Financial Corp. was formed to be an
originator and servicer of consumer loans, primarily
in the manufactured home market. At the present time,
First Preference Financial Corp. has not obtained any
government licenses to originate and service consumer
loans. First Financial Information Services, Inc.
provides data processing services for the Company and
its subsidiaries. On June 1, 1992, the Company sold
100% of the issued and outstanding common stock of
First Financial Information Services to First
Preference Holdings for a purchase price equal to its
investment in First Financial Information Services,
Inc.
Bluebonnet is directly and indirectly controlled
by members of the Mann family. Robert A. Mann
is a general and limited partner of Bluebonnet in his
individual capacity. He is also the president and
sole director of Bluebonnet Enterprises, Inc., the
corporate general partner of Bluebonnet. Robert A. Mann,
David W. Mann, Henry W. Seals, Chapter 7 Trustee for
David W. Mann and Robert A. Mann's other two children
(David W.Mann's siblings) have direct or indirect
interests in limited partnerships which are the limited
partners of Bluebonnet. David W. Mann is the trustee and
a beneficiary of the trust which owns the outstanding
stock of the corporate general partner of Bluebonnet
and the corporate general partners of the limited
partnerships which are limited partners of Bluebonnet.
(continued)
-27-
11. RELATED PARTY TRANSACTIONS (Continued)
The Company also borrowed an additional $35,000 from
related parties for working capital purposes during
1995.
During 1995, the Company purchased manufactured home
loans from a related party for approximately $231,000,
the face value of those notes.
12. INCOME TAXES
The provision for income taxes consists of the
following components at December 31, 1996 and 1995:
1996 1995
Income tax computed at
corporate Federal rate $ 77,120 $ 79,713
Earnings (loss) of affiliates ( 29,279) ( 27,138)
Nondeductible reduction in
reserve for losses ( 172,720) ( 238,340)
Nondeductible income and
expenses ( 4,208) 3,337
Change in deferred tax asset 129,087 182,428
$ - $ -
========= =========
The deferred tax benefit in the accompanying balance
sheet at December 31, 1996,includes the following
components:
Deferred tax benefit attributable to net
operating loss carryforwards $ 1,959,167
Deferred tax benefit attributable to
reserve for losses under servicing
agreements 466,163
Deferred tax benefit applicable to
unrealized (gain) loss on marketable
equity securities ( 8,097)
Deferred tax asset valuation allowance (2,124,237)
Net deferred tax asset $ 292,996
==========
The valuation allowance decreased by approximately
$235,000 due primarily to change in the amount
deferred relating to reserve for losses under
servicing, and difference between net operating loss
carryforward recorded on the books and actual benefit
from the tax return for 1995.
(continued)
-28-
12. INCOME TAXES (Continued)
A valuation allowance has been provided for
substantially all future benefits available for tax
purposes due to the trend of historical losses of the
Company and the unlikely possibility of future
realization. The net deferred tax asset is
substantially unchanged from prior years and relates
to benefits available at a subsidiary level where an
unconsolidated return is filed.
At December 31, 1996, for Federal income tax purposes,
the Company has consolidated unused net operating loss
carryforwards of approximately $5,800,000
substantially all of which expire in 2002, 2003 and
2006, consolidated unused contribution carryforwards
of approximately $22,000 expiring from 1996 - 1998.
13. COMMITMENTS AND CONTINGENCIES
Substantially all of the conventional pools of
manufactured home loans serviced by the Company,
approximating $5,200,000 and $6,400,000 at December
31, 1996 and 1995, respectively, were sold to
investors with recourse. The recourse provisions
typically require the Company to repurchase delinquent
loans at the unpaid principal balances plus accrued
interest, or replace delinquent loans with another
loan which is current. Further, several of the
agreements require the Company to establish and
maintain cash reserve accounts. Deposits are
periodically made to the accounts equal to a specified
percent of the outstanding loans. The accounts may be
used to cover deficiencies from foreclosure and
liquidation of delinquent pooled mortgage loans. Such
cash reserve accounts totaled $10,524 and are included
in restricted cash at December 31, 1996.
The Company is involved in various other claims and
legal actions arising in the ordinary course of
business. Historically, the ultimate disposition of
these matters has not had a material adverse effect on
the Company's financial condition. It is not possible
to determine, at this time, the ultimate outcome of
these matters and the effects, if any, on the
accompanying consolidated financial statements since
the final resolution depends on circumstances which
cannot currently be evaluated with certainty. Certain
accruals for loss contingencies have been recorded in
the financial statements of the Company.
14. SEGMENT REPORTING
The Company operates principally in two segments,
mortgage banking and commission sales and underwriting
of hazard insurance for manufactured housing primarily
in the Central and Southeast region of Texas. Other
segments include underwriting credit insurance, and
land development through the Company's affiliated
company.
-29-
14. SEGMENT REPORTING (Continued)
Information concerning the Company's operations in
different segments follows:
Corporate
Mortgage Insurance and
Banking Sales Other Consolidated
For the Year Ended
December 31, 1996
Revenue $5,257,525 $ 84,791 $ 256,700 $5,599,016
Operating profit 56,065 77,374 ( 52,463) 80,976
Identifiable assets 6,374,454 1,366,157 110,682 7,851,293
Depreciation 157,168 12,111 442 169,721
Capital expenditures 56,519 1,506 3,180 61,205
For the Year Ended
December 31, 1995
Revenue $4,701,068 $ 115,976 $ 332,095 $5,149,139
Operating profit 166,823 96,351 ( 144,867) 118,307
Identifiable assets 7,487,710 1,338,237 199,211 9,025,158
Depreciation 177,235 16,562 6,492 200,289
Capital expenditures 3,067 6,217 - 9,284
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The fair value of cash and cash equivalents
approximates the carrying value because of the
short time until realization of these amounts.
Accounts Receivable and Payable
The fair value of accounts receivable and accounts
payable approximates the carrying value because of
the short time until realization of those balances.
Long-term Debt
Because all notes payable have a maturity of one
year or less, the fair value of these instruments
does not significantly differ from the carrying
value.
(continued)
-30-
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Mortgage Loans Held for Sale
Mortgage loans held for sale are net of any
participations sold to investors. The fair value of
mortgage loans held for sale is based upon the
estimated price the investor is willing to pay.
The value of these loans are:
Carrying Value Market Value
Mortgage Loans Held for Sale $ 288,753 $ 292,639
Mortgage Loans Held for Investment
Mortgage loans held for investment are net of any
participations sold and any discounts. The fair
value of the balance is based upon discounted cash
flows at the market rate of interest for similar
loans. The value of these loans are:
Carrying Value Market Value
Mortgage Loans Held for Investment $2,372,436 $2,470,312
Mortgage Servicing Rights
Mortgage Servicing Rights is net of any
amortization taken. The fair value of the balance
is based upon the market rate of servicing rights
of similar loans. The value of these loans are:
Carrying Value Market Value
Mortgage Servicing Rights $ 100,355 $ 124,478
Concentrations of Credit
The Company maintains cash balances at several
depository institutions. Cash accounts at these
institutions are insured by FDIC for up to $100,000
for each account. Amounts in excess of insured
limits were approximately $3,059,450 at December
31, 1996. Of that balance, approximately
$2,900,000 relates to funds on deposit in the
settlement account with a depository institution.
The primary function of this account is to receive
payment on loans sold which were financed by the
depository institution. When payments are
received, the balance is distributed to the
depository institution and the Company, based upon
the financing agreement.
(continued)
-31-
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Retirement Plans
The Company maintains a 401(k) profit sharing plan
for the benefit of all employees who have attained
the age of twenty-one and have completed one year
of service. The calendar year plan provides for
voluntary employee contributions as a deduction
from wages with a required matching contribution by
the employer. The Company has a matching
contribution equal to 50% of the amount of the
salary reduction up to 2% plus 25% for reductions
in excess of 2% to a maximum of 4%. For the year
ended December 31, 1996, the Company incurred a
total contribution expense of $10,191.
-32-
PART II
(Continued)
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures
Not Applicable
-33-
PART III
Item 9. Directors and Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
The information required by this Item 9, is hereby
incorporated by reference to the definitive information
statement to be filed within 120 days after the end of the
last fiscal year.
Item 10. Executive Compensation
The information required by this Item 10, is hereby
incorporated by reference to the definitive information
statement to be filed within 120 days after the end of the
last fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The information required by this Item 11, is hereby
incorporated by reference to the definitive information
statement to be filed within 120 days after the end of the
last fiscal year.
Item 12. Certain Relationships and Related Transactions
The information required by this Item 12, is hereby
incorporated by reference to the definitive information
statement to be filed within 120 days after the end of the
last fiscal year.
-34-
PART III
(Continued)
Item 13. Exhibits and Reports on Form 8-K. Page
Number
(a) Exhibits included herein:
10 - Master Whole-Loan Purchase Agreement dated
March 27, 1996, between First Preference
Mortgage Corp. and Bank One Texas, N.A. 37 - 66
10 - First Amendment to Master Whole-Loan
Purchase Agreement dated March 18, 1997,
between First Preference Mortgage Corp.
and Bank One, Texas, N.A. 67 - 68
21 - Subsidiaries of the Registrant
Exhibits hereby incorporated by reference:
3 - Articles of Incorporation filed with Form 10-K
year ended December 31, 1987, on page 35.
3 - Bylaws of Registrant filed with Form 10-K year
ended December 31, 1991, and pages 38 to 64.
10 - Limited Partnership Agreement with Key Group,
Ltd. dated September 30, 1991, filed with Form
8-K dated September 30, 1991, on pages 5 - 29.
10 - Servicing Agreement dated September 30, 1991,
with Key Group, Ltd. filed with Form 8-K
dated September 30, 1991, on pages 30 - 49.
10 - Loan Sale Agreement dated September 3, 1993,
with
the Resolution Trust Corporation filed with
Form 10-KSB year ended December 31, 1993, on
pages 34 - 59.
10 - Second Renewal, Extension and Modification
Agreement dated May 31, 1994, between
First Preference Mortgage Corp. and Pacific
Southwest Bank, F.S.B. filed with Form 10-KSB
for year ended December 31, 1994, on pages
38 - 41.
(continued)
-35-
Item 13. Exhibits and Reports on Form 8-K. (Continued) Page
Number
10 - Third Renewal, Extension and Modification
Agreement dated September 30, 1994, between
First Preference Mortgage Corp. and Pacific
Southwest Bank, F.S.B. filed with Form 10-KSB
for year ended December 31, 1994, on pages
42 - 44.
10 - Fourth Renewal, Extension and Modification
Agreement dated November 17, 1994, between
First Preference Mortgage Corp. and Pacific
Southwest Bank, F.S.B. filed with Form 10-KSB
for year ended December 31, 1994, on pages
45 - 47.
10 - Loan Purchase Agreement dated September 30,
1994,
between First Preference Mortgage Corp. and
Bank Texas, N.A. Filed with Form 10-KSB for
the year ended December 31, 1994, on pages
48 - 63.
10 - Mortgage Loan Master Repurchase Agreement
dated
October 17, 1994 between First Preference
Mortgage Corp. and Lomas Mortgage USA, Inc.
filed with Form 10-KSB for the year ended
December 31, 1994, on pages 64 - 93.
10 - Agreement dated December 12, 1994 between
First
Preference Mortgage Corp. and Provident Bank
filed with Form 10-KSB for the year ended
December 31, 1994, on pages 94 - 115.
10 - Fifth Renewal, Extension and Modification
Agreement
dated May 25, 1995, between First Preference
Mortgage Corp. and Pacific Southwest Bank,
F.S.B.
filed with Form 10-KSB for the year ended
December 31, 1995, on pages 34 - 37.
10 - Sixth Modification Agreement dated January 1,
1996,
between First Preference Mortgage Corp. and
Pacific Southwest Bank, F.S.B., filed with
Form 10-KSB for the year ended December 31,
1995,
on pages 38 - 40.
(b) Report on Form 8-K
No reports on Form 8-K have been filed by the
Registrant during the last quarter of the
period covered by this report.
-36-
MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of March 27, 1996,
between FIRST PREFERENCE MORTGAGE CORP., a Texas
corporation ("Seller"), and BANK ONE, TEXAS, N.A.
("Buyer").
(See Section 1.1 for defined terms.)
A. Seller originates, acquires, markets, sells, and
services Mortgage Loans. Seller and Buyer have agreed for
Buyer to purchase from Seller certain Mortgage Loans and
certain Mortgage Securities arising only from the pooling
of the Mortgage Loans purchased by Buyer, in each case upon
and subject to the terms of the Purchase Documents,
including, without limitation, the conditions that the
Total-Purchase Price never exceeds the Purchase Commitment
and that a Margin Deficit never exists.
B. Seller is obligated to pay to Buyer certain Yield
on the Total-Purchase Price. The sale of those Mortgage
Loans and Mortgage Securities to Buyer is with the recourse
to Seller described in the Purchase Documents. Under
certain circumstances, Seller is entitled and sometimes
obligated to repurchase those Mortgage Loans and Mortgage
Securities from Buyer.
C. Although Seller and Buyer intend that the
Purchases constitute the sale and purchase of Mortgage
Loans and Mortgage Securities, Seller is granting to Buyer
first-priority Liens upon, among other things, the related
Mortgage Documents to secure the Obligation if the
Purchases are ever characterized by Law as financings.
