SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number
March 31, 1997 0-19485
ADVANCED FINANCIAL, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1069416
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5425 Martindale, Shawnee, KS 66218
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (913) 441-2466
-------------------
Securities registered under Section 12(b) of the Act as of March 31, 1997:
Name of each
Title of Each Class exchange on which registered
------------------- ----------------------------
Common Stock $.001 par value American Stock Exchange
---------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and 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 ___ No X
Check if there is no disclosure of delinquent files in response to Item 405
of Regulation S-B if 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
Issuer's revenues for the fiscal year ended March 31, 1997 were $
6,136,773.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock on the
consolidated reporting system on the NASDAQ Bulletin Board on January 25, 1999
was $ 54,016.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of January 25, 1999: 5,836,476
Check whether the issuer has filed all documents and reports to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes___ No___
Transactional Small Business Disclosure Format Yes___ No X
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TABLE OF CONTENTS
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ITEM PAGE
Part I
Item 1 - Description of Business ............................. 3
Item 2 - Description of Property ............................. 9
Item 3 - Legal Proceedings ................................... 10
Item 4 - Submission of Matters to a Vote of Security Holders . 10
Part II
Item 5 - Market for Common Equity and Related Stockholder
Matters ............................................. 11
Item 6 - Management's Discussion and Analysis or Plan of
Operation ........................................... 11
Item 7 - Financial Statements ................................ 13
Item 8 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure ................. 14
Part III
Item 9 - Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act ................................. 14
Item 10 - Executive Compensation .............................. 15
Item 11 - Security Ownership of Certain Beneficial Owners
and Management ...................................... 18
Item 12 - Certain Relationships and Related Transactions ...... 20
Part IV
Item 13 - Exhibits and Reports on Form 8-K .................... 20
Signatures ............................................................. 22
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Advanced Financial, Inc.
PART I
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ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
Advanced Financial, Inc. (the "Company" or "AFI") is a Delaware
corporation formed in September 1986.
SUBSEQUENT EVENTS
In April 1997, the Company and its wholly-owned subsidiary, AFI
Mortgage, Corp. ("AFIM"), decided that it would be in the best interest of the
continuity of the Company's business enterprise to temporarily suspend its
active mortgage operations. On November 7, 1997, AFIM filed for relief under
Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the
United States Bankruptcy Court, District of Kansas, Topeka Division, Case No.
97-43122. On May 8, 1998, the Company also filed for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court, District of Kansas,
Topeka Division, Case No. 98-41228. The two cases were consolidated on July 2,
1998. On November 13, 1998, the United States Bankruptcy Court for the District
of Kansas entered an order (the "Confirmation Order") confirming the First
Amended Joint Plan of Reorganization dated July 29, 1998 of the Company and AFIM
("Plan of Reorganization"). The confirmation of the Plan of Reorganization was
reported in a Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998. A copy of the Plan was filed as Exhibit 2.1 to
the Form 8-K and a copy of the Confirmation Order was filed as Exhibit 99.1 to
the Form 8-K. See also Note B to the Consolidated Financial Statements of the
Company in Item 7 hereof.
DESCRIPTION OF BUSINESS
OF COMPANY AND AFIM
The following information concerning the Company and AFIM is provided as
of March 31, 1997, unless otherwise indicated.
History of the Company and AFIM
- -------------------------------
The Company was formed in September 1986. In July 1990, the Company
determined that an opportunity existed in the mortgage servicing industry due to
the collapse of the savings and loan industry and decided to pursue the
opportunity. The Company acquired Creative Financing, Inc. in March 1991,
changed the subsidiary's name to Continental Mortgage, Inc. in 1992 and changed
the name again in 1994 to AFI Mortgage, Corp. From the time it was acquired by
the Company, AFIM focused on the origination, refinancing and servicing of 1 to
4 family residential mortgages. Between fiscal 1992 and fiscal 1995, AFIM
invested its capital mainly in the purchase of mortgage servicing portfolios
from the Resolution Trust Corporation and during that period its servicing
portfolio reached a principal balance of approximately $750 million.
The servicing portfolio was AFIM's primary source of revenue and cash
flows. In March 1994, AFIM determined that it needed to enter the retail
origination market to increase its servicing portfolio through the origination
of new loans rather than bulk purchases, which would require raising additional
capital. AFIM also determined that it needed to find an origination concept and
strategy that would not require the capital necessary to implement a traditional
branch office operation. AFIM wanted to take advantage of the many new
technologies which had recently became available to the mortgage industry. It
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Advanced Financial, Inc.
was at this time that AFIM initiated its concept of putting a loan officer
directly in an established real estate office.
During March and April, 1994, AFIM proceeded to invest a significant
amount of its capital into both systems and personnel in an effort to implement
this new origination strategy. AFIM had anticipated marketing this new concept
in May, 1994. Unfortunately, technical problems encountered in meshing the
technologies for its Desk Top Origination units delayed marketing until January,
1995. During 1995, AFIM was very successful in establishing its strategy in
several real estate offices around the country.
Although AFIM was successful in locating real estate offices in which to
implement its Desk Top Origination System, it was not nearly as successful in
hiring experienced and qualified loan officers to operate the locations. The
inability to hire experienced loan originators caused AFIM to fall significantly
short of its loan production goals and projections. Therefore, AFIM was unable
to generate from its loan production operations the revenue and cash flow
necessary to support the infrastructure which was in place to handle much
higher anticipated volumes. This led to significant losses during fiscal 1996
and fiscal 1997.
In an effort to generate the capital necessary to support the loan
production operations, AFIM sold approximately $234,000,000 of its remaining
servicing portfolio in September 1996 and an additional $9,000,000 in the fourth
quarter of fiscal year 1997, anticipating that loan production would increase
sufficiently to offset the lost revenue and cash flow previously realized from
the servicing operations. Unfortunately, loan production did not increase as
anticipated and AFIM had to close several of its nonproductive locations. AFIM's
revenues and cash flow were insufficient to continue to support current
operations and in January, 1997, AFIM decided that it would be in the best
interest of the continuity of the Company's business enterprise to temporarily
suspend its active mortgage operations and liquidate its remaining assets to
satisfy creditors.
On February 3, 1997, AFIM entered into an agreement to sell its remaining
loan production operations to First Mortgage Investment Co. ("FMIC"). This
allowed AFIM to eliminate the costs related to those operations. At that time,
AFIM still had approximately $150,000,000 of mortgage servicing rights of The
Government National Mortgage Association ("GNMA"), from which it derived some
revenue.
However, due to the nature of the servicing portfolio and AFIM's lack of
capital, AFIM was unable to service the portfolio properly within GNMA's
guidelines. Thus, in April, 1997, AFIM advised GNMA of its deteriorating
financial condition and requested approval for the sale of the remaining GNMA
servicing rights to a third party. AFIM also advised GNMA that if the
transaction was consummated under the proposed terms, AFIM anticipated having a
shortage of approximately $350,000 to $400,000 in AFIM'S mortgage custodial
accounts, however, GNMA chose to seize the servicing portfolio instead of
approving the sale. At such time, AFIM decided that it would be in the best
interest of the continuity of the Company's business enterprise to temporarily
suspend its active mortgage operations. The Company sold most of its remaining
fixed assets to FMIC in May 1997. For additional information concerning the
history of the Company and AFIM, see "SUBSEQUENT EVENTS" set forth above.
Description of Real Estate and Operating Data
- ---------------------------------------------
At March 31, 1997, the only real estate owned by or in which the Company
had an investment interest was the Company's headquarters building which was
developed for the Company and which the Company occupied in June of 1993. The
building housed all administrative functions of the Company. The Company
currently leases the building to the mortgage company who purchased the
production platform until such time as the sale of the building is completed.
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Advanced Financial, Inc.
Loan Servicing
--------------
Prior to fiscal year 1997, the Company serviced substantially all the
mortgage loans that it originated or purchased from failed institutions.
Servicing includes collecting and remitting loan payments, making advances when
required, accounting for principal and interest, holding escrow (impound) funds
for payment of taxes and insurance, making inspections of the mortgage premises,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults and generally administering the
loans. The Company received fees for servicing the mortgage loans in its
servicing portfolio, which mortgage loans were owned by investors. The fees on
the Company's servicing portfolio were calculated on the outstanding principal
balances of the loans serviced and were recorded as income when earned. Other
fee income consisted of ancillary income (late charges, fax fees, insurance
commissions, etc.) associated with loan servicing and was recorded as income
when collected.
The Company's servicing portfolio was subject to reduction by normal
amortization and by prepayment or foreclosure of loans. In addition, the Company
had in the past sold portions of its portfolio of loan servicing rights. In
general, the decision to buy or sell servicing rights was based upon
management's assessment of the Company's cash requirements, the Company's debt
to equity ratio and other significant financial ratios, the market value of
servicing rights, and the Company's current and future earnings objectives.
During fiscal year 1997, the majority of all loans originated by the
Company were sold servicing released to private investors on a non-recourse
basis. In addition, due to the Company's continued losses in fiscal years 1996
and 1997, management made the decision in September 1996 to sell the entire
servicing portfolio to pay off as much related indebtedness as possible. At that
time, the sale of the servicing allowed the Company to significantly reduce its
cash flow needs.
Servicing Capability
--------------------
In the past a non-affiliated third party provided electronic data
processing through the Company's IBM AS/400. This relationship and service was
terminated, in April, 1997.
Servicing Portfolio Characteristics
-----------------------------------
The following table sets forth certain information regarding the Company's
servicing portfolio of mortgage loans, including loans held for sale, for the
periods indicated:
March 31, 1996 March 31, 1997
-------------- --------------
(000's Omitted) (000's Omitted)
Composition of Servicing Portfolio at
Period End:
FHA Insured/VA Guaranteed Mortgage Loans $281,500 $144,000
Conventional Mortgage Loans............. 198,224 1,700
Second Mortgages........................ 857 250
Total Servicing Portfolio $480,581 $145,950
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Advanced Financial, Inc.
Delinquent Mortgage Loans and Pending Foreclosures at Period End:
30 Days..........................................4.47% 7.20%
60 Days..........................................0.92% 1.50%
90 Days..........................................0.79% 0.70%
Total Delinquencies 6.18% 9.40%
Foreclosures Pending...................................0.59% 1.70%
By June 1, 1997, the Company had liquidated the remainder of its servicing
portfolio.
Loan Originations
-----------------
In January 1992, the Company expanded its mortgage banking operations to
include the ability to refinance mortgage loans. This was designed to enhance
the Company's servicing portfolio in several ways. It allowed the Company to
retain a portion of its payoffs as new loans. Previously, the refinanced loans
enhanced the value of the Company's portfolio because the new loan had a lower
note rate and a longer servicing life. During fiscal 1997, originated and
refinanced mortgage loans were sold servicing released which increased current
cash flow and revenues. Also the revenues and earnings provided by the loan
originations allowed the Company to diversify its potential revenue producing
business away from loan servicing. During fiscal 1997, the Company originated
1,242 loans with a principal balance of approximately $110,500,000 compared to
1,284 loans with a principal balance of approximately $111,090,000 in fiscal
1996.
AFIM had developed an important expertise which allowed the Company to
close new loans in several states through closing agents and title companies
without the necessity to invest in branch office overhead. This expertise was
critical in the ability to place Desktop installations in real estate offices
nationwide. All processing and underwriting was centralized at AFIM
headquarters. Eighteen Desktop terminals were in operation during the fourth
quarter of fiscal 1997. The system included core software capabilities which ran
on a desktop or personal computer. The Company had in-house computer oriented
employees trained on the software to perform necessary modifications to software
as well as installation of the software.
The Company anticipated completed installations (terminals installed and
operational, including the staffing of a loan officer on the Company's payroll)
of 70 locations by the end of fiscal 1997. Unfortunately the Company did not
reach its goal, but did have as many as 45 locations at its peak. Due to various
reasons several of these locations did not meet the Company's profitability
projections and were subsequently closed. Eighteen locations were in place when
the Company sold its production platform. The Company estimated the initial
set-up cost of an office for the first 90 days, including monthly cost of
license and equipment, office supplies, etc., to be approximately $7,000 per
location.
The system was initially being targeted for placement in real estate
brokerage companies with high residential growth. The system was designed to be
operated on-site by an AFIM loan representative with "expert systems" feedback
to the borrower, an evaluation of loan balance and repayment options. The
information was electronically transmitted by modem to AFIM where the actual
processing and underwriting were performed. The system offered the convenience
of one stop shopping for the home buyer in addition to productivity advantages
for the agents. The "Step 1 Pre-Approval Process" provided the potential home
buyer with a formal written pre-approval for a monthly mortgage payment based on
the application in approximately 48 hours. This allowed the home buyer and real
estate agent the advantage of knowing financing opportunities prior to the
negotiation of a potential contract.
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Advanced Financial, Inc.
As another method of increasing mortgage loan originations, in July 1994,
the Company began mortgage production operations in the State of Washington. The
Company opened operations by hiring some of the staff of a Seattle area mortgage
broker. The Company's Desktop terminals were installed in two offices as a means
of enhancing operating efficiencies. The predecessor organization developed an
active business in non-conforming loan originations which did not meet industry
standard credit, loan to value or other criteria. However, due to the high cost
of the operation, $576,000 for the first eight months in fiscal year 1996, the
Company made the decision to sell the operation in October 1995.