ACCORDINGLY, for adequate and sufficient
consideration, Seller and Buyer agree as follows:
I. SECTION . DEFINITIONS AND REFERENCES. Unless stated
otherwise, the following provisions apply to each Purchase
Document and annexes, exhibits, and schedules to -- and
certificates, reports, and other writings delivered
under -- the Purchase Documents.
A. Definitions.
Actual-Termination Date means the earlier of either
(a) the Stated-Termination Date or (b) the date on which
the Purchase Commitment has otherwise terminated or been
canceled.
Adjusted-Fed-Funds Rate means, at any time, an annual
interest rate equal to the sum of the Fed-Funds Rate plus
(a) 1.500% for Purchases of Gestation Loans and (b) 2.625%
for other Purchases
Adjusted-Tangible-Net Worth means -- at any time and
without duplication -- the sum of (a) Seller's
stockholders' equity, plus (b) 1.0% of the Servicing
Portfolio, minus (c) purchased servicing, originated
mortgage servicing rights deferred excess servicing, rights
with respect to the foregoing, and unamortized debt
discount and expense, minus (d) treasury stock, minus (e)
any surplus resulting from the write-up of assets, minus
(f) goodwill, including, without limitation, any amounts
representing the excess of the purchase price paid for
acquired assets, stock, or interests over the book value
assigned to them, minus (g) patents, trademarks, service
marks, trade names, and copyrights, minus (h) Seller's
direct and indirect guaranties of Debt of any other Person,
minus (i) Seller's obligation with respect to letters of
credit, acceptances, and similar obligations, minus (j)
other intangible assets.
Affiliate means, for any Person, any other individual
or entity that -- directly or indirectly through ownership,
voting securities, contract, or otherwise -- controls, is
controlled by, or under common control with that Person.
Appraisal means, for any Mortgage Loan, a written
statement of the market value of the real property securing
it.
Appraisal Law means any Law that is applicable to
appraisals of mortgaged-residential property in connection
with transactions involving that property, including,
without limitation, Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, the Federal
Deposit Insurance Corporation Improvement Act of 1991, 12
C.F.R. Chapter I, Part 34, Subpart C, 12 C.F.R. Chapter II,
Subchapter A, Part 225, Subpart G, and 12 C.F.R. Chapter
III, Subchapter B, Part 323.
Approved Investor means (a) FHLMC and FNMA and (b) any
other Person from time to time named on a list agreed to by
Buyer and Seller, as that list may be amended from time to
time (i) by Seller and Buyer to remove or add other names
as Buyer and Seller may agree, (ii) by Buyer to remove any
such other Person after Buyer has given to Seller notice
of the proposed removal of that Person, or (iii)
automatically -- without signing by any party -- to remove
any such Person who then (A) is not Solvent, (B) fails to
pay its debts generally as they become due, (C) voluntarily
seeks, consents to, or acquiesces in the benefit of any
Debtor Law, or (D) becomes a party to or is made the
subject of any proceeding provided for by any Debtor Law --
other than as a creditor or claimant -- that could suspend
or otherwise adversely affect the Rights of Seller or Buyer
in connection with the transactions contemplated in the
Purchase Documents.
Average-Adjusted-Fed-Funds Rate mean, for any period,
an annual interest rate equal to the quotient of (a) the
sum of the Adjusted-Fed-Funds Rate for each calendar day
during that period divided by (b) the number of days during
that period.
Average Balances, for any period, means (a) the
quotient of (i) the sum of the Eligible Balances as of the
close of business for each calendar day (which for any day
that is not a Business Day are deemed for this definition
to be those balances for the preceding Business Day) during
that period divided by (ii) the number of calendar days
during that period minus (b) amounts necessary to satisfy
any deposit insurance, reserve, special deposit, Tax (other
than Buyer's general corporate income or franchise Taxes),
duty, or other imposition (in each case at the applicable
rates) requirements applicable to Buyer for those accounts,
minus (c) amounts required to compensate Buyer for direct
processing and transaction costs and other services
rendered in connection with those accounts according to
Buyer's system of charges for similar accounts, minus (d)
unless otherwise paid directly to Buyer, any amounts in
those accounts utilized as of that day in the calculation
of interest on any other Debt payable by Seller to Buyer or
any other Person.
Average-Base Rate means, for any period, an annual
interest rate equal to the quotient of (a) the sum of the
Base Rate for each calendar day during that period divided
by (b) the number of days during that period.
Average-Total-Purchase Price, for any period, means
the quotient of (a) the sum of the Total-Purchase Price as
of the close of business for each calendar day (which for
any day that is not a Business Day is deemed for this
definition to be the Total-Purchase Price as of the close
of business for the preceding Business Day) divided by (b)
the number of days during that period.
Bailee Letter means, as applicable under the
circumstances, one of the letters executed and delivered by
Buyer in substantially the form of Exhibit A-4 or Exhibit
A-5.
Base Rate means an annual interest rate equal from day
to day to the floating annual interest rate established by
Buyer from time to time as its base-rate of interest, which
may not be the lowest interest rate charged by Buyer in
respect of transactions similar to Purchases.
Base-Rate Purchase means any Purchase having the Base
Rate as the applicable Yield.
Business Day means any day other than Saturday,
Sunday, and any other day that commercial banks are
authorized or obligated by Law to be closed in Texas.
Buyer is defined in the preamble of this agreement.
Buyer Lien means any present or future first-priority
Lien securing the Obligation that is assigned, conveyed,
and granted to or created for Buyer's benefit under the
Purchase Documents.
Calendar Month means that portion of a calendar month
that occurs at any time from the date of this agreement to
the date that the Obligation is paid in full and the
Purchase Commitment has terminated or been canceled.
Calendar Quarter means that portion of any calendar
quarter that occurs at any time from the date of this
agreement to the date that the Obligation is paid in full
and the Purchase Commitment has terminated or been
canceled.
Closing Date means the date agreed upon by Seller and
Buyer, which must be on or before the date of the initial
Purchase under this agreement.
Company means, at any time, Seller and all of its
Subsidiaries, if any.
Compliance Certificate means a certificate executed by
a Responsible Officer of Seller and delivered to Buyer in
substantially the form of Exhibit B-6.
Conventional Loan means a Mortgage Loan that (a) is
not a FHA Loan or VA Loan but (b) complies with all
applicable requirements for purchase under the FNMA or
FHLMC standard form of conventional-mortgage-purchase
contract.
Conversion Notice means a notice executed by Seller
and delivered to Buyer in substantially the form of Exhibit
B-7.
Correction Period means ten calendar days for any
Mortgage Documents for any Mortgage Loan shipped under
Section 4.7 for correction.
Covered Rate means an annual interest rate that is (a)
1.5% for Purchases of Gestation Loans and (b) 2.625% for
other Purchases.
Current Financials means either (a) Seller's
Financials for the year ended December 31, 1994, and for
the 11 months ended November 30, 1995, or (b) at any time
after the Seller's annual Financials are first delivered
under Section 7.1, the Seller's annual Financials then most
recently delivered to Buyer and subsequent monthly
Financials then most recently delivered to Buyer.
Debt -- for any Person and without duplication --
means (a) all obligations required by GAAP to be classified
upon that Person's balance sheet as liabilities, (b)
liabilities secured (or for which the holder of the
liabilities has an existing Right, contingent or otherwise,
to be so secured) by any Lien existing on property owned or
acquired by that Person, (c) obligations that under GAAP
should be capitalized for financial reporting purposes, and
(d) all guaranties, endorsements, and other contingent
obligations with respect to Debt of others or in respect of
any Employee Plan.
Debtor Laws means all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement,
receivership, insolvency, reorganization, or similar Laws
from time to time in effect and generally affecting
creditors' Rights.
Default is defined in Section 10.1.
Default Rate means, for any day, an annual interest
rate equal to the lesser of either (a) the Fed-Funds Rate
plus 6.625% or (b) the Maximum Rate.
Delivery Notice means a notice executed by Seller and
delivered to Buyer in substantially the form of Exhibit B-
2.
Distribution -- with respect to any shares of any
capital stock or other equity securities issued by a
Person -- means (a) the retirement, redemption, purchase,
or other acquisition for value of those securities, (b) the
declaration or payment of any dividend with respect to
those securities, (c) any loan or advance by that Person
to, or other investment by that Person in, the holder of
any of those securities, and (d) any other payment by that
Person with respect to those securities.
Dry Loan means a Mortgage Loan or Mortgage Security
for which all of the Mortgage Documents have been delivered
to Buyer according to Section 4.3.
Eligible-Gestation Loan means, at any time, a
Gestation Loan for which the applicable conditions for
eligibility described in Schedule 4.1 are satisfied.
Eligible-Mortgage Loan means, at any time, a Mortgage
Loan that is not an Eligible-Gestation Loan and for which
the applicable conditions for eligibility described in
Schedule 4.1 are satisfied.
Eligible-Mortgage Security means, at any time, a
Mortgage Security for which the applicable conditions for
eligibility described in Schedule 4.1 are satisfied.
Employee Plan means an employee-pension-benefit plan
covered by Title IV of ERISA and established or maintained
by Seller.
Environmental Law means any Law that relates to the
pollution or protection of the environment or to Hazardous
Substances.
ERISA means the Employee Retirement Income Security
Act of 1974.
ERISA Affiliates means Seller and every trade or
business (whether or not incorporated) that, together with
Seller, would be treated as a single-employer under S 4001
of ERISA.
Fed-Funds Purchase means any Purchase having the
Adjusted-Fed-Funds Rate as the applicable Yield.
Fed-Funds Rate means, for any day, the annual interest
rate -- rounded upwards, if necessary, to the nearest
0.01% -- determined by Buyer to be either (a) the weighted
average of the rates on overnight-federal-funds
transactions with member banks of the Federal Reserve
System arranged by federal-funds brokers for that day (or,
if not a Business Day on the preceding Business Day) as
published by the Federal Reserve Bank of New York (as
published by Knight-Ridder, page 73, utilizing the Fed-
Effective Rate), or (b) if not so published for any day,
the average of the quotations for that day on those
transactions received by Buyer from three federal-funds
brokers of recognized standing it may select.
FHA means the Federal Housing Administration within
the United States Department of Housing and Urban
Development.
FHA Loan means a Mortgage Loan which is either (a)
fully or partially insured by FHA under the National
Housing Act or Title V of the Housing Act of 1949,
(b) subject to a current, binding, and enforceable
commitment issued by FHA for that insurance, or
(c) eligible for direct endorsement under the FHA Direct
Endorsement Program.
FHLMC means the Federal Home Loan Mortgage
Corporation.
Financials means balance sheets, profit and loss
statements, statements of cash flow, and any other
financial statements, reports, or information specified by
Buyer.
FNMA means the Federal National Mortgage Association.
Form T-37 means, at any time, the Form T-37
Immediately Available Funds Procedure Agreement promulgated
by the State Board of Insurance of the State of Texas under
Chapter Nine of the Texas Insurance Code.
GAAP means generally accepted accounting principles of
the Accounting Principles Board of the American Institute
of Certified Public Accountants and the Financial
Accounting Standards Board that are applicable from time to
time.
Gestation Loan means a Mortgage Loan that is subject
to the Gestation Sublimit and is supported by the Margin
Amount applicable to Gestation Loans.
Gestation Sublimit means, at any time, 20% of the
Purchase Commitment.
Guide means the following, as applicable under the
circumstances, for (a) FHLMC, the Freddie Mac Sellers' &
Servicers' Guide dated September 17, 1984 and (b) FNMA, the
Fannie Mae Servicing Guide dated June 30, 1990.
Hazardous Substance means any substance (a) the
presence of which requires removal, remediation, or
investigation under any Environmental Law, or (b) that is
defined or classified as a hazardous waste, hazardous
material, pollutant, contaminant, or toxic or hazardous
substance under any Environmental Law.
Investments means -- for any Person -- any loan,
advance, extension of credit, or capital contribution by
that Person to, any investment by that Person in, or
purchase by that Person or commitment by that Person to
purchase any stock or other securities or evidences of Debt
of, or interests in, any other individual or entity.
IRC means the Internal Revenue Code of 1986.
Jumbo Loan means a Mortgage Loan (other than a FHA
Loan or VA Loan) that complies with all applicable
requirements for purchase under the FNMA or FHLMC standard
form of conventional mortgage purchase contract then in
effect except that the amount of it exceeds the maximum
loan amount under those requirements.
Jumbo Sublimit -- at any time and except as otherwise
approved by Buyer in writing -- means (a) for all Jumbo
Loans, 10% of the Purchase Commitment, and (b) for any
Jumbo Loan in excess of $500,000, only the first $500,000.
Laws means all applicable statutes, laws, treaties,
ordinances, rules, regulations, orders, writs, injunctions,
decrees, judgments, opinions, and interpretations of any
Tribunal.
Lien means any lien, mortgage, security interest,
pledge, assignment, charge, title retention agreement, or
encumbrance of any kind and any other arrangement for a
creditor's claim to be satisfied from assets or proceeds
prior to the claims of other creditors or the owners.
Litigation means any action by or before any Tribunal.
Management Report means a report delivered by a
Responsible Officer of Seller to Buyer in substantially the
form of Exhibit B-5.
Margin Amount means, at any time, the amount
calculated according to Schedule 4.2.
Margin-Amount Report means a report executed by Buyer
and delivered to Seller in substantially the form of
Exhibit B-3.
Margin Deficit means, at any time, the amount by which
any of the limitations of Section 2.1 or Schedule 4.2 are
exceeded.
Market Value, at any time, means (a) for Mortgage
Loans -- except as provided in clause (b) below -- a market
value based upon the then-most recent posted net yield for
30-day mandatory future delivery furnished by FNMA and
published and distributed by Telerate Mortgage Services or
Knight-Ridder or (if that posted net yield is not available
from these services) obtained by Buyer from FNMA, (b) for
Jumbo Loans or any other Mortgage Loan when the posted rate
is not available from FNMA, the value determined in good
faith by Buyer, and (c) for Mortgage Securities, the
applicable Take-Out Prices, as detailed in the then most-
recent Take-Out Report delivered by Seller under this
agreement of all Take-Out Commitments relating to Mortgage
Securities.
Material-Adverse Event means any circumstance or event
that, individually or collectively, is reasonably expected
to result in any (a) impairment of Seller's ability to
perform any of its payment or other material obligations
under any Purchase Document or Buyer's ability to enforce
any of those obligations or any of its Rights under any
Purchase Document, (b) material-adverse effect on Seller's
(individual or consolidated) financial condition financial
condition represented to Buyer in the Current Financials
delivered to Buyer as of the date of this agreement, (c)
material-adverse effect on any Mortgage Loan or Mortgage
Security purchased and owned by Buyer under the Purchase
Documents, or (d) Default.
Material Agreement means, for any Person, any
agreement to which that Person is a party, by which that
Person is bound, or to which any assets of that Person may
be subject, and that is not cancelable by that Person upon
less than 30-days notice without liability for further
payment other than nominal penalty, and the default under
which or cancellation or forfeiture of which would be a
Material-Adverse Event.
Maximum Amount and Maximum Rate respectively mean, for
any day, the maximum non-usurious amount and the maximum
non-usurious rate of interest that, under applicable Law,
Buyer is permitted to contract for, charge, take, reserve,
or receive as part of the Obligation if the Purchases were
characterized by Law as financings.
Mortgage Documents means the documents and other items
described on Schedule 4.3 and required to be delivered to
Buyer under Section 4.3.
Mortgage Group is defined on Schedule 4.2.
Mortgage Loan means a loan that is not a construction
or non-residential commercial loan, is evidenced by a valid
promissory note, and is secured by a mortgage, deed of
trust, or trust deed that grants a perfected first-priority
Lien on the residential-real property.
Mortgage Pool means a (a) "group" or "grouping" of
Mortgage Loans assembled according to -- and as that term
is used in -- the FHLMC Guide, (b) "pool" of Mortgage Loans
assembled according to -- and as that term is used in --
the FNMA Guide, or (c) any other pool of Mortgage Loans
assembled by an Approved Investor securing -- and providing
for pass-through payments of principal and interest on --
its Mortgage Securities.
Mortgage Security means a security -- in respect of an
underlying pool of related Mortgage Loans that have been
purchased by Buyer under the Purchase Documents -- that
provides for payment by the issuer to the holder of
specified principal installments and a fixed-interest rate
on the unpaid balance, with all prepayments being passed
through to the holder, and is issued in certificate or
book-entry form.
Multiemployer Plan means a multiemployer plan as
defined in SS 3(37) or 4001(a)(3) of ERISA or S 414(f) of
the IRC to which any ERISA Affiliate is making, or has
made, or is accruing, or has accrued, an obligation to make
contributions.
Obligation means all (a) present and future
indebtedness, obligations, and liabilities of Seller to
Buyer and related to any Purchase Document, whether in the
form of Yield, repurchase obligations, fees, costs,
attorneys' fees, or otherwise or (if the Purchases are ever
characterized by Law as financings) principal or interest,
(b) amounts that would become due but for operation of 11
U.S.C. SS 502 and 503 or any other provision of Title 11 of
the United States Code, (c) pre- and post-maturity interest
on any of the foregoing, including, without limitation, all
post-petition interest if Seller voluntarily or
involuntarily files for protection under any Debtor Law,
and (d) all renewals, extensions, and modifications of any
of the foregoing.
Payment Account means a non-interest bearing deposit
account established by Seller with Buyer that is (a) styled
and numbered as described on the signature page(s) to this
agreement and (b) for the deposit of Purchase Prices by
Buyer to Seller according to the Purchase Documents.
PBGC means the Pension Benefit Guaranty Corporation.
Permitted Debt means Debt described on Schedule 8.1.
Permitted Investments means Investments described on
Schedule 8.3.
Permitted Liens means Liens described on Schedule 8.2.
Person means any individual, entity, or Tribunal.
Potential Default means the occurrence of any event or
existence of any circumstance that would -- upon notice,
time lapse, or both -- become a Default.
Purchase means the sale by Seller and purchase by
Buyer of a Mortgage Loan or Mortgage Security and related
Mortgage Documents under this agreement.
Purchase Commitment means $25,000,000.
Purchase Date means, for any Purchase, the date the
Purchase Price for it is paid to Seller.
Purchase Documents means (a) this agreement,
certificates and reports delivered under this agreement,
and exhibits and schedules to this agreement, (b) all
agreements, documents, and instruments in favor of Buyer
ever delivered under this agreement or otherwise delivered
in connection with any of the Obligation, and (c) all
renewals, extensions, and restatements of, and amendments
and supplements to, any of the foregoing.
Purchase Price -- at any time and for a Mortgage Loan
or Mortgage Security -- means the sum of (a) the purchase
price paid by Buyer to Seller for the Purchase of that
Mortgage Loan or Mortgage Security under Section 2.3 minus
(b) any amount paid by Seller to Buyer in respect of
Purchase Price (but not the Yield for or fees in respect
of) that Mortgage Loan or Mortgage Security.
Purchase Request means a request executed by Seller
and delivered to Buyer in substantially the form of
Exhibit B-1.
Regulation U means Regulation U promulgated by the
Board of Governors of the Federal Reserve System, 12 C.F.R.
Part 221.
Regulation X means Regulation X promulgated by the
Board of Governors of the Federal Reserve System, 12 C.F.R.
Part 224.
Representatives means representatives, officers,
directors, employees, attorneys, and agents.
Repurchase Request means a Repurchase Request executed
and delivered by Seller to Buyer in substantially in the
form of Exhibit C-7.
Responsible Officer means , for Seller, its chairman,
president, executive vice president, vice president, or
other officer that Seller may designate as a Responsible
Officer in writing to Buyer.
Rights means rights, remedies, powers, privileges, and
benefits.
Security Agreement means the Security Agreement
executed by Seller and Buyer in substantially the form of
Exhibit A-1.
Seller is defined in the preamble to this agreement.
A "servicer" means variously a "seller," "servicer,"
"issuer," or "lender," as defined or used in the applicable
Guide in respect of a Person having Servicing Rights.
Servicing Portfolio means, at any time, the total
unpaid principal amount of Mortgage Loans serviced by
Seller for a fee other than any Mortgage Loans serviced by
Seller under a subservicing agreement or a master servicing
agreement.
Settlement Account means a non-interest bearing,
restricted, deposit account established by Buyer that is
(a) styled and numbered as described on the signature
page(s) to this agreement and (b) for the deposit of (i)
payments from investors in respect of Mortgage Loans and
Mortgage Securities purchased and owned by Buyer under the
Purchase Documents and (ii) payments by Seller to Buyer
according to the Purchase Documents.
Shipping Period means 21 calendar days for the
Mortgage Documents for any Mortgage Loan shipped to or for
an investor under Section 4.6.
Shipping Request means a Shipping Request executed and
delivered by Seller to Buyer in substantially the form of
Exhibit A-3.
Solvent means, for any Person, that (a) the fair-
market value of its assets exceeds its liabilities, (b) it
has sufficient cash flow to enable it to pay its debts as
they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
Stated-Termination Date means March 26, 1997.
Subsidiary of any Person means any entity of which at
least 50% (in number of votes) of the stock (or equivalent
interests) is owned of record or beneficially, directly or
indirectly, by that Person.
Take-Out Commitment means a binding commitment from an
Approved Investor to purchase Mortgage Loans or Mortgage
Securities, acceptable in form and substance to Buyer, in
favor of Seller with respect to which there is be no
condition which cannot be reasonably anticipated to be
satisfied or complied with before its expiration.
Take-Out Price means, at any time, the amount
described and calculated as provided on Schedule 4.2.
Take-Out Report means a report delivered by Seller to
Buyer substantially in the form of Exhibit B-4.
Taxes means, for any Person, taxes, assessments, or
other governmental charges or levies imposed upon it, its
income, or any of its properties, franchises, or assets.
Total-Adjusted Debt means -- for Seller and at any
time -- the sum of (a) total Debt, plus (b) the Total-
Purchase Price, minus (c) obligations under repurchase
agreements, minus (d) obligations under escrow-arbitrage-
type facilities, minus (e) Permitted Debt expressly
subordinated to the Obligation.
Total-Purchase Price means, at any time, the total of
all Purchase Prices.
Tribunal means any (a) local, state, or federal
judicial, executive, or legislative instrumentality,
(b) private arbitration board or panel, or (c) central
bank.
Trust Receipt means a Trust Receipt and Agreement
executed and delivered by Seller to Buyer in substantially
the form of Exhibit A-6.
UCC means the Uniform Commercial Code as enacted in
Texas or other applicable jurisdictions.
VA means the Veteran's Administration.
VA Loan means a Mortgage Loan either (a) full or
partial payment of which is guaranteed by VA under the
Servicemen's Readjustment Act of 1944 or Chapter 37 of
Title 38 of the United States Code, (b) for which VA has
issued a current binding and enforceable commitment for
such a guaranty, or (c) which is subject to automatic
guarantee by VA -- which in each case, the applicable
guaranty, commitment to guarantee, or automatic guaranty is
for the maximum amount permitted by Law.
Wet Period means five Business Days for the Mortgage
Documents for any Wet Loan.
Wet Loan means a Mortgage Loan for which all of the
Mortgage Documents have not been delivered to Buyer
according to Section 4.3.
Wet Sublimit means (a) at any time during the first
three and last five Business Days of a Calendar Month, 25%
of the Purchase Commitment, and (b) at any other time, 20%
of the Purchase Commitment.
Wire Instructions means, for any Person, the
information for wire transfers of funds to that Person,
which (until changed by written notice to all other parties
to this agreement) are stated beside its name on the
signature page(s) to this agreement.
Yield means the rate of return accruing on the Total-
Purchase Price under Section 3.3.
A. Time References. Unless otherwise
specified, in the Purchase Documents (a) time references
(e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in
calculating a period from one date to another, the word
"from" means "from and including" and the word "to" or
"until" means "to but excluding."
A. Other References. Unless otherwise
specified, in the Purchase Documents (a) where appropriate,
the singular includes the plural and vice versa, and words
of any gender include each other gender, (b) heading and
caption references may not be construed in interpreting
provisions, (c) monetary references are to currency of the
United States of America, (d) section, paragraph, annex,
schedule, exhibit, and similar references are to the
particular Purchase Document in which they are used, (e)
references to "telecopy," "facsimile," "fax," or similar
terms are to facsimile or telecopy transmissions, (f)
references to "including" mean including without limiting
the generality of any description preceding that word, (g)
the rule of construction that references to general items
that follow references to specific items as being limited
to the same type or character of those specific items is
not applicable in the Purchase Documents, (h) references to
any Person include that Person's heirs, personal
representatives, successors, trustees, receivers, and
permitted assigns, (i) references to any Law include every
amendment or supplement to it, rule and regulation adopted
under it, and successor or replacement for it, and (j)
references to any Purchase Document or other document
include every renewal and extension of it, amendment and
supplement to it, and replacement or substitution for it.
A. Accounting Principles. Unless otherwise
specified, in the Purchase Documents (a) GAAP determines
all accounting and financial terms and compliance with
financial covenants, (b) GAAP in effect on the date of this
agreement determines compliance with financial covenants,
(c) otherwise, all accounting principles applied in a
current period must be comparable in all material respects
to those applied during the preceding comparable period,
and (d) while Seller has any consolidated Subsidiaries
(i) all accounting and financial terms and compliance with
reporting covenants must be on a consolidating and
consolidated basis, as applicable and (ii) compliance with
financial covenants must be on a consolidated basis.
I. SECTION . PURCHASES.
A. Purchase Commitment. Subject to the
Purchase Documents, Buyer commits to purchase Eligible-
Mortgage Loans and Eligible-Mortgage Securities from time
to time so long as:
The Total-Purchase Price may never exceed the
lesser of either the Purchase Commitment or the
Margin Amount.
The Total-Purchase Price for all Gestation Loans
may never exceed the lesser of either the
Gestation Sublimit or the Margin Amount
applicable to Gestation Loans.
The Total-Purchase Price of all Wet Loans may
never exceed the Wet Sublimit.
Each Purchase Date must be a Business Day before
the Actual-Termination Date.
The Total-Purchase Price paid by Buyer on a
Purchase Date may not be less than $25,000.
A. Purchase Request and Mortgage Documents.
Seller may only request that Buyer make a Purchase by
delivering to Buyer a Purchase Request -- which is
irrevocable and binding on Seller when delivered -- for
the applicable Purchases before 11:00 a.m. on the Purchase
Date for them and by complying with the following
applicable provisions:
(a) Dry Loan. For each Dry Loan, Seller must
have also timely delivered to Buyer a Delivery Notice
(which may not be by fax) and the Mortgage Documents
required under Section 4.3.