Loan Processing
---------------
In connection with the origination of each loan, the Company processed the
loan application, prepared mortgage documentation, conducted credit checks, had
the property valued by appraisers and funded the loan. Loan applications were
approved by the Company's underwriting department for compliance with
underwriting criteria, including the loan-to-value ratio, borrower's income
qualification and necessary insurance. After approval, the Company's policy was
to obtain pre-closing commitments from investors to purchase substantially every
loan to be originated or purchased by the Company. In the case of loans to be
sold to private investors, the Company submitted the loan file to a prospective
investor for its approval.
FNMA and FHLMC did not review individual loan files prior to issuance of
commitments to purchase loans. Upon receipt of a commitment from an investor to
purchase a loan or loans from the Company once closed, the Company issued a
commitment to the prospective borrower specifying the amount of the loan, the
prevailing interest rate, the fees to be paid to the Company and the date on
which the Company's commitment expired. The actual interest rate of the loan was
established prior to loan closing based upon the then prevailing interest rate,
unless the borrower has purchased a "rate lock," which guarantees a specified
rate for a designated period. The normal interval of time between the Company's
issuing its commitment and the closing of a loan was one to three weeks.
Types of Loans
--------------
Approximately half of the loans serviced by the Company were conventional
loans. The Company emphasized the origination of "conforming" loans, which are
conventional loans having principal amounts within the maximum amounts eligible
for sale to FNMA and FHLMC (currently $203,150 for a one-family property) and
which otherwise comply with FNMA and FHLMC requirements. The Company also
originated "jumbo" loans (conventional loans that exceed the maximum amounts
qualifying for sale to FNMA or FHLMC but that otherwise generally comply with
FNMA or FHLMC requirements and other loans that do not comply with FNMA or FHLMC
requirements) but that do comply with requirements for sale to private
investors. It was the Company's policy to obtain a title insurance policy on
every mortgage loan. In addition, substantially all of the Company's originated
loans were first mortgage loans. During the fourth quarter of fiscal 1995, the
Company did introduce a second mortgage loan program for which the originated
loans were sold to private investors.
Markets and Competition
-----------------------
The loan origination market share is somewhat diversified with a few large
players and many small players. As a whole, the industry is incorporating
technology and pursuing point of sale strategies to generate mortgage loan
originations. The company also believes that its strategy for implementing its
technology and strategy for point of sale originations was unique and should
have allowed it to compete even with its largest competitors. Unfortunately due
to the shortage and availability of experienced loan officers, caused by the
industry's increased production volumes, the Company was unable to attract and
hire experienced loan originators to operate its desktop locations. This meant
that the company had to hire and
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Advanced Financial, Inc.
train less experienced personnel. This caused a much longer than anticipated
time frame for loan origination volumes to meet projected goals. In many cases,
due to the Company's shortage of capital, the Company could not continue to keep
the locations open in anticipation of future loan production.
Regulation
----------
The Company's mortgage banking business was subject to the rules and
regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating,
processing, selling and servicing mortgage loans. Those rules and regulations,
among other things, prohibit discrimination, provide for inspections and
appraisals, require credit reports on prospective borrowers and fix maximum loan
amounts, and with respect to VA loans, fix maximum interest rates. Moreover, FHA
lenders such as the Company were required annually to submit to the Federal
Housing Commissioner audited financial statements. FNMA, FHLMC and GNMA required
the maintenance of specified minimum net worth levels (which vary depending on
the amount of the portfolio serviced). The Company was subject to examination by
the Federal Housing Commissioner at all times to assure compliance with FHA
regulations, policies and procedures. The Company's mortgage origination
activities were subject to the Equal Credit Opportunity Act, the Federal
Truth-in Lending Act and the Real Estate Settlement Procedures Act and the
regulations promulgated thereunder which prohibit discrimination and require the
disclosure of certain basic information to mortgagors concerning credit and
settlement costs.
Additionally, there were various state laws and regulations affecting the
Company's mortgage servicing and banking operations. The Company was also
licensed as a mortgage banker or retail installment lender in those states in
which it did business that required such a license.
The Company's conventional mortgage operations may also have been subject
to state usury statutes. The Company's FHA and VA loans and activities were
exempt from the effect of such statutes.
Other Operations
----------------
On June 29, 1993, the Company acquired Continental Mortgage Services, Inc.
(CMSI), a consulting company to the mortgage banking industry. CMSI provided
support services to mortgage banking institutions, savings and loans and the
Resolution Trust Corp. (RTC). CMSI was comprised of highly trained and
experienced professionals who excelled in the placement of temporary personnel
in mortgage related fields, due diligence, servicing audits, and loan
securitization. Approximately 95% of CMSI's time was spent on providing its
services to AFIM. At the time of acquisition, CMSI and AFIM were unrelated
companies. Due to the Company's increased focus on Desktop, CMSI ceased as an
operating company prior to fiscal year end 1997, and is currently inactive.
On July 1, 1994, the Company purchased for $10,000 the outstanding shares
of Network Appraisal Associates, Inc. (Network). Network was previously an
unrelated appraisal company providing services to AFIM branch offices and other
mortgage banking companies in the Northwest region. However, in the first
quarter of fiscal 1996, the Company made the economic decision to discontinue
operations of Network.
On August 1, 1994, the Company purchased 100% of the stock of Century Real
Estate of Lincoln, Nebraska. The acquisition was planned as a short term
investment which allowed for deployment of some of the first Desktop terminals
in a closely monitored real estate brokerage environment. Effective December 20,
1994, the Company sold this temporary investment in Century to Home Real Estate
Services of Lincoln, Inc. ("Home") and concurrently through a stock exchange
purchased 10% of Home. The combination of Century and Home created the largest
real estate brokerage firm in the Lincoln, Nebraska market. Also, as part of the
sale, AFIM had the right to install its Desktop Mortgage Loan Origination System
in all four of Home's real estate offices in the Lincoln area.
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Advanced Financial, Inc.
On March 1, 1997 Home elected to exercise its right to repurchase 10% of
Home from the Company pursuant to a Stock Redemption Agreement between the
Company and Home. The Company received $141,669 from Home for the repurchase of
its 10% ownership, the proceeds of which were used to pay down Company debt.
Employees
- ---------
As of March 31, 1997, the Company and its subsidiary had 20 employees, all
of which were full-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
Real Estate Owned
- -----------------
At March 31, 1997, AFIM owned fee simple title to a 20,000 square foot
office building and the land on which the building sat located at 5425
Martindale, Shawnee, Kansas (the "Property"). The Property is subject to a first
and second mortgage. The first mortgage had a principal balance at March 31,
1997 of $734,000 with a fixed interest rate of eleven and three quarters percent
(11.75%) per annum and was payable monthly with the entire balance due and
payable March 31, 1998. The balance may be prepaid at any time without penalty.