(b) Wet Loan. For each Wet Loan, Seller must
have also timely delivered to Buyer a Delivery Notice
(which may be by fax) identifying and describing that
Wet Loan and the amount of Margin Amount applicable to
it. All of the Mortgage Documents for that Wet Loan
required by Section 4.3 need not have been delivered
to Seller, but Seller's delivery of the related
Delivery Notice constitutes Seller's confirmation of
its assignment and transfer of each Mortgage Document
offered for sale in that Delivery Notice and (if the
related Purchases were characterized by Law as a
financing) its grant under the Purchase Documents of
Buyer Liens -- from the applicable Purchase Date --
on each such Mortgage Document that is perfected
subject to the delivery of the related promissory note
for that Wet Loan to Buyer or its bailee.
A. Purchase Price. The Purchase Price for each
purchased Mortgage Loan or Mortgage Security is the Margin
Amount applicable to it. When requested by Seller, Buyer
may in its sole discretion elect to enter into Forms T-37
to facilitate the purchase of Mortgage Loans to be
purchased by it under the Purchase Documents. Any such
Form T-37 is effective only as to the closing of the
Mortgage Loans that Buyer is purchasing and not any other
transactions of Seller. The provisions of this agreement
control if in conflict (i.e., the provisions contradict
each other as opposed to merely containing additional
provisions that are not in conflict) with the provisions of
any Form T-37. Buyer shall (a) for a Dry Loan, deposit the
Purchase Price for it into the Payment Account, and (b) for
each Wet Loan, either -- as designated in the Purchase
Request for it -- wire transfer the Purchase Price for it
or deposit the Purchase Price for it into the Payment
Account and allow the Net Proceeds Check (as defined in the
applicable Form T-37) to be drawn on the Payment Account.
A. Buyer as Owner. Upon Buyer's payment of
the Purchase Price for a Mortgage Loan or Mortgage
Security, Buyer immediately acquires full beneficial
ownership of that Mortgage Loan or Mortgage Security and
all related Mortgage Documents. Subject to the Purchase
Documents, Seller shall continue to hold legal title to
such Mortgage Loan or Mortgage Security solely for purposes
of loan servicing and administration.
A. True Sale; Limited Duty to Repurchase.
Each Purchase is intended -- and must be considered -- to
be a true sale of Mortgage Loans and Mortgage Securities,
as applicable, with Buyer paying, and Seller receiving,
adequate and sufficient consideration for each Purchase.
Except as provided in Section 3.4, Seller has no obligation
to repurchase any Mortgage Loans or Mortgage Securities
from Buyer. At no time may this agreement or any Purchase
be deemed to be a loan or financing arrangement.
A. Relationships and Roles. The Purchase
Documents do not -- and may not be construed to -- create a
partnership or joint venture between Buyer and Seller or to
make Seller Buyer's agent. Seller is only the seller of
the Mortgage Loans and Mortgage Securities bought by Buyer
under the Purchase Documents and is to thereafter act as an
independent contractor for Buyer in respect of loan
servicing and administration with respect to those Mortgage
Loans and Mortgage Securities with the same fiduciary
duties to Buyer in respect of those Mortgage Loans and
Mortgage Securities as has a trustee. In that capacity,
Seller may not, except as specifically provided in the
Purchase Documents, transfer legal title to -- or its role
as servicer and trustee in respect of -- those Mortgage
Loans or Mortgage Securities or any related Mortgage
Document, and any other purported transfer in any respect
is void from the beginning. Seller may not represent to
any Person that it owns any of those Mortgage Loans,
Mortgage Securities, or related Mortgage Documents.
A. Termination. The Purchase Commitment
automatically terminates in full on the Stated-Termination
Date. After giving written and irrevocable notice to
Buyer at least five Business Days before the effective date
of any termination, Seller may fully or partially terminate
the Purchase Commitment before the Stated-Termination Date.
Once terminated, no part of the Purchase Commitment may be
reinstated except by an amendment to this agreement.
I. SECTION . SELLER'S PAYMENTS.
A. Absolute Obligations. Seller's payment
obligations under the Purchase Documents are unconditional
and absolute without deduction for set off or otherwise.
Seller and Buyer intend that the Purchases constitute the
sale and purchase of Mortgage Loans and Mortgage
Securities. If, however, the Purchases are ever
characterized by Law as financings, then for value received
Seller promises to pay to Buyer's order the Total-Purchase
Price, the Yield as interest on the Total-Purchase Price,
and the balance of the Obligation according to the Purchase
Documents.
A. Payment Procedures. Seller shall make each
payment and prepayment on the Obligation to Buyer according
to Buyer's Wire Instructions in funds that are available
for immediate use by Buyer by the day the payment or
prepayment is due. Payments that are received by 3:00 p.m.
on a Business Day are deemed received on that Business Day.
Payments that are received after 3:00 p.m. on a Business
Day are deemed received on the next Business Day. Subject
to Section 3.3(g), Yield continues to accrue through the
calendar day immediately before the Business Day on which
the payment is deemed received.
A. Yield.
(a) Payments. Seller shall pay the total Yield
to Buyer as it accrues according to the following
table:
Yield-
Except Yield
accruing at the
Default Rate
Payable-
On (a) the 15th day of each
Calendar Month as it accrued
on the last day of the
preceding Calendar Month and
(b) on the Actual-Termination
Date
Yield-
Yield accruing at
the Default Rate
Payable-
On demand as it accrues
(b) Non-Default. Subject to clause (c) below,
the Total-Purchase Price bears a Yield equal to the
lesser of either the Maximum Rate or the Yield
applicable in the following table:
Total-Purchase Price-
Average-Total-Purchase
Price for any Calendar
Month that does not exceed
the Average Balances for
that Calendar Month
Yield-
Covered Rate
Total-Purchase Price-
Average-Total-Purchase
Price and not bearing the
Covered Rate for any
Calendar Month
Yield-
Average-Base Rate or
Average-Adjusted-Fed-
Funds Rate for that
Calendar Month,
whichever is lower
(c) Default. All Total-Purchase Price, Yield,
fees, and other Obligation that is not paid to Buyer
when due under the Purchase Documents bears a Yield
equal to the Default Rate.
(d) Rate Changes. Each change in the Fed-Funds
Rate, Base Rate, and the Maximum Rate is effective
upon the effective date of change without notice to
Seller or any other Person.
(e) Calculations. Yield is calculated on the
basis of actual days (including the first but
excluding the last) over a 360-day year -- unless the
calculation would result in an annual rate greater
than the Maximum Rate, in which event Yield is
calculated on the basis of the actual days in that
year. All Yield determinations and calculations by
Buyer are conclusive and binding absent manifest
error.
(f) Recapture. If the designated Yield exceeds
the Maximum Rate, then that Yield is limited to the
Maximum Rate. However, any subsequent reductions in
the designated Yield may not become effective until
the total amount of accrued Yield equals the amount of
Yield that would have accrued if that designated Yield
had always been in effect. If, upon the Actual-
Termination Date or final payment by Seller of all
Total-Purchase Price repayable by it under the
Purchase Documents, the total Yield paid or accrued is
less than the Yield that would have accrued if the
designated Yields had always been in effect, then, at
that time and to the extent permitted by Law, Seller
shall pay to Buyer amount equal to the difference of
(i) the lesser of either the amount of Yield that
would have accrued if the designated Yields had always
been in effect or the amount of Yield that would have
accrued if the Maximum Rate had always been in effect,
minus (ii) the amount of Yield actually paid or
accrued under the Purchase Documents.
(g) Maximum Rate. Regardless of any Purchase
Document provision, Buyer is never entitled to
contract for, charge, take, reserve, receive, or
apply, as Yield on all or any of the Obligation any
amount in excess of the Maximum Rate. If Buyer ever
does so, then any excess is treated as a partial
prepayment of Obligation other than Yield, and any
remaining excess shall be refunded to Seller, as the
case may be. In determining if the Yield paid or
payable exceeds the Maximum Rate, Seller and Buyer
shall, to the extent lawful (i) treat all Purchases as
but a single transaction, (ii) characterize any
nonprincipal payment as an expense, fee, or premium
rather than as Yield, (iii) exclude voluntary
prepayments and their effects, and (iv) amortize,
prorate, allocate, and spread the total amount of
Yield throughout the full-contemplated term of the
Obligation. However, if the Obligation is paid in
full before the end of that full-contemplated term and
the Yield received for the Obligation's actual period
of existence exceeds the Maximum Amount, then Buyer
shall refund any excess without being subject to any
penalties provided by any Laws. If Texas Laws are
applicable for purposes of determining the "Maximum
Rate" or the "Maximum Amount," then those terms mean
the "indicated rate ceiling" from time to time in
effect under Article 1.04, Title 79, Texas Revised
Civil Statutes, as amended. Chapter 15, Subtitle 79,
Texas Revised Civil Statutes, 1925 (which regulates
certain revolving credit loan accounts and revolving
triparty accounts), does not apply to the Obligation.
A. Repayment of Purchase Price. Seller shall
repay all or portions of the Total-Purchase Price to Buyer
as follows:
(a) Voluntary Repurchase. If a Default,
Potential Default, or Margin Deficit does not exist
and would not exist immediately after the repurchase,
then Seller may request that Buyer reconvey to Seller
any Mortgage Loan or Mortgage Security by executing
and delivering to Buyer a Repurchase Request at least
by 10:00 a.m. on the Business Day before the Business
Day on which the reconveyance is requested to occur,
which request must identify the one or more Mortgage
Loans and Mortgage Securities to be reconveyed and by
paying the Total-Purchase Price applicable to those
Mortgage Loans and Mortgage Securities to Buyer on the
date of the reconveyance.
(b) Mandatory Repurchase. Seller shall
repurchase from Buyer:
(i) Upon demand whenever a Margin Deficit
exists, those Mortgage Loans or Mortgage
Securities designated by Buyer for reconveyance
to Seller in order to eliminate that Margin
Deficit unless Seller has first sold and
delivered to Buyer sufficient Eligible-Mortgage
Loans or Eligible-Mortgage Securities in order to
eliminate that Margin Deficit.
(ii) On the Actual-Termination Date, all of
the Mortgage Loans and Mortgage Securities
purchased and then owned by Buyer under the
Purchase Documents.
A. Order of Application. All payments and
proceeds paid or payable to Buyer under the Purchase
Documents -- whether voluntary, involuntary, through the
exercise of any Right of set off or other Right,
realization against collateral, or otherwise -- shall be
applied in the following order:
1. No Default. While no Default exists,
in the order and manner as Seller directs.
1. Default or No Direction. While a
Default exists or if Seller fails to give any
direction, in the following order and manner:
All costs and expenses incurred by Buyer in
connection with the Purchase Documents --
including, without limitation, fees and
expenses paid by Buyer to any servicing
companies retained by Buyer to assist it in
servicing any Mortgage Loans or Mortgage
Securities required to be serviced, to any
attorneys, or to any agents -- that have not
been reimbursed by Seller, together with
interest at the Default Rate.
Yield.
Total-Purchase Price repayable to Buyer.
All other portions of the Obligation.
Either (i) to Seller or to its successors or
assigns on behalf of Seller, to be divided
between them as they may agree or (ii) as a
court of competent jurisdiction may direct.
A. Additional Costs. If (a) any change after
the date of this agreement in any present Law or any future
Law regarding capital adequacy or compliance by Buyer with
any request, directive, or requirement now or in the future
imposed by any Tribunal regarding capital adequacy or any
change in the risk category of this transaction reduces the
rate of return on its capital as a consequence of its
obligations under this agreement to a level below that
which it otherwise could have achieved (taking into
consideration its policies with respect to capital
adequacy) by an amount deemed by it to be material (and it
may, in determining the amount, utilize reasonable
assumptions and allocations of costs and expenses and use
any reasonable averaging or attribution method), then (b)
Buyer shall notify Seller and deliver to Seller a
certificate stating in reasonable detail the calculation of
the amount necessary to compensate it (which certificate is
presumed correct), and (c) Seller shall pay that amount to
Buyer within ten days after demand. This section survives
the full satisfaction of the Obligation, termination of the
Purchase Documents, reconveyance of any or all Mortgage
Loans and Mortgage Securities to Seller, and release of
Buyer Liens.
A. Fees. The following are not compensation
for the use, detention, or forbearance of money, are in
addition to and not in lieu of Yield and expenses otherwise
described in the Purchase Documents, are non-refundable,
bear Yield if not paid when due at the Default Rate, and
are calculated on the basis of actual days (including the
first but excluding the last) elapsed over a year of 360
days (or actual days during that year, if the calculation
would otherwise result in exceeding the Maximum Amount and
the payment were deemed to be interest notwithstanding the
above provisions to the contrary):
(a) Handling and Other Fees. Promptly upon
being invoiced by Buyer on a monthly basis, Seller
shall pay to Buyer (i) handling fees equal to the
greater of either $15 per Mortgage Loan and Mortgage
Security purchased and owned by Buyer under the
Purchase Documents or $1,000 and (ii) any other
custodial or other fees separately agreed to by Seller
and Buyer in writing.
(b) Commitment Fee. On the last day of each
calendar quarter -- beginning on March 31, 1996 -- and
on the Actual-Termination Date, Seller shall pay to
Buyer a commitment fee. Each payment of that
commitment fee is calculated:
For the period (the "fee-calculation
period") from the later of either the
Closing Date or the date the last payment of
the commitment fee was due through the date
that it the current payment of it is due.
0.0018% of the amount during the fee-
calculation period that the daily-average
Total-Purchase Price is less than) 60% of
the daily-average Purchase Commitment.
I. SECTION . MORTGAGE DOCUMENTS.
A. Eligibility. The eligibility requirements
for Mortgage Loans and Mortgage Securities to be purchased
by Buyer under the Purchase Documents and then and
thereafter to be included in the calculation of the Margin
Amount are listed on Schedule 4.1. If at any time any
Mortgage Loan or Mortgage Security purchased and owned by
Buyer under the Purchase Documents ceases to meet those
eligibility requirements, then that Mortgage Loan or
Mortgage Security is automatically excluded from all
calculations of the applicable Margin Amount.
A. Margin Amount. The elements for calculating
the Margin Amount are listed on Schedule 4.2. By 2:00 p.m.
on the date of any Purchase or repurchase of Mortgage Loans
or Mortgage Securities, Buyer shall deliver to Seller a
Margin-Amount Report prepared on the basis of the
information provided by Seller in the most recent Take-Out
Report and other information then available to Buyer as
provided in this agreement.
A. Document Delivery. Seller must comply with
all the required procedures in Schedule 4.3 for Mortgage
Loans and Mortgage Securities offered for a Purchase under
this agreement by no later than 11:00 a.m. on (a) the
Purchase Date for the purchase of each Dry Loan and
(b) the fifth Business Day after the Purchase Date for the
Purchase of each Wet Loan. By 11:00 a.m. on the Business
Day that Seller is converting any Mortgage Loan to a
Gestation Loan, Seller shall execute and deliver to Buyer a
Conversion Notice.
A. Buyer Liens. Seller and Buyer intend that
the Purchases constitute the sale and purchase of Mortgage
Loans and Mortgage Securities. In the event, however, that
the Purchases were ever to be characterized by Law as
financings, then Seller shall execute and deliver the
Security Agreement and related Financing Statements in
order to create and perfect Buyer Liens in all of the
Mortgage Documents related items of property and rights
that are more particularly described in the Security
Agreement.
A. Bailee and Agent. Buyer appoints Seller --
and Seller shall act -- as Buyer's (a) special agent for
the sole and limited purpose of obtaining and maintaining
Appraisals for Mortgage Loans as required by the Purchase
Documents and (b) bailee to (i) hold in trust for Buyer (A)
the original recorded copy of the mortgage, deed of trust,
or trust deed securing each Mortgage Loan, (B) a mortgagee
policy of title insurance (or binding unexpired and
unconditional commitment to issue such insurance if the
policy has not yet been delivered to Seller) insuring
Seller's perfected, first priority Lien created by that
mortgage, deed of trust, or trust deed, (C) the original
insurance policies referred to in Part A.6(c) on Schedule
4.1, and (D) all other original documents, including any
undelivered Take-Out Commitments, promissory notes, and
Mortgage Securities, (ii) specifically identify those items
in the appropriate Delivery Notice, and (iii) deliver to
Buyer any of the foregoing items as soon as reasonably
practicable upon Buyer's request.
A. Shipment for Sale.
1. Shipment of Collateral. If no Default,
Potential Default, or Margin Deficit exists and if
shipment would not result in any Approved Investor
(other than FNMA or FHLMC, or any other investor that
Buyer has approved in writing) or its servicers and
custodians holding Mortgage Documents for Mortgage
Loans purchased and then owned by Buyer under the
Purchase Documents with more than a total $5,000,000
face amount, then Seller may -- by a Shipping Request
delivered to Buyer by 11:00 a.m. on the Business Day
of shipment -- request Buyer to ship Mortgage
Documents to an Approved Investor or its servicer or
custodian for purchase or pooling of the related
Mortgage Loans. If Buyer has no actual knowledge that
any of the above conditions have not been satisfied,
then Buyer shall ship the Mortgage Documents it holds
for those Mortgage Loans to that Approved Investor or
its servicer or custodian under the appropriate Bailee
Letter.
1. Ineligibility. Mortgage Loans for
which Mortgage Documents have been shipped under
clause (a) above, unless those Mortgage Documents are
returned to Buyer, cease to be Eligible-Mortgage Loans
(i) to the extent that Collateral Documents for
Mortgage Loans with more than a total face amount of
$5,000,000 are held by or for any Approved Investor
(other than FNMA and FHLMC or any other investor that
Buyer has approved in writing) and (ii) upon the
earlier of either the termination of Buyer's ownership
of those Mortgage Loans or release of the Buyer Liens
in them, as the case may be, under clause (c) below or
the expiration of the Shipping Period for those
Mortgage Documents.
1. Termination or Release. Buyer's
ownership interest or the Buyer Liens, as the case may
be, in respect of Mortgage Documents shipped under
clause (a) above continue until either (i) Buyer
receives payment in the Settlement Account in an
amount at least equal to the price paid by the
purchaser for each Eligible-Mortgage Loan so sold or
(ii) in the case of Mortgage Loans being sold or
exchanged for Mortgage Securities, Eligible-Mortgage
Securities are delivered to or for Buyer according to
Schedule 4.3 and other applicable provisions of the
Purchase Documents.
1. Certain Credits. Buyer is not
obligated at any time to credit Seller for any amounts
due from any purchase of any Mortgage Documents
contemplated under this agreement until Buyer has
actually received immediately available funds for
those Mortgage Documents in the amount required under
this agreement. Buyer is not obligated at any time to
collect any amounts or otherwise enforce any
obligations due from any purchaser in respect of any
such purchase.
A. Shipment for Correction. If no Default,
Potential Default, or Margin Deficit exists or occurs as a
result of the shipment and if shipment would not result in
any Mortgage Documents for Mortgage Loans purchased and
then owned by Buyer under the Purchase Documents with more
than a total face amount of $1,000,000 being outstanding
for correction, then Seller may -- by a Trust Receipt
delivered to Buyer -- request that Buyer ship to Seller the
entire mortgage loan file of Mortgage Documents for any
Mortgage Loan so that certain of those Mortgage Documents
may be corrected or replaced for clerical or other non-
substantive mistakes. If Buyer has no actual knowledge
that any of the above conditions have not been satisfied,
then and subject to the limitations below, then Buyer shall
ship to Seller the entire mortgage loan file of Mortgage
Documents to be corrected or replaced. Seller shall re-
deliver to Buyer the corrected Mortgage Documents (meeting
the requirements of Schedule 4.3) before the expiration of
the applicable Correction Period. Mortgage Loans for which
Mortgage Documents have been shipped under this section,
unless returned to Buyer, cease to be Eligible-Mortgage
Loans (a) to the extent that Mortgage Documents for
Mortgage Loans purchased and then owned by Buyer under the
Purchase Documents with more than a total face amount of
$1,000,000 are outstanding for correction at any time and
(b) upon the expiration of the applicable Correction
Period. The Buyer Liens on any Mortgage Documents shipped
under this section continue in full force and effect.
A. Servicing Mortgage Loans. Seller shall
service all Mortgage Loans and Mortgage Securities
purchased and owned by Buyer under this agreement as
Buyer's trustee.
1. Servicing Responsibilities. Seller
shall (i) service those Mortgage Loans and Mortgage
Securities with the same degree of care that (A) it
would exercise with respect to loans and securities
owned by Seller, (B) is generally exercised by and
expected from a prudent lender and in accordance with
good and prudent mortgage practices, and (C) is
legally required of a trustee, (ii) be responsible for
the execution of all appropriate notices and all other
acts necessary to protect title in Buyer for those
Mortgage Loans and Mortgage Securities, and (iii) be
responsible for preserving all Rights in those
Mortgage Loans and administering them in all respects
consistent with applicable Laws and the standards
stated above except that Seller must consult with
Buyer and obtain Buyer's consent before approving any
assumption or similar third-party agreement with
respect to any such Mortgage Loan or Mortgage
Security.
1. Remittance. Seller shall be
responsible for collecting, segregating, reporting,
and (upon Buyer's demand while a Default exists)
delivering to Buyer all principal, interest, and other
payments payable or prepaid under each such Mortgage
Loan and Mortgage Security.
1. Records Maintenance. Seller, as
Buyer's trustee, shall be responsible for maintaining
a complete set of books and records, satisfactory to
Buyer, as to all Mortgage Loans and Mortgage
Securities, including, without limitation, a record of
each receipt and each disbursement.
1. Advances. Seller may not make any
additional advances under any such Mortgage Loan or
Mortgage Security except (i) additional advances only
with respect to Taxes and insurance premiums then due
in respect of any such Mortgage Loan or Mortgage
Security or (ii) as Buyer may otherwise agree (in its
sole discretion) in writing before the advance is
made. Seller shall promptly note each such advance in
its books and records.
1. Seller's Servicing Fee. Seller shall
be entitled to keep and retain for its own account any
payments received with respect to such Mortgage Loans
and Mortgage Securities that exceed the amounts due to
Buyer under this agreement.
1. Notification Requirements. Seller
shall use due diligence to ascertain and promptly
notify Buyer in writing about (i) any failure of any
obligor under any such Mortgage Loan or Mortgage
Security to perform any obligation under the
applicable Mortgage Loan or Mortgage Security, (ii)
the vacating of or any change in the occupancy of any
premises securing any such Mortgage Loan or Mortgage
Security, (iii) the sale or transfer of such premises,
(iv) any loss or damage to any such premises, in which
event, in addition to notifying Buyer, Seller shall
cause the insurance companies concerned to be promptly
notified, and (v) any lack of repair or any other
deterioration or waste suffered or committed with
respect to such premises.
1. Other Authorized Acts. If at any time
any of those Mortgage Loans or Mortgage Securities are
endorsed, assumed, guaranteed, or insured, or the
obligations arising under them are further secured by
additional collateral, then Seller shall act for Buyer
with respect to such matters as its interests may
appear. However, if any such Mortgage Loan is insured
or guaranteed by a governmental agency or a private
mortgage insurance company, Seller shall be the
mortgagee of record, and the insurer shall have no
obligation to recognize or deal with any party other
than Seller with respect to the Rights and obligations
under the contract of insurance or guaranty.
I. SECTION . CONDITIONS PRECEDENT. Buyer is not
obligated to make any Purchase unless Buyer has received
all of the documents and items described on Schedule 5. In
addition, Buyer is not obligated to make any Purchase
unless on the applicable Purchase Date (and after giving
effect to the requested Purchase): (a) Buyer has timely
received a Purchase Request; (b) all of the representations
and warranties of Seller in the Purchase Documents are true
and correct in all material respects (unless they speak to
a specific date or are based on facts which have changed by
transactions contemplated or permitted by this agreement);
(c) no Default or Potential Default exists; (d) the
Purchase is permitted by Law and does not cause a Margin
Deficit; and (e) if reasonably requested by Buyer, it has
received evidence substantiating any of the matters in the
Purchase Documents that are necessary to enable Seller, as
the case may be, to qualify for the Purchase. Each
condition precedent in this agreement (including, without
limitation, those on Schedule 5) is material to the
transactions contemplated by this agreement, and time is of
the essence with respect to each. Buyer may make any
Purchase without all conditions being satisfied. However,
to the extent lawful, that Purchase is not a waiver of the
requirement that each condition precedent be satisfied as a
prerequisite for any subsequent Purchase, unless Buyer
specifically waives an item in writing.
I. SECTION . REPRESENTATIONS AND WARRANTIES. Seller
represents and warrants to Buyer as follows:
A. Use of Proceeds. The proceeds of Purchases
are to be used by Seller in connection with its
originating, acquiring, marketing, selling, and servicing
Mortgage Loans. Seller is not engaged principally (or as
one of its important activities) in the business of
extending credit for the purpose of purchasing or carrying
any "margin stock" within the meaning of Regulation U. No
part of the proceeds of any Purchase is to be used,
directly or indirectly, for a purpose that violates any
Law, including, without limitation, the provisions of
Regulation U.
A. About the Companies.
1. Subsidiaries and Trade Names. Except
as described on Schedule 6.2 (i) Seller has no
Subsidiaries and (ii) no Company has used or
transacted business under any other corporate or trade
name in the six-month period preceding the date of
this agreement.
1. Existence, Qualification, and
Compliance. Each Company is duly organized, validly
existing, and in good standing under the Laws of the
jurisdiction in which it is incorporated as stated on
Schedule 6.2. Except where failure is not a Material-
Adverse Event, each Company (i) is duly qualified to
transact business and is in good standing as a foreign
corporation or other entity in each jurisdiction where
the nature and extent of its business and properties
require due qualification and good standing (as
described on Schedule 6.2), (ii) possesses all
requisite authority, permits, and power to conduct its
business as is now being -- or is contemplated by this
agreement to be -- conducted, and (iii) is in
compliance with all applicable Laws.
1. Offices. Each Company's chief
executive office and other principal offices are
described on Schedule 6.2. The present and
foreseeable location of each Company's books and
records concerning accounts and accounts receivable is
at its chief executive office, and all of its books,
and records are in its possession.
A. Authorization and Contravention. Seller's
execution and delivery of each Purchase Document to which
it is a party and the performance by it of its related
obligations (a) are within its corporate power, (b) have
been duly authorized by all necessary corporate action, (c)
except for any action or filing that has been taken or made
on or before the date of this agreement, require no action
by or filing with any Tribunal, (d) do not violate any
provision of its charter or bylaws, (e) except where not a
Material-Adverse Event, do not violate any provision of Law
applicable to it or any material agreements to which it is
a party, and (f) except for Buyer Liens, do not result in
the creation or imposition of any Lien on any asset of any
Company.