In the fourth quarter of the 1996 fiscal year, the Company took out a second
mortgage on the Property of $350,000 that was due March 1998. $200,000 of the
second mortgage was repaid in fiscal year 1997 from the sale of servicing
rights. In the opinion of management, the Property is adequately covered by
insurance.
Subsequent Events. Under the Plan of Reorganization, and subject to the
terms and conditions set forth in the Plan of Reorganization, FMIC is to
purchase the Property for $1,030,000, the net proceeds of which would satisfy
the first mortgage, and would also release the second mortgage it holds against
the building. The net proceeds to AFIM from this transaction would be used to
satisfy the claims of creditors in accordance with the Plan of Reorganization.
This building is currently leased to FMIC. See Item 1: "DESCRIPTION OF BUSINESS
- -- SUBSEQUENT EVENTS."
Investment Policies
- -------------------
The only type of real estate in which the Company has invested is the
office building and land described above. The Company manages its own property
and the financing of said property is as described above. The Company has not
adopted any policies which would limit the number or amount of mortgages which
may be placed on any piece of property owned by the Company. The Company
presently has no plans to purchase or invest in real estate except for its
headquarters building as described above. No limitations concerning the
percentage of assets of the Company which may be invested in any one investment,
or type of investment. Any investment policy of the Company may be changed
without a vote of security holders.
Investments in Real Estate Mortgages
- ------------------------------------
During the first three quarters of fiscal 1997, the Company invested in
real estate mortgages by acting as a loan originator as an essential part of its
core business. Primarily all mortgage originations were first mortgages on
single family dwellings. For a general description of each type of mortgage
activity in
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Advanced Financial, Inc.
which the Company engaged, such as origination, servicing and warehousing, and
the portfolio turnover rate, see Part I, Loan Servicing; Loan Originations.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities
- --------------------------------------------------------------------------------
During fiscal year 1997, the Company did not invest in securities of or
interests in persons primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In March 1994, the Company was named as co-defendant in a lawsuit filed by
two former officers of the Company. The lawsuit, filed in the United States
District Court for the District of Nebraska, alleges that the Company violated
securities laws, delaying the ability of these former officers from selling
common stock of the Company owned by them, resulting in alleged losses of
$300,000. The validity of the stock owned by these plaintiffs was the subject of
concurrent litigation pending in the state court in Omaha, Nebraska. In January,
1997, the Company settled the litigation by agreeing to issue the plaintiffs a
total of 300,000 shares of the Company's restricted common stock. In turn, one
of the parties pledged 100,000 shares as collateral for a note receivable of
$214,000 due AFIM. At March 31, 1997, the Company has already reserved $74,815
against the note and $140,000 towards the settlement of this litigation. The
parties settled this litigation to avoid any further uncertainty and expense of
litigation.
The Company had various other lawsuits initiated from various lenders as a
result of the Company's inability to make required payments on its various debt.
On November 7, 1997, AFIM filed for relief under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court, District of Kansas, Topeka Division,
Case No. 97-43122. On May 8, 1998, the Company also filed for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court,
District of Kansas, Topeka Division, Case No. 98-41228. The two cases were
consolidated on July 2, 1998. On November 13, 1998, the United States Bankruptcy
Court for the District of Kansas entered the Confirmation Order. The
confirmation of the Plan of Reorganization was reported in a Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 25, 1998.
A copy of the Plan was filed as Exhibit 2.1 to the Form 8-K and a copy of the
Confirmation Order was filed as Exhibit 99.1 to the Form 8-K. All pending
litigation was suspended pending the final outcome of the Company's Chapter 11
Plan of Reorganization. Upon the Company's discharge from bankruptcy, all
litigation will have been dismissed.
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 Company's fiscal year ended March 31, 1997, either through the
solicitation of proxies or otherwise.
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Advanced Financial, Inc.
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The Company's Common Stock was traded on the American Stock Exchange from
March 29, 1993 to April 3, 1997 under the symbol AVF. On December 6, 1996, the
Exchange halted trading of the Company's Common Stock due to the fact that the
Company was not in compliance with the Exchange's listing requirements. As a
result the Company's Common Stock was delisted on April 3, 1997. The Company's
Common Stock is currently traded on the NASDAQ Bulletin Board under the symbol
AVFI. The following table sets forth the high and low prices for Common Stock as
reported on the American Stock Exchange and the NASDAQ Bulletin Board for the
four quarters of fiscal years 1996 and 1997. The prices were obtained from the
American Stock Exchange and the NASDAQ Bulletin Board. The prices do not include
retail mark-ups, mark-downs, or other fees or commissions, and may not represent
actual transactions.
1996
----
High Low
---- ---
Quarter Ended June 30, 1995 $1.75 $0.88
Quarter Ended September 30, 1995 $1.56 $1.00
Quarter Ended December 31, 1995 $1.38 $0.56
Quarter Ended March 31, 1996 $1.38 $0.69
1997
----
High Low
---- ---
Quarter Ended June 30, 1996 $1.62 $1.00
Quarter Ended September 30, 1996 $1.75 $1.00
Quarter Ended December 31, 1996 $2.00 $1.00
Quarter Ended March 31, 1997 $1.38 $1.38
At January 25, 1999, the closing market price of the Company's common
stock was $.012 per share. On such date, 178 holders of record held the
Company's common stock and the Company estimates that it has approximately 1,200
beneficial shareholders.
At March 31, 1997, the Company had not paid any cash dividends on its
Common Stock and had not paid any dividends on its 10.5% Series B Preferred
Stock since the second quarter of fiscal 1996. The Company was not subject to
any restrictive covenants or agreements which limit its ability to pay
dividends. At March 31, 1997, AFI Mortgage, Corp. was subject to restrictive
covenants in connection with certain of its borrowing arrangements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
GENERAL
- -------
As described in Item 1 hereof, the Company and AFIM suffered substantial
losses in fiscal years 1996 and 1997, management decided that it would be in the
best interest of the continuity of the Company's business enterprise to
temporarily suspend its active mortgage operations in April 1997 and the Company
and AFIM subsequently filed for relief under Chapter 11 of the Bankruptcy Code.
The following discussion of the Company's financial condition as of March 31,
1997 and the Company's results of operations for
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Advanced Financial, Inc.
fiscal year 1997 should be read in conjunction with description of events
subsequent to March 31, 1997 contained in Item 1 hereof.
RESULTS OF OPERATIONS
- ---------------------
Year Ended March 31, 1997 Compared To The Year Ended March 31, 1996
- -------------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
The Company's cash and short-term investments decreased from $585,643 at
March 31, 1996 to ($106,676) at March 31, 1997. The decrease in cash and
short-term investments is attributable to reasons set forth under Item 1:
"DESCRIPTION OF BUSINESS-SUBSEQUENT EVENTS" and Item 1: "DESCRIPTION OF BUSINESS
- - DESCRIPTION OF BUSINESS OF THE COMPANY AND AFIM."
Income/losses
-------------
Consolidated operating result for fiscal year 1997 reflect a net loss of
$5,077,639 as compared to a net loss of $3,184,577 in fiscal year 1996. The
increase in losses is attributable to reasons set forth under Item 1:
"DESCRIPTION OF BUSINESS-SUBSEQUENT EVENTS" and Item 1: "DESCRIPTION OF BUSINESS
- - DESCRIPTION OF BUSINESS OF THE COMPANY AND AFIM."
FINANCIAL POSITION
- ------------------
During fiscal 1997, the Company saw a significant decrease in the Company's
assets and stockholders' equity. The Company's total assets were $2,158,102 at
March 31, 1997 compared to $17,313,516 at March 31, 1996. Stockholders' deficit
was $(3,015,428) at March 31, 1997 compared to equity of $978,329 at March 31,
1996. These decreases were due to the Company continuing to operate at a loss
during fiscal 1997, the sale of the Company's loan production operations and the
sale and transfer of its mortgage servicing rights. The Company sold its loan
production operations in February, 1997 causing its loans held for sale to
decrease to $305,193 at March 31, 1997 compared to $10,110,747 at March 31,
1996. Notes Payable also decreased to $1,768,427 at March 31, 1997 compared to
$13,412,419 at March 31, 1996 due to the fact that the Company was no longer
borrowing on its warehouse facility to fund loan originations. At March 31,
1997, the Company had written of all of its mortgage servicing rights compared
to the balance at March 31, 1996 of $2,440,280. Since the majority of the
Company's operations had been suspended at March 31, 1997, the Company also
wrote off all its Excess of Cost Over Fair Value compared to the balance at
March 31, 1996 of $524,798.
At March 31, 1997, the Company had a negative cash position of $106,676
compared to a positive cash position of $585,643 at March 31, 1996. After year
end, the Company covered its negative cash position from the collection of
receivables and the funding of the remaining Mortgage Loans Held for Sale. Since
March 31, 1997, and while operating under the protection Chapter 11 of the
Bankruptcy code, the Company has been able to fund its limited operations from
the sale of various assets and the collection of various receivables.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
None
Page - 12
<PAGE>
Advanced Financial, Inc.
ITEM 7. FINANCIAL STATEMENTS
Financial statements for the years ended March 31, 1997 and March 31,
1996, are presented on the following pages.
Page - 13
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Financial, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of Advanced
Financial, Inc. and Subsidiaries as of March 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Advanced Financial, Inc. and Subsidiaries as of March 31, 1997, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, on November 7, 1997, the Company filed a
voluntary petition for reorganization in the United States Bankruptcy Court for
the District of Kansas (Bankruptcy Court) under Chapter 11 of the United States
Bankruptcy Code (Bankruptcy Code). Pursuant to the Bankruptcy Code, the Company
has continued to manage its business as a debtor-in-possession under the
jurisdiction of the Bankruptcy Court, but has no ongoing operations. On November
13, 1998, the Bankruptcy Court confirmed the Company's First Amended Joint Plan
of Reorganization dated July 29, 1998. These factors, among others, as discussed
in Note B to the consolidated financial statements, raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
___________________________
Kansas City, Missouri
December 17, 1998
13-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors
Advanced Financial, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Advanced
Financial, Inc. and subsidiaries as of March 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
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 statement are free of material
misstatements. 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 your opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of March 31, 1996 and the results of their operations and their
cash flows for the year then ended.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note B to the
consolidaed financial statement, the Company has incurred net losses of
$3,184,577 and $3,963,497 during the years ended March 31, 1996. This loss,
along with other matters as set forth in note B, raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in note B. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
/s/ KPMG LLP
________________________
Kansas City, Missouri
June 30, 1996
13-2
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------------- ------------------
<S> <C> <C>
Cash $ - $ 585,643
Mortgage servicing advances and accounts receivable (note A2) 440,367 520,620
Mortgage loans held for sale (notes A3, D, and E) 305,193 10,110,747
Mortgage loans held for investment (notes A3 and E) 12,713 94,932
Purchased mortgage servicing rights, net (notes A2, C, and E) - 2,440,280
Property and equipment, net (notes A4, E, F, and J) 1,303,802 1,718,355
Excess of cost over fair value of assets acquired, net of accumulated
amortization of $235,899 in 1996 (note A5) - 524,798
Prepaid expenses 23,121 191,442
Deferred income taxes (notes A8 and I) - 440,000
Other investment (note K) - 235,800
Receivable from related party (note H) - 190,000
Other (note L) 72,906 260,899
------------------- ------------------
$ 2,158,102 $ 17,313,516
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
LIABILITIES (note B)
Bank overdraft $ 106,676 $ -
Accounts payable and accrued expenses 2,919,541 2,507,103
Notes payable (note E) 1,768,427 13,412,419
Notes payable on stock rescission (note G) 200,000 -
Capitalized lease obligations (note F) 178,886 415,665
------------------- ------------------
5,173,530 16,335,187
COMMITMENTS AND CONTINGENCIES (notes F, G, and L) - -
STOCKHOLDERS' EQUITY (DEFICIENCY) (notes B, G, and H)
Preferred stock, Series B, $.005 par value 10,000,000 shares
authorized; 363,000 and 372,000 shares issued
and outstanding, respectively 1,815 1,860
Common stock, $.001 par value; 25,000,000 shares authorized;
5,836,476 and 3,875,476 shares issued, respectively 5,836 4,256
Paid-in capital 9,959,840 8,877,493
Accumulated deficit (12,541,574) (7,463,935)
------------------- ------------------
(2,574,083) 1,419,674
Treasury stock, 99,869 shares of common stock, at cost (441,345) (441,345)
------------------- ------------------
(3,015,428) 978,329
------------------- ------------------
$ 2,158,102 $ 17,313,516
=================== ==================
The accompanying notes are an integral part of these statements.
</TABLE>
13-3
<PAGE>
<TABLE>
<CAPTION>
Advanced Financial, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
1997 1996
------------------- ------------------
<S> <C> <C>
Revenues
Servicing fees $ 1,558,933 $ 2,466,646
Gains on sales of mortgage loans, net (including
origination fee income of $788,868 and $891,932,
respectively) 2,232,547 2,531,580
Other fees 674,388 1,009,685
Gains on sales of mortgage servicing rights 827,482 99,759
Interest 691,559 639,458
Other 151,864 144,200
------------------- ------------------
Total revenues 6,136,773 6,891,328
Expenses
Servicing expense 1,630,457 1,420,763
Personnel 2,903,116 3,789,712
General and administrative 2,275,168 2,239,103
Interest 851,952 721,281
Depreciation and amortization 2,201,103 1,485,192
Other 910,456 370,504
------------------- ------------------
Total expenses 10,772,252 10,026,555
------------------- ------------------
Loss before income taxes (4,635,479) (3,135,227)
Income tax expense (notes A8 and I) (442,160) (49,350)
------------------- ------------------
Net loss $ (5,077,639) $ (3,184,577)
=================== ==================
Weighted average shares outstanding 4,651,327 3,776,000
=================== ==================
Loss per common share (note A9) $ (1.12) $ (0.88)
=================== ==================
The accompanying notes are an integral part of these statements.