A. Binding Effect. Upon execution and delivery
by all parties to it, each Purchase Document will
constitute a legal and binding obligation of each Company
party to it, enforceable against it according to its terms,
except as enforceability may be limited by applicable
Debtor Laws and general principles of equity.
A. Fiscal Year. The Companies' fiscal year
ends each December 31.
A. Current Financials. The Current Financials
were prepared according to GAAP and present fairly, in all
material respects, the financial condition, results of
operations, and cash flows of the Companies as of, and for
the portion of the fiscal year ending on their date or
dates (subject only to normal year-end adjustments). All
material liabilities of the Companies as of the date or
dates of the Current Financials are reflected in them or
notes to them. Except for transactions directly related
to, or specifically contemplated by, the Purchase
Documents, no subsequent material adverse changes have
occurred in the financial condition of the Companies from
that shown in the Current Financials, nor has any Company
incurred any subsequent material liability.
A. Debt. No Company has any Debt except
Permitted Debt.
A. Solvency. On the date of each Borrowing,
each Company is, and after giving effect to the requested
Borrowing will be, Solvent.
A. Litigation. Except as disclosed on
Schedule 6.9 (a) no Company is subject to, or aware of the
threat of, any Litigation that is reasonably likely to be
determined adversely to it or, if so adversely determined,
would be a Material-Adverse Event, and (b) no outstanding
or unpaid judgments against any Company exists.
A. Transactions with Affiliates. No Company is
a party to a material transaction with any of its
Affiliates except (a) transactions in the ordinary course
of business and upon fair and reasonable terms not
materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a
Person that was not its Affiliate, and (b) transactions
described on Schedule 6.10.
A. Taxes. All Tax returns of each Company
required to be filed have been filed (or extensions have
been granted) before delinquency, except for returns for
which the failure to file is not a Material-Adverse Event,
and all Taxes imposed upon each Company that are due and
payable have been paid before delinquency.
A. Employee Plans. Except where occurrence or
existence is not a Material-Adverse Event, (a) no Employee
Plan has incurred an "accumulated funding deficiency" (as
defined in S 302 of ERISA or S 412 of the IRC), (b) no
Company has incurred liability under ERISA to the PBGC in
connection with any Employee Plan, (c) no Company has
withdrawn in whole or in part from participation in a
Multiemployer Plan, (d) no Company has engaged in any
"prohibited transaction" (as defined in S 406 of ERISA or S
4975 of the IRC), and (e) no "reportable event" (as defined
in S 4043 of ERISA) has occurred in respect of any Employee
Plan, excluding events for which the notice requirement is
waived under applicable PBGC regulations.
A. Property and Liens. Each Company has good
and marketable title to all its property reflected on the
Current Financials except for property that is obsolete or
that has been disposed of in the ordinary course of
business or, after the date of this agreement, as otherwise
permitted by this agreement. All Collateral is free and
clear of any Liens and adverse claims of any nature except
Permitted Liens.
A. Intellectual Property. Seller owns all
material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark
applications, and trade names necessary to continue to
conduct its businesses as presently conducted by it and
proposed to be conducted by it immediately after the date
of this agreement. Seller is conducting its business
without infringement or claim of infringement of any
license, patent, copyright, service mark, trademark, trade
name, trade secret, or other intellectual property right of
others, other than any infringements or claims that, if
successfully asserted against or determined adversely to
Seller, are not a Material-Adverse Event. To Seller's
knowledge, no infringement or claim of infringement by
others of any material license, patent, copyright, service
mark, trademark, trade name, trade secret, or other
intellectual property of Seller exists.
A. Environmental Matters. Except where not a
Material-Adverse Event, no Company (a) knows of any
environmental condition or circumstance adversely affecting
any Company's properties or operations or any material
portion of the properties subject to Mortgage Loans, (b)
has received any report of any Company's violation of any
Environmental Law, or (c) knows that any Company is under
any obligation to remedy any violation of any Environmental
Law. Each Company has taken prudent steps to determine
that its properties and operations and that substantially
all of the properties subject to Mortgage Loans do not
violate any Environmental Law except violations that are
not a Material-Adverse Event.
A. Government Regulations.
(a) Inapplicable Regulations. No Company is
subject to regulation under the Investment Company Act
of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
(b) Seller's Eligibility. Seller is approved
and qualified and in good standing as an issuer,
mortgagee, or seller/servicer, as described below, and
meets all requirements applicable to its status as
such: (i) FNMA approved seller/servicer of Mortgage
Loans, eligible to originate, purchase, hold, sell,
and service Mortgage Loans to be sold to FNMA; (ii)
FHLMC approved seller/servicer of Mortgage Loans,
eligible to originate purchase, hold, sell and service
Mortgage Loans to be sold to FHLMC; (iii) FHA approved
mortgagee, eligible to originate, purchase, hold, sell
and service FHA Loans; and (iv) VA approved mortgagee,
eligible to originate, purchase, hold, sell and
service VA Loans.
A. Insurance. Each Company maintains with
financially sound, responsible, and reputable insurance
companies or associations (or, as to workers' compensation
or similar insurance, with an insurance fund or by
self-insurance authorized by the jurisdictions in which it
operates) insurance concerning its properties and
businesses against casualties and contingencies and of
types and in amounts (and with co-insurance and
deductibles) as is customary in the case of similar
businesses.
A. Appraisals. With respect to the property
the subject of any Mortgage Loan, Seller has obtained
Appraisals in material compliance with all Appraisal Laws.
A. Full Disclosure. Each material fact or
condition relating to the Purchase Documents or the
financial condition, business, or property of the Companies
that is a Material-Adverse Event has been disclosed in
writing to Buyer. All information previously furnished by
any Company to Buyer in connection with the Purchase
Documents was -- and all information furnished in the
future by any Company to Buyer will be -- true and accurate
in all material respects or based on reasonable estimates
on the date the information is stated or certified.
I. SECTION . AFFIRMATIVE COVENANTS. Until all the
Purchase Commitment has fully terminated or been canceled
and the Obligation is fully paid and performed, Seller
covenants and agrees with Buyer as follows:
A. Reporting Requirements. Seller shall cause
to be furnished to Buyer the following, all in form and
detail reasonably satisfactory to Buyer:
1. Annual Financials. Promptly when
available but at least within 90 days after each
fiscal-year end of Seller, Seller's Financials as of
that year end, each reflecting the corresponding
figures for the preceding fiscal year in comparative
form, accompanied by (i) the related report prepared
by independent certified public accountants acceptable
to Buyer and stating that those statements were
prepared according to GAAP applied on a basis
consistent with prior periods except for such changes
in GAAP concurred in by Seller's independent public
accountants, and (ii) a Compliance Certificate.
1. Monthly Financials. Promptly when
available but at least within 45 days after each
calendar month, Seller's Financials as of the end of
that month, accompanied by (i) a Management Report and
(ii) a Compliance Certificate.
1. Take-Out Report. By 5:00 p.m. on each
Monday (or, if any Monday is not a Business Day, then
by that time on the next Business Day) but only to the
extent that Seller has elected not to deliver
specifically-designated Take-Out Commitments to Buyer
under Schedules 4.2 and 4.3, a Take-Out Report that is
prepared as of the close of business on the preceding
Business Day and reports the Take-Out Prices of the
Mortgage Groups comprising the Mortgage Loans and
Mortgage Securities for which specifically-designated
Take-Out Commitments have not been delivered.
1. Investor Information. Promptly after
the request by Buyer, financial information about any
investor (other than FNMA and FHLMC) for purposes of
determining whether that investor should become or
remain an Approved Investor.
1. Notices. Notice, promptly after Seller
knows or has reason to know, of (i) the existence and
status of any Litigation that, if determined adversely
to any Company, would be a Material-Adverse Event,
(ii) any change in any material fact or circumstance
represented or warranted by any Company in any
Purchase Document that constitutes a Material-Adverse
Event, (iii) the receipt by any Company of notice of
any violation or alleged violation of ERISA or any
Environmental Law or other Law if that violation is a
Material-Adverse Event, or (iv) a Default or Potential
Default specifying the nature thereof and what action
Seller have taken, are taking, or propose to take with
respect to it.
1. Other Information. Promptly upon
reasonable request by Buyer, information (not
otherwise required to be furnished under the Purchase
Documents) respecting the business affairs, assets,
and liabilities of any Company and opinions,
certifications, and documents in addition to those
mentioned in this agreement.
A. Use of Proceeds. Seller shall use the
proceeds of Purchases only for the purposes represented in
this agreement.
A. Books and Records. Each Company shall
maintain books, records, and accounts necessary to prepare
Financials according to GAAP.
A. Inspections. Upon reasonable request, each
Company shall allow Buyer, or its respective
Representatives to inspect any of its properties, to review
reports, files, and other records and to make and take away
copies, to conduct tests or investigations, and to discuss
any of its affairs, conditions, and finances with its
directors, officers, employees, or representatives from
time to time during reasonable business hours.
A. Taxes. Each Company shall promptly pay when
due any and all Taxes other than Taxes of which the failure
to pay is not a Material-Adverse Event or which are being
contested in good faith by lawful proceedings diligently
conducted, against which reserve or other provision
required by GAAP has been made, and in respect of which
levy and execution of any Lien have been and continue to be
stayed.
A. Expenses. Seller shall pay (a) all
reasonable legal fees and expenses incurred by Buyer in
connection with the preparation, negotiation, and execution
of the Purchase Documents, (b) all reasonable legal fees
and expenses incurred by Buyer in connection with each
separate future amendment, consent, waiver, or approval
executed in connection with any Purchase Document, (c) all
fees, charges, or Taxes for the recording or filing of any
Purchase Document to create or perfect Buyer Liens, (d) all
other reasonable out-of-pocket expenses of Buyer in
connection with the preparation, negotiation, execution, or
administration of the Purchase Documents -- including,
without limitation, courier expenses incurred in connection
with the Mortgage Documents, (e) all amounts expended,
advanced, or incurred by Buyer to satisfy any obligation of
any Company under any Purchase Document, to collect the
Obligation, or to enforce the Rights of Buyer under any
Purchase Document -- including, without limitation, all
court costs, attorneys' fees (whether for trial, appeal,
other proceedings, or otherwise), fees of auditors and
accountants, and investigation expenses reasonably incurred
by Buyer in connection with any such matters, (f) interest
at an annual interest rate equal to the Default Rate on
each item specified in clauses (a) through (e) above from
30 days after the date of written demand or request for
reimbursement to the date of reimbursement, and (g) any and
all stamp and other Taxes payable or determined to be
payable in connection with the execution, delivery, or
recordation of any Purchase Document -- IN CONNECTION WITH
WHICH SELLER SHALL INDEMNIFY AND SAVE BUYER HARMLESS FROM AND AGAINST
ANY AND ALL LIABILITIES WITH RESPECT TO OR RESULTING FROM ANY DELAY IN
PAYING OR OMISSION TO PAY THOSE TAXES TO THE EXTENT THOSE LIABILITIES
ARISE SOLELY BECAUSE SELLER FAILED TO PAY THE TAXES UPON DEMAND BY
BUYER, WHICH INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE
OBLIGATION AND TERMINATION OF THE PURCHASE DOCUMENTS.
A. Maintenance of Existence, Assets, and
Business. Each Company shall (a) except as permitted by
Section 8.5, maintain its corporate existence and good
standing in its state of incorporation and its authority to
transact business in all other states where failure to
maintain its authority to transact business is a Material-
Adverse Event, and (b) maintain all licenses, permits, and
franchises necessary for its business where failure to do
so is a Material-Adverse Event -- including, without
limitation, Seller's eligibility as lender,
seller/servicer, and issuer as described in
Section 6.16(b).
A. Insurance. Seller shall (a) maintain with
financially sound and reputable insurers, insurance with
respect to its assets and business against such
liabilities, casualties, risks, and contingencies and in
such types and amounts -- including, without limitation, a
fidelity bond or bonds in form and with coverage, with a
company, and with respect to such individuals or groups of
individuals -- as satisfy prevailing FNMA and FHLMC
requirements applicable to a qualified mortgage institution
and otherwise as is customary in the case of Persons
engaged in the same or similar businesses and similarly
situated, and (b) upon Buyer's request, furnish to Buyer
from time to time (i) a summary of its insurance coverage,
in form and substance satisfactory to Buyer, and (ii)
originals or copies of the applicable policies.
A. Take-Out Commitments. Seller shall perform
and observe in all material respects each of the provisions
of each Take-Out Commitment on its part to be performed or
observed and cause all things to be done that are necessary
to have each Mortgage Loan or Mortgage Security and the
Mortgage Documents covered by a Take-Out Commitment comply
with its requirements.
A. Appraisals. Seller shall promptly (a)
permit Buyer and its authorized Representatives to discuss
with Seller's officers or with the appraisers furnishing
Appraisals the procedures for preparation, review, and
retention of -- and to review and obtain copies of -- all
Appraisals pertaining to any Mortgage Loan, and (b) upon
Buyer's request, cooperate with it to ascertain that the
Appraisals comply with all Appraisal Laws.
A. INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS
BY BUYER UNDER THE PURCHASE DOCUMENTS, SELLER SHALL INDEMNIFY AND
DEFEND BUYER AND ITS AFFILIATES AND REPRESENTATIVES (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") -- AND DEFEND THEM AND HOLD EACH OF THEM
HARMLESS -- AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, OR EXPENSES -- INCLUDING,
WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES -- INCURRED BY ANY OF
THEM ARISING FROM OR BECAUSE OF (A) ANY INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING BROUGHT OR THREATENED IN CONNECTION WITH ANY PURCHASE
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE PURCHASE DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, ANY USE BY EITHER COMPANY OF THE
PROCEEDS OF PURCHASES, (B) ANY IMPOUNDMENT, ATTACHMENT, OR RETENTION
OF ANY MORTGAGE DOCUMENTS OR ANY FAILURE OF ANY INVESTOR TO PAY THE
ENTIRE PURCHASE PRICE OF ANY MORTGAGE DOCUMENTS UNDER ANY TAKE-OUT
COMMITMENT, (C) ANY ALLEGED VIOLATION OF ANY FEDERAL OR STATE LAW
RELATING TO USURY IN CONNECTION WITH ANY MORTGAGE DOCUMENTS, AND (D)
ANY REPRESENTATION MADE BY ANY COMPANY UNDER ANY PURCHASE DOCUMENT.
ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY
INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS
ENTITLED TO INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL
MISCONDUCT, OR FRAUD. THIS INDEMNITY SURVIVES THE PAYMENT AND
PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE PURCHASE DOCUMENTS.
I. SECTION . NEGATIVE COVENANTS. Until the Purchase
Commitment has fully terminated or been canceled and the
Obligation is fully paid and performed, Seller covenants
and agrees with Buyer as follows:
A. Debt. No Company may directly or indirectly
create, incur, or suffer to exist (a) any Debt except
Permitted Debt, (b) any borrowings against or sale of Wet
Loans except in connection with this agreement or in
connection with any Permitted Debt whose description on
Schedule 8.1 specifically mentions and allows for
borrowings against Wet Loans, or (c) any mortgage loan
repurchase agreements (except in connection with any
Permitted Debt whose description on Schedule 8.1
specifically mentions and allows for mortgage loan
repurchase agreements or as otherwise permitted by Buyer in
writing).
A. Liens. No Company may directly or
indirectly (a) create, incur, or suffer to exist any Lien
on any of its assets except Permitted Liens or (b) enter
into or permit to exist any arrangement or agreement
(except the Purchase Documents) that directly or indirectly
prohibits any Company from creating or incurring any Lien
on any of its assets.
A. Investments. No Company may make any
Investment except Permitted Investments.
A. Distributions. Seller may not directly or
indirectly pay or declare any Distribution during any
fiscal year except (a) dividends payable solely in the form
of capital stock, (b) cash distributions to Seller's
shareholders in an amount not to exceed 50% of Seller's net
income (after adjustments for non-cash income and cash
taxes) so long as no Default or Potential Default exists or
would be created by the Distribution or (c) Distributions
otherwise approved in writing by Buyer.
A. Merger or Consolidation. No Company may
directly or indirectly merge or consolidate with or into
any other Person except that (a) any Company may merge into
or be consolidated with any other Company so long as Seller
is the surviving corporation if it is involved and (b) any
Company may become a wholly-owned subsidiary of Security
Bancshares, Inc. or the Citizens State Bank of Woodville.
A. Liquidations and Dispositions of Assets. No
Company may directly or indirectly dissolve or liquidate or
sell, transfer, lease, or otherwise dispose of any material
portion of its assets or business except for (a) Purchases
and (b) other sales or dispositions by Seller, in the
ordinary course of business, of (i) Mortgage Loans and
Mortgage Securities that are not the subject of Purchases
and (ii) if the Purchases are ever deemed to be financings,
Mortgage Loans and Mortgage Securities that are the subject
of Purchases but only to the extent that the sales and
dispositions are subject to Section 4 and must be for 100%
of the interest in those Mortgage Loans and Mortgage
Securities.
A. Use of Proceeds. Seller may not directly or
indirectly use the proceeds of Purchases (a) for any
purpose other than as represented in this agreement, (b)
for the funding or acquisition of construction or
commercial loans, (c) for wages of employees, unless a
timely payment to or deposit with the United States of
America of all amounts of Tax required to be deducted and
withheld with respect to such wages is also made, or (d) in
violation of Regulation U or S 7 of the Securities Exchange
Act of 1934.
A. Transactions with Affiliates. No Company
may directly or indirectly enter into any transaction with
any of its Affiliates other than transactions in the
ordinary course of business or upon fair and reasonable
terms not materially less favorable than it could obtain or
could become entitled to in an arm's-length transaction
with a Person that was not its Affiliate.
A. Employee Plans. Except where a Material-
Adverse Event would not result, no Company may directly or
indirectly permit any of the events or circumstances
described in Section 6.12 to exist or occur.
A. Compliance with Laws and Documents. No
Company may directly or indirectly (a) violate the
provisions of any Laws applicable to it or of any Material
Agreement to which it is a party if that violation alone or
with all other violations is a Material-Adverse Event or
(b) violate the provisions of its charter or bylaws or
repeal, replace or amend any provision of its charter or
bylaws if any such action is a Material-Adverse Event.
A. Government Regulations. No Company may
directly or indirectly conduct its business in a way that
it becomes regulated under the Investment Company Act of
1940.
A. Fiscal Year Accounting. No Company may
directly or indirectly change its fiscal year nor use any
accounting method other than GAAP.
A. New Businesses. No Company may directly or
indirectly engage in any business except the businesses in
which it or any of its Affiliates is presently engaged and
any other reasonably-related business.
A. Assignment. No Company may directly or
indirectly assign or transfer any of its Rights, duties, or
obligations under any of the Purchase Documents.
A. Other Facilities. No Company may directly
or indirectly receive advances under any other warehouse-
or servicing-type facility except as provided in this
agreement or as approved in writing by Buyer.
I. SECTION . FINANCIAL COVENANTS. Until the Purchase
Commitment has fully terminated or been canceled and the
Obligation is fully paid and performed, Seller covenants
and agrees with Buyer as follows:
A. Net Worth.
1. Seller's stockholders' equity may never
be less than $3,000,000.
1. Seller's Adjusted-Tangible-Net Worth
may never be less than $3,000,000.
A. Leverage. The ratio of Seller's Total-
Adjusted Debt to Adjusted-Tangible-Net Worth may never
exceed 10 to 1.
I. SECTION . DEFAULTS AND REMEDIES.
A. Default. The term "Default" means the
existence or occurrence of any one or more of the
following:
1. Obligation. Seller fails to pay (i)
any yield when due under the Purchase Documents and
that failure continues for five days or (ii) any other
part of the Obligation when due under the Purchase
Documents.
1. Covenants. Any Company fails to
punctually and properly perform, observe, and comply
with any (i) any covenant, agreement, or condition
under Sections 8 or 9 or (ii) any covenant,
agreement, or condition contained in any of the
Purchase Documents -- other than covenants to pay the
Obligation and the covenants listed in clause (i)
above and that failure continues for a period of ten
calendar days after any Company has, or, with the
exercise of reasonable investigation, should have,
notice of it.
1. Misrepresentation. Any material
statement, warranty, or representation by or on behalf
of any Company in any Purchase Document or other
writing authored by any Company and furnished in
connection with the Purchase Documents, proves to have
been incorrect or misleading in any material respect
as of the date made or deemed made.
1. Debtor Law. Any Company (i) is not
Solvent, (ii) fails to pay its Debts generally as they
become due, (iii) voluntarily seeks, consents to, or
acquiesces in the benefit of any Debtor Law, or
(iv) becomes a party to or is made the subject of any
proceeding provided for by any Debtor Law -- other
than as a creditor or claimant -- that could suspend
or otherwise adversely affect the Rights of Buyer
granted in the Purchase Documents unless, if the
proceeding is involuntary, the applicable petition is
dismissed within 60 days after its filing.
1. Other Debt. Any Company fails to make
any payment due on any Debt or security (with respect
to which any Company has redemption, sinking fund, or
other purchase obligations) or any event occurs or any
condition exists in respect of any Debt or security of
any Company, the effect of which is (i) to cause or to
permit any holder of that Debt or security or a
trustee to cause (whether or not it elects to cause)
any of that Debt or security to become due before its
stated maturity or its regularly scheduled payment
dates, or (ii) to permit a trustee or the holder of
any security (other than common stock of any Company)
to elect (whether or not it does elect) a majority of
the directors on the board of directors of that
Company.
1. Judgments. Any Company fails to pay
any money judgment against it at least ten days prior
to the date on which any of the assets of that Company
may be lawfully sold to satisfy that judgment.
2. Attachments. The failure to have
discharged within a period of 30 days after the
commencement of any attachment, sequestration, or
similar proceeding against any of the assets of any
Company.
1. Unenforceability. Any material
provision of any Purchase Document for any reason
ceases to be in full force and effect or is fully or
partially declared null and void or unenforceable or
the validity or enforceability of any Purchase
Document is challenged or denied by any Company.
1. Change of Control. Any (i) material
change in the ownership or management of Seller from
that ownership and management as it exists on the date
of this agreement except that control of Borrower may
change in connection with Borrower becoming a
subsidiary of a bank or (ii) failure to provide
advance notice of any change in ownership or
management.
1. Agency Qualifications. (i) Seller
ceases to be an eligible issuer or servicer for either
FNMA or FHLMC, (ii) FNMA or FHLMC impose any sanctions
upon Seller resulting in a Material-Adverse Event,
(iii) FNMA or FHLMC terminate or revoke Seller's Right
to service for FNMA or FHLMC, or (iv) FNMA or FHLMC
initiate any transfer of servicing from Seller.
A. Remedies.
1. Debtor Law. Upon the occurrence of a
Default under Section 10.1(d), the Purchase Commitment
automatically terminates and the full Obligation is
automatically due and payable, without presentment,
demand, notice of default, notice of the intent to
accelerate, notice of acceleration, or other
requirements of any kind, all of which are expressly
waived by Seller.
1. Other Defaults. While a Default
exists -- other than those described in clause (a)
above -- Buyer may declare the Obligation to be
immediately due and payable, whereupon it shall be due
and payable, whereupon the Purchase Commitment then is
automatically terminated.
1. Other Remedies. Following the
termination of the Purchase Commitment and the
acceleration of the Obligation, Buyer may do any one
or more of the following: Reduce any claim to
judgment; foreclose upon or otherwise enforce any
Buyer Liens; and exercise any other Rights in the
Purchase Documents, at Law, in equity, or otherwise
that Determining Buyer may direct. Should any Default
continue that, in Buyer's opinion, materially and
adversely affects the Collateral or the interests of
the Buyer under this agreement, Buyer may, in a notice
to the Buyer of that Default set forth one or more
actions that Buyer, in its opinion, believes should be
taken.
A. Right of Offset. Seller hereby grants to
Buyer a right of offset, to secure the repayment of the
Obligation, upon any and all monies, securities, or other
property of Seller, and the proceeds therefrom now or
hereafter held or received by or in transit to Buyer from
or for the account of Seller, whether for safekeeping,
custody, pledge, transmission, collection, or otherwise,
and also upon any and all deposits (general or special,
time or demand, provisional or final) and credits of
Seller, and any and all claims of Seller against Buyer, at
any time existing. Upon the occurrence of any Default,
Buyer is authorized at any time and from time to time,
without notice to either Company, to offset, appropriate,
and apply any and all of those items against the
Obligation. Notwithstanding anything in this section or
elsewhere in this agreement to the contrary, Buyer shall
not have any right to offset, appropriate, or apply any
accounts of Seller which consist of escrowed funds (except
and to the extent of any beneficial interest which Seller
have in such escrowed funds) which have been so identified
by either Company in writing at the time of deposit
thereof.
A. Waivers. Seller waives any right to require
Buyer to (a) proceed against any Person, (b) proceed
against or exhaust any collateral or pursue its Rights and
remedies as against any collateral in any particular order,
or (c) pursue any other remedy in its power. Buyer shall
not be required to take any steps necessary to preserve any
Rights of any Company against any Person from which any
Company purchased any Mortgage Loans or to preserve Rights
against prior parties. Seller and each surety, endorser,
guarantor, pledgor, and other party ever liable or whose
property is ever liable for payment of any of the
Obligation jointly and severally waive presentment and
demand for payment, protest, notice of intention to
accelerate, notice of acceleration, and notice of protest
and nonpayment, and agree that their or their property's
liability with respect to the Obligation, or any part
thereof, shall not be affected by any renewal or extension
in the time of payment of the Obligation, by any
indulgence, or by any release or change in any security for
the payment of the Obligation, and hereby consent to any
and all renewals, extensions, indulgences, releases, or
changes, regardless of the number thereof.
A. Performance by Buyer. Should any covenant,
duty, or agreement of any Company fail to be performed
according to the terms of this agreement or of any document
delivered under this agreement, Buyer may, at its option,
after notice to Seller, as the case may be, perform, or
attempt to perform, such covenant, duty, or agreement on
behalf of that Company and shall notify each Buyer that it
has done so. In such event, Seller shall, at the request
of Buyer, promptly pay any amount expended by Buyer in such
performance or attempted performance to Buyer at its
principal place of business, together with interest thereon
at the Maximum Rate from the date of such expenditure by
Buyer until paid. Notwithstanding the foregoing, it is
expressly understood that Buyer does not assume and shall
never have, except by express written consent of Buyer, any
liability or responsibility for the performance of any
duties of any Company under this agreement or under any
other document delivered under this agreement.