</TABLE>
13-4
<PAGE>
<TABLE>
<CAPTION>
Advanced Financial, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIENCY)
Years ended March 31, 1997 and 1996
Preferred Common Paid-in Accumulated Treasury
stock stock capital deficit stock Total
------------- ------------- --------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1995 $ 1,860 $ 3,876 $8,642,442 $ (4,162,178) $ (441,345) $ 4,044,655
Net loss - - - (3,184,577) - (3,184,577)
Services rendered in exchange
for stock options - - 45,431 - - 45,431
Exercise of stock options (notes G
and H) - 380 189,620 - - 190,000
Dividends on preferred stock,
$.32 per share (note G) - - - (117,180) - (117,180)
------------- ------------- --------------- ---------------- ------------- ---------------
Balance at March 31, 1996 1,860 4,256 8,877,493 (7,463,935) (441,345) 978,329
Net loss - - - (5,077,639) - (5,077,639)
Exercise of stock options (notes G - 771 414,361 - - 415,132
and H)
Services rendered in - 500 593,250 - - 593,750
exchange for stock (note G)
Stock issued in legal
settlement (note L) - 300 74,700 - - 75,000
Conversion of 9,000 shares of
preferred stock to common stock (45) 9 36 - - -
------------- ------------- --------------- ---------------- ------------- ---------------
Balance at March 31, 1997 $ 1,815 $ 5,836 $9,959,840 $(12,541,574) $ (441,345) $(3,015,428)
============= ============= =============== ================ ============= ===============
The accompanying notes are an integral part of this statement.
</TABLE>
13-5
<PAGE>
<TABLE>
<CAPTION>
Advanced Financial, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
1997 1996
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (5,077,639) $ (3,184,577)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,201,103 1,485,192
Gains on sales of mortgage loans held for sale (2,232,547) (2,531,580)
Gains on sales of mortgage servicing rights (827,482) (99,759)
Gain on sale of investment (18,205) -
Deferred income taxes 440,000 50,000
Services rendered in exchange for stock options - 45,431
Services rendered in exchange for stock 593,750 -
Stock issued in legal settlement 75,000 -
Mortgage loans held for sale originated (117,647,385) (111,090,000)
Mortgage loans held for sale sold 129,685,486 105,862,745
Changes in assets and liabilities:
Mortgage servicing advances and accounts receivable 80,253 763,287
Prepaid expenses and other assets 285,916 121,384
Accounts payable and accrued expenses 412,438 686,254
-------------------- ------------------
Net cash provided by (used in) operating activities 7,970,688 (7,891,623)
Cash flows from investing activities
Acquisition of property and equipment (26,978) (32,060)
Purchase of mortgage servicing rights - (11,172)
Proceeds from sale of foreclosed assets - 57,931
Proceeds from sales of mortgage servicing rights 2,103,386 -
Principal payments received on other receivables 302,336 61,578
Principal payments received on mortgage loans held for investment 82,219 41,593
Proceeds from sale of investment 141,669 -
-------------------- ------------------
Net cash provided by investing activities 2,602,632 117,870
Cash flows from financing activities
Bank overdraft 106,676 -
Change in revolving borrowings, net (9,449,895) 7,726,195
Proceeds from notes payable 739,031 984,399
Notes payable on stock rescission 200,000 -
Principal payments on notes payable (2,933,128) (453,811)
Payments on capitalized lease obligations (236,779) (292,363)
Payment of preferred dividends - (117,180)
Exercise of stock options 415,132 -
-------------------- ------------------
Net cash provided by (used in) financing activities (11,158,963) 7,847,240
-------------------- ------------------
Net increase (decrease) in cash (585,643) 73,487
Cash at beginning of year 585,643 512,156
-------------------- ------------------
Cash at end of year $ - $ 585,643
==================== ==================
Supplemental disclosures of cash flow information
Cash paid for interest $ 845,346 $ 608,293
Cash paid for taxes 2,160 -
Supplemental disclosures of noncash financing and investing activities
Acquisition of fixed assets financed by capital leases $ - $ 66,686
Receivable recognized for exercise of stock options - 190,000
Conversion of preferred stock to common stock 45 -
The accompanying notes are an integral part of these statements.
</TABLE>
13-6
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Asummary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Organization and Principles of Consolidation
Advanced Financial, Inc. (the Company) owns 100% of AFI Mortgage, Corp.
(AFI). Prior to ceasing operations in 1997, AFI originated, sold to
investors, and serviced residential first mortgage loans (see Note B). The
Company also owns 100% of Continental Mortgage Services, Inc. (CMSI) and
Network Appraisals, Inc. (Network). CMSI and Network provided consulting
and appraisal services to AFI and other mortgage banking companies. During
the fiscal year ended March 31, 1996, both of those subsidiaries became
inactive.
The consolidated financial statements include the accounts of the Company,
AFI, CMSI, and Network. All significant intercompany accounts and
transactions have been eliminated.
2. Mortgage Servicing Rights and Mortgage Servicing Advances Receivable
Purchased mortgage servicing rights were recorded at cost and were
amortized in proportion to and over the estimated positive future cash
flows derived from servicing the portfolio. The Company evaluated the
recoverability of the cost of each bulk purchase of servicing rights, or,
in the case of correspondent purchases, by grouping such servicing rights
by interest rates and purchase dates of similar loans. If necessary, the
Company further disaggregated bulk purchases for purposes of evaluating
recoverability if the underlying loans did not have similar underlying
economic characteristics. The Company estimated remaining net cash flows to
be received from servicing the portfolio; if such amounts, on a discounted
basis, were less than amortized cost, appropriate amortization adjustments
were made. This additional amortization, when required, resulted in
servicing rights being carried at the lower of cost or market. Gains on
sales of mortgage servicing rights were determined by deducting from the
selling price the remaining unamortized cost of such servicing rights.
In connection with servicing mortgage-backed securities guaranteed by
federal agencies, the Company advanced certain principal and interest
payments to security holders prior to their collection from specific
mortgagors. In addition, the Company made certain payments of property
taxes and insurance premiums in advance of collection from specific
mortgagors, as well as certain payments of attorneys' fees and other costs
related to loans in foreclosure. Such advances were included in mortgage
servicing advances receivable.