A. No Responsibility. Except in the case of
fraud, gross negligence, or willful misconduct, neither
Buyer nor any of its officers, directors, employees, or
attorneys shall assume -- or ever have any liability or
responsibility for -- any diminution in the value of the
collateral or any part of the Collateral.
A. No Waiver. The acceptance by Buyer at any
time and from time to time of partial payment or
performance by any Company of any of their respective
obligations under this agreement or under any Purchase
Document shall not be deemed to be a waiver of any Default
then existing. No waiver by Buyer shall be deemed to be a
waiver of any other then existing or subsequent Default.
No delay or omission by Buyer in exercising any right under
this agreement or under any other document required to be
executed under or in connection with this agreement shall
impair such right or be construed as a waiver thereof or
any acquiescence therein, nor shall any single or partial
exercise of any such right preclude other or further
exercise thereof, or the exercise of any other right under
this agreement or otherwise.
A. Cumulative Rights. All Rights available to
Buyer under this agreement or under any other document
delivered under this agreement shall be cumulative of and
in addition to all other Rights granted to Buyer at Law or
in equity, whether or not the Notes be due and payable and
whether or not Buyer shall have instituted any suit for
collection, foreclosure, or other action in connection with
this agreement or any other document delivered under this
agreement.
A. Costs. All court costs, reasonable
attorneys' fees, other costs of collection, and other sums
spent by Buyer in the exercise of any Right provided in any
Purchase Document is payable to Buyer, on demand, is part
of the Obligation, and bears yield, until repaid, at the
Default Rate if it continues to be unpaid 20 days after
demand for payment by Buyer.
I. SECTION . MISCELLANEOUS.
A. Nonbusiness Days. Any action that is due
under any Purchase Document on a non-Business Day may be
delayed until the next Business Day. However, interest
accrues on any payment until it is made.
A. Communications. Unless otherwise stated, a
communication under any Purchase Document to a party to
this agreement must be written to be effective and is
deemed given:
For Purchase Requests, Delivery Notices, Shipping
Requests, and Repurchase Requests, only when
actually received by Buyer.
Otherwise, if by fax, when transmitted to the
appropriate fax number -- but, without affecting
the date deemed given, the fax must be promptly
confirmed by telephone.
Otherwise, if by mail, on the third Business Day
after enclosed in a properly addressed, stamped,
and sealed envelope deposited in the appropriate
official postal service.
Otherwise, when actually delivered.
Until changed by written notice to each other party to this
agreement, the address and fax number are stated for Seller
and Buyer beside their names on the signature page(s) to
this agreement.
A. Form and Number of Documents. The form,
substance, and number of counterparts of each writing to be
furnished under the Purchase Documents must be satisfactory
to Buyer and its counsel.
A. Exceptions to Covenants. An exception to
any Purchase Document covenant does not permit violation of
any other Purchase Document covenant.
A. Survival. All Purchase Document provisions
survive all closings and are not affected by any
investigation made by any party.
A. Governing Law. Unless otherwise stated,
each Purchase Document must be construed -- and its
performance enforced -- under the Laws of the State of
Texas and the United States of America.
A. Invalid Provisions. If any provision of a
Purchase Document is judicially determined to be
unenforceable, all other provisions of it remain
enforceable. If the provision determined to be
unenforceable is a material part of that Purchase Document,
then, to the extent lawful, it shall be replaced by a
judicially-construed provision that is enforceable but
otherwise as similar in substance and content to the
original provision as the context of it reasonably allows.
A. Conflicts Between Purchase Documents. The
provisions of this agreement control if in conflict (i.e.,
the provisions contradict each other as opposed to a
Purchase Document containing additional provisions not in
conflict) with the provisions of any other Purchase
Document.
A. Discharge and Certain Reinstatement.
Seller's obligations under the Purchase Documents remain in
full force and effect until the Purchase Commitment is
fully terminated or canceled and the Obligation is fully
paid (except for provisions under the Purchase Documents
which by their terms expressly survive payment of the
Obligation and termination of the Purchase Documents). If
any payment under any Purchase Document is ever rescinded
or must be restored or returned for any reason, then all
Rights and obligations under the Purchase Documents in
respect of that payment are automatically reinstated as
though the payment had not been made when due.
A. Amendments, Consents, Conflicts, and
Waivers. An amendment of -- or an approval, consent, or
waiver by Buyer under -- any Purchase Document must be in
writing and must be executed by Seller and Buyer. No
course of dealing or any failure or delay by Buyer, or any
of its Representatives with respect to exercising any Right
of Buyer under the Purchase Documents operates as a waiver
of that Right. An approval, consent, or waiver is only
effective for the specific instance and purpose for which
it is given. The Purchase Documents may only be
supplemented by agreements, documents, and instruments
delivered according to their respective express terms.
A. Multiple Counterparts. Any Purchase
Document may be executed in any number of counterparts with
the same effect as if all signatories had signed the same
document, and all of those counterparts must be construed
together to constitute the same document. This agreement
is effective when counterparts of it have been executed and
delivered to Buyer by Buyer and Seller.
A. Parties. This agreement binds and inures to
Seller, Buyer, and their respective successors and
permitted assigns. Only those Persons may rely upon or
raise any defense about this agreement. No Company may
assign any Rights or obligations under any Purchase
Document without first obtaining the written consent of
Buyer. Buyer may assign, pledge, and otherwise transfer
all or any of its Rights and obligations under the Purchase
Documents. Any purported assignment, pledge, or other
transfer in violation of this section is void from
beginning and not effective.
A. Entire Agreement. THE PURCHASE DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS
EXECUTED on April 9, 1996, but effective as of the
date first stated in this agreement.
(address, etc.)
First Preference Mortgage
Corp.
800 Washington Avenue
P.O. Box 59
Waco, TX 76703-0059
Attn: David W. Mann,
President
Tel (817) 757-2424
Fax (817) 757-0306
(wire instructions)
Payment Account: First
Preference Payment
Account
Account No.: 1891119131
Bank: Bank One, Dallas
ABA No.: 111000614
Attn.: Bob Harris
FIRST PREFERENCE MORTGAGE
CORP., as Seller
By /David W. Mann/
David W. Mann, President
(address, etc.)
Bank One, Texas, N.A.
1717 Main Street
Dallas, TX 75201
Attn: Douglas A. Dixon,
Vice President
Tel (214) 290-2376
Fax (214) 290-2054
(wire transfer)
Settlement Account: First
Preference Settlement
Account
Account No.: 1891119149
Bank: Bank One, Dallas
ABA No.: 111000614
Attn: Gloria Sadler
(214) 290-6069
BANK ONE, TEXAS, N.A., as
Buyer
By /Douglas A. Dixon/
Douglas A. Dixon, Vice
President
FIRST AMENDMENT TO MASTER WHOLE-LOAN PURCHASE AGREEMENT
THIS DOCUMENT is entered into as of March 18, 1997,
between FIRST PREFERENCE MORTGAGE CORP., a Texas
corporation ("Seller"), and BANK ONE, TEXAS, N.A., a
national banking association ("Buyer").
Seller and Buyer are party to the Master Whole-Loan
Purchase Agreement (as it may have been renewed, extended,
and amended through the date of this document, the
"Purchase Agreement") dated as of March 27, 1996. Seller
and Buyer have agreed, upon the following terms and
conditions, to extend the Stated-Termination Date.
Accordingly, for adequate and sufficient consideration,
Seller and Buyer agree as follows:
I. TERMS AND REFERENCES. Unless otherwise
stated in this document (a) terms defined in the Purchase
Agreement have the same meanings when used in this document
and (b) references to "Sections," "Schedules," and
"Exhibits" are to the Purchase Agreement's sections,
schedules, and exhibits.
I. AMENDMENT. The following definition in
Section 1.1 of the Purchase Agreement is entirely amended
as follows:
Stated-Termination Date means June 24, 1997.
I. CONDITIONS PRECEDENT. Notwithstanding any
contrary provision, the foregoing paragraphs in this
document are not effective unless and until (a) the
representations and warranties in this document are true
and correct and (b) Buyer receives counterparts of this
document executed by each party named on the signature page
or pages of this document.
I. RATIFICATIONS. To induce Buyer to enter
into this document, Seller (a) ratifies and confirms all
provisions of the Purchase Documents as amended by this
document, (b) ratifies and confirms that all guaranties,
assurances, and Liens granted, conveyed, or assigned to
Buyer under the Purchase Documents (as they may have been
renewed, extended, and amended) are not released, reduced,
or otherwise adversely affected by this document and
continue to guarantee, assure, and secure full payment and
performance of the present and future Obligation, and (c)
agrees to perform those acts and duly authorize, execute,
acknowledge, deliver, file, and record those additional
documents, and certificates as Buyer may request in order
to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
I. REPRESENTATIONS. To induce Buyer to enter
into this document, Seller represents and warrants to Buyer
that as of the date of this document (a) Seller has all
requisite authority and power to execute, deliver, perform
its obligations under this document, which execution,
delivery, and performance have been duly authorized by all
necessary corporate action, require no action by or filing
with any Tribunal, do not violate any of its articles of
incorporation, certificate of incorporation, or bylaws or
(except where not a Material-Adverse Event) violate any Law
applicable to it or any material agreement to which it or
its assets are bound, (b) upon execution and delivery by
all parties to it, this document will constitute Seller's
legal and binding obligation, enforceable against it in
accordance with this document's terms except as that
enforceability may be limited by Debtor Laws and general
principles of equity, (c) all other representations and
warranties in the Purchase Documents are true and correct
in all material respects except to the extent that (i) any
of them speak to a different specific date or (ii) the
facts on which any of them were based have been changed by
transactions contemplated or permitted by the Purchase
Agreement, and (d) no Material-Adverse Event, Default or
Potential Default exists.
I. EXPENSES. Seller shall pay all costs, fees,
and expenses paid or incurred by Buyer incident to this
document, including, without limitation, the reasonable
fees and expenses of Buyer's counsel in connection with the
negotiation, preparation, delivery, and execution of this
document and any related documents.
I. MISCELLANEOUS. All references in the
Purchase Documents to the "Master Whole-Loan Purchase
Agreement" refer to the Purchase Agreement as amended by
this document. This document is a "Purchase Document"
referred to in the Purchase Agreement; therefore, the
provisions relating to Purchase Documents in Sections 1 and
11 are incorporated in this document by reference. Except
as specifically amended and modified in this document, the
Purchase Agreement is unchanged and continues in full force
and effect. This document may be executed in any number of
counterparts with the same effect as if all signatories had
signed the same document. All counterparts must be
construed together to constitute one and the same
instrument. This document binds and inures to each of the
undersigned and their respective successors and permitted
assigns, subject to Section 11.12. THIS DOCUMENT AND THE OTHER
PURCHASE DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first stated above.
FIRST PREFERENCE MORTGAGE
CORP.,
as Seller
By
David W. Mann,
President
BANK ONE, TEXAS, N.A.,
as Buyer
By
Brian J. Hilberth,
Assistant Vice President
EXHIBIT 22 - SUBSIDIARIES OF THE REGISTRANT
Exhibit 22
FIRST FINANCIAL CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Name Under Which Subsidiary State of Incorporation Percentage
Does Business or Organization of Ownership
First Financial Insurance Agency, Inc.
Arkansas 100.0%
First Financial Credit Corporation
Delaware 100.0%
PreOwned Homes, Inc. Delaware 100.0%
Mobile Home Conveyors and Liquidators, Inc.
Delaware 100.0%
First Advisory Services, Inc. Delaware 100.0%
Shelter Resources, Inc. Delaware 100.0%
Apex Lloyds Insurance Company Texas 100.0%
Texas Apex, Inc. Texas 100.0%
Key Group, Ltd. Texas 52.9%
The following are 100% owned Subsidiaries of Key Group,
Ltd.:
First Preference Holdings, Inc. Texas
First Preference Mortgage Corp. Texas
First Preference Financial Corp. Texas
First Financial Information Services, Inc.
Delaware
-69-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, First Financial Corporation
has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized:
FIRST FINANCIAL CORPORATION
/s/ David W. Mann /s/ Robert L.
Harris
By: David W. Mann By: Robert L. Harris
President and Principal Vice President
Financial Officer and Principal Accounting
Officer
Date: April 11, 1997 Date: April 11, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the dates indicated:
/s/ Robert A. Mann Date: April 11, 1997
Robert A. Mann, Director and
Chairman of the Board
/s/ David W. Mann Date: April 11, 1997
David W. Mann, Director and
President
/s/ Walter J. Rusek Date: April 11, 1997
Walter J. Rusek, Director
/s/ Barrett Smith Date: April 11, 1997
Barrett Smith, Director
/s/ Jack Hauser Date: April 11, 1997
Jack Hauser, Director
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] 1,167,803
[SECURITIES] 297,481
[RECEIVABLES] 954,797
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 1,932,312
[DEPRECIATION] 1,124,099
[TOTAL-ASSETS] 7,862,462
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1,000
[OTHER-SE] 3,173,114
[TOTAL-LIABILITY-AND-EQUITY] 7,862,462
[SALES] 0
[TOTAL-REVENUES] 5,599,016
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 5,458,308
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 140,708
[INCOME-TAX] 0
[INCOME-CONTINUING] 140,708
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 226,823
[EPS-PRIMARY] 1.31
[EPS-DILUTED] 1.31
</TABLE>