13-7
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
3. Mortgage Loans Held for Sale and Investment
Mortgage loans held for sale are carried at the lower of cost or fair
market value as determined by outstanding commitments from investors or
current investor yield requirements calculated on an aggregate basis. Gains
or losses on sales of mortgage loans are recognized based upon the
difference between the selling price and the carrying value of the related
mortgage loans at the date of sale using the specific identification
method. Mortgage loans held for investment are carried at the lower of cost
or market on the date of acquisition or transfer from the held for sale
account.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets,
ranging from three years to thirty years.
5. Excess of Cost Over Fair Value of Assets Acquired
The excess of cost over fair value of assets acquired, resulting from the
Company's acquisition of AFI, was being amortized over fifteen years. The
Company has evaluated this excess to be of no future value and has written
off the entire amount during the year ended March 31, 1997.
6. Foreclosed Assets
Foreclosed assets, included as other assets in the accompanying
consolidated balance sheets, are recorded at the lower of the loan balance
or the fair value of the property less estimated selling costs.
7. Servicing and Other Fees
Servicing fees represent fees earned for servicing mortgage loans owned by
investors. These fees are calculated on the outstanding principal balances
of the loans serviced and are recorded as income when collected.
Other fees consist of ancillary income associated with loan servicing and
are recorded as income when collected.
13-8
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Income Taxes
The Company accounts for income taxes under the asset and liability method
where deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Deferred tax assets are
recognized to the extent management believes that it is more likely than
not that they will be realized.
9. Loss Per Common Share
Loss per common share is based on the weighted average number of common
shares outstanding during the periods plus common stock equivalents, when
dilutive, consisting of stock options and warrants. For purposes of this
computation, net losses have been adjusted for the dividends on the
preferred stock. The computation of fully diluted loss per share includes
the common stock issuable upon conversion of preferred stock, when
dilutive. Because the effect of such inclusion is anti-dilutive in 1997 and
1996, fully diluted per share information is not presented herein.
10. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
13-9
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE B - BANKRUPTCY AND REORGANIZATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern.
The Company experienced net losses of $5,077,639 and $3,184,577 for the
years ended March 31, 1997 and 1996, respectively. In an effort to generate
the capital necessary to support loan production operations, the Company
sold most of its servicing portfolio, anticipating that loan production
would increase sufficiently to offset the lost revenue and cash flow
previously realized from the servicing operations. Unfortunately, loan
production did not increase as anticipated, and the Company had to close
several of its nonproductive locations. Ultimately, revenues and cash flow
were insufficient to continue to support current operations and in January
1997, the Company decided to discontinue its operations and liquidate its
remaining assets to satisfy creditors.
In February 1997, the Company entered into an agreement to sell its
remaining loan production operations to First Mortgage Investment Co.
(FMIC). This allowed the Company to eliminate the costs related to those
operations. At that time, the Company still had approximately $150,000,000
of GNMA mortgage servicing rights, from which it derived some revenue.
However, due to the nature of the servicing portfolio and the lack of
capital, the Company was unable to service the portfolio properly within
GNMA's guidelines. Thus, in April 1997, the Company advised GNMA of its
deteriorating financial condition and requested approval for the sale of
the remaining GNMA servicing rights to a third party. The Company also
advised GNMA that if the transaction was consummated under the proposed
terms, the Company anticipated having a shortage of approximately $350,000
to $400,000 in the Company's mortgage custodial accounts. GNMA chose to
seize the servicing portfolio instead of approving the sale. As a result,
the Company was left with no ongoing operations.
As a result of these events, on November 7, 1997, the Company filed a
voluntary petition for reorganization in the United States Bankruptcy Court
for the District of Kansas (Bankruptcy Court) under Chapter 11 of the
United States Bankruptcy Code (Bankruptcy Code).
On November 13, 1998, the Bankruptcy Court confirmed the Company's First
Amended Joint Plan of Reorganization (the Plan) dated July 29, 1998.
13-10
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE B - BANKRUPTCY AND REORGANIZATION - Continued
Pursuant to the Plan, among other things:
(a) FMIC, a creditor of the Company, will release its secured claims
against, and acquire certain assets of the Company in exchange for
1,800,000 shares of common stock of the Company, initially
constituting 60% of the 3,000,000 new shares to be issued as part of
the Company's recapitalization and reorganization. In addition, FMIC
has an option to acquire an additional 3,000,000 shares at $.50 per
share or $1.5 million increasing its ownership to 80% of the
outstanding shares of the Company.
(b) The Company will issue shares of common stock, warrants and make
partial payments to certain other creditors in exchange for a release
of their claims. The creditors will receive 900,000 shares of common
stock of the Company, constituting 30% of the 3,000,000 new shares to
be issued as a part of the Company's recapitalization and
reorganization. The creditors will also receive 900,000 warrants
allowing the holder to purchase one share of common stock per warrant
at a price of $1.25. The warrants are callable by the Company at 130%
of the strike price paid and expire on March 31, 2002.
(c) Shares currently held by preferred and common shareholders of the
Company will be canceled and they will receive 300,000 shares of new
common stock of the Company, constituting 10% of the 3,000,000 new
shares to be issued as part of the Company's recapitalization and
reorganization. Each preferred and common shareholder will receive
approximately .05269 new shares for each old share.
The completion of these transactions is subject to numerous conditions.
In view of the matters described above, recoverability of a major portion
of the recorded asset amounts shown in the accompanying consolidated
balance sheet is dependent upon completion of the Plan. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Management believes the steps in the Plan are sufficient to provide the
Company with the ability to continue in existence.
13-11
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE C - MORTGAGE SERVICING RIGHTS
Purchased mortgage servicing rights are presented net of accumulated
amortization of $0 and $3,326,547 at March 31, 1997 and 1996, respectively.
A summary of the activity related to purchased mortgage servicing rights is
as follows at March 31,
1997 1996
---- ----
Balance at beginning of year $2,440,280 $3,534,450
Purchases - 11,172
Scheduled amortization (542,497) (1,010,047)
Amortization resulting from impairment (621,879) (95,295)
Sales (1,275,904) -
----------- -----------
Balance at end of year $ - $2,440,280
=========== ===========
NOTE D - MORTGAGE BANKING ACTIVITIES
The Company's portfolio of mortgage loans serviced for investors, including
loans originated by the Company, aggregated approximately $150,000,000 and
$481,000,000 at March 31, 1997 and 1996, respectively. Included in the
portfolio at March 31, 1997 and 1996 are approximately $150,000,000 and
$188,000,000, respectively, of GNMA mortgage-backed securities (see Note
B). Under terms of the guarantee agreement with GNMA, the Company was
required to advance principal and interest not collected from the mortgagor
and is liable for amounts lost in foreclosure of defaulted loans not
recovered from the loans' insurers.
At March 31, 1997 and 1996, escrow funds related to the serviced loans
approximated $4 million and $12.5 million, respectively, and are not
included in the accompanying consolidated balance sheets. Included in
servicing expense are foreclosure losses of $1,023,444 and $728,703 at
March 31, 1997 and 1996, respectively.
AFI carries blanket bond coverage of $1,000,000 and errors and omissions
coverage of $1,200,000 at March 31, 1997.
13-12
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE E - NOTES PAYABLE
The following summarizes the Company's notes payable at March 31,
1997 1996
---- ----
Borrowings under a $17,000,000 line of
credit, collateralized by mortgage
loans and mortgage servicing rights,
interest at the agreement's default
rate of prime plus 4% (12.5% at March
31, 1997), due January 31, 1997. $289,749 $10,591,644
Borrowings under a $1,000,000 line of
credit, collateralized by mortgage
servicing rights, interest at 9.75%,
monthly payments of $20,517 with
final payment due July 1, 1999. 328,897 727,559
Note payable, collateralized by mortgage
servicing rights, interest at 10.25%,
with monthly payments of $4,758 and
final payment due August 1, 1998. 72,244 534,069
Note payable, collateralized by real
estate, interest at 11.75%, with
monthly payments of $8,812 and final
payment due March 28, 1998. 734,177 589,848
Note payable, collateralized by stock,
interest at 9.5%, with payment due
December 1, 1996. 35,000 43,399
Note payable, collateralized by note
receivable, interest at 9.5%, with
monthly installments of $5,556, with
final payment due January 1, 1998. 53,196 111,752
Note payable, collateralized by furniture
and fixtures, interest at prime plus
2% (10.5% at March 31,
1997), with monthly installments of
$1,389, with final payment due
February 27, 2001. 55,145 64,148
Note payable, collateralized by real
estate and mortgage servicing rights,
interest only at prime plus 6% (14.25%
at March 31, 1997), with
payment of $150,000 due September 30,
1996 and final payment due March 29,
1998. 200,019 350,000
Note payable, collateralized by
servicing rights, interest only at
prime plus 4%, with final payment due
September 30, 1996. - 400,000
---------- -----------
$1,768,427 $13,412,419
========== ===========
13-13
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE E - NOTES PAYABLE - Continued
Substantially all of the Company's mortgage loans held for sale, mortgage
loans held for investment and servicing rights (both purchased and
originated), and property and equipment are pledged to secure the notes
payable.
NOTE F - CAPITALIZED LEASE OBLIGATIONS
The Company has entered into various capital lease agreements relating
primarily to computer equipment and furniture. The future lease payments as of
March 31, 1997 are as follows:
Year Amount
---- ------
1998 $173,375
1999 13,815
--------
Total future lease 187,190
payments
Less amounts representing
interest at rates ranging
from 7% to 10% 8,304
--------
$178,886
The Company has entered into various operating lease agreements for branch
locations. The operating lease expense for fiscal 1997 and 1996 were
approximately $235,000 and $283,000, respectively. Most of the operating
leases are short-term in nature.
NOTE G - CAPITAL STOCK
On June 4, 1992, the Company completed an offering of 400,000 units at an
offering price of $4 per unit. In connection with the offering, the Company
issued warrants to the underwriter to acquire 40,000 units. The underwriter's
warrants are exercisable until June 1, 1997 at an exercise price of $6.60.
Each unit consisted of one share of Series B preferred stock, one Class A
warrant and one Class B warrant. The preferred stock bears a 10.5% cumulative
dividend rate. Total unpaid cumulative dividends at March 31, 1997 is
$230,580. The preferred stock is redeemable at the option of the Company upon
payment of one share of common stock plus all unpaid dividends. The Class A
warrants entitled the holder to purchase one share of the Company's common
stock for $3.50 until December 4, 1993, at which time the warrants expired.
The Class B warrants entitled the holder to purchase one share of the
Company's common stock for $10 until December 4, 1996, at which time they
expired.
13-14
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE G - CAPITAL STOCK - Continued
On March 29, 1993, the Company completed an offering of 900,000 shares of
common stock at an offering price of $4.25 per share. In addition, the Company
issued warrants to the underwriter to acquire 100,000 shares of common stock.
The warrants are exercisable until March 29, 1998, at an exercise price of
$5.95. None were exercised before the expiration date.
On September 30, 1996, the Company issued to three companies a total of
1,000,000 shares of common stock valued at $0.50 per share in exchange for
$500,000 of promissory notes, of which the Company had collected $200,000. In
December 1996, the Company was notified this private placement violated the
listing agreement with the American Stock Exchange (See Note L). Therefore,
all parties agreed to rescind the issue and, accordingly, the transaction is
not reflected in the 1997 financial statements. The $200,000 received is
recorded as notes payable on stock rescission.
On October 1, 1996, the Company entered into two consulting agreements with
two independent consulting firms to perform public relation services for the
Company. Each agreement provided the issuance of 250,000 shares of common
stock in exchange for the service. Although the consulting agreements were
finalized on October 1, 1996, the Company entered into a letter of agreement
on August 27, 1996 at which time the market value of the Company's common
stock was $1.1875. The resulting value of the service of $593,750 is reflected
as expense in the 1997 consolidated statement of operations as well as equity
on the consolidated balance sheet at March 31, 1997.
NOTE H - STOCK OPTION PLANS
The Company has key employee option and incentive stock option plans. Options
to acquire common stock are granted, at fair market value, on the date of
grant and expire in 2001 through 2006; 2,000,000 shares of common stock have
been reserved for issuance under the plans. The following schedule sets forth
information regarding option activity under these plans:
13-15
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE H - STOCK OPTION PLANS - Continued
Number Option price
------ ------------
Outstanding at April 1, 1995 601,900 $1.31-4.25
Granted 663,991 .81-1.25
Canceled (12,000) 1.31-4.25
-----------
Outstanding at March 31, 1996 1,253,891 .81-4.25
Granted 1,708,824 .50-2.00
Canceled (1,040,150) .81-4.25
Exercised (1,152,000) .50-1.50
-----------
Outstanding at March 31, 1997 770,565 .81-4.25
===========
As of March 31, 1997, 273,865 of the above options were exercisable.
On February 15, 1996, the Company entered into consulting agreements with four
companies. Under the terms of each agreement, the Company is to be provided
with financial and public relations services, including advice concerning
marketing surveys, investors profile information, investors' methods of
expanding investor support and increasing investor awareness of the Company
and its products and services. The term of each consulting agreement is six
months, commencing on February 15, 1996. As compensation for each consultant's
services, the Company has granted options to purchase 1,000,000 shares of
common stock to the consultants at an exercise price of $.50 per share.
Options to acquire 380,000 shares were exercised subsequent to March 31, 1996,
and have been reflected as a receivable from related party and an increase in
stockholders' equity of $190,000 in the accompanying 1996 financial
statements. The $190,000 was collected and the remaining 620,000 options were
exercised during the fiscal year ended March 31, 1997.
The disclosures required under Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based Compensation, are not material, and, in
light of the bankruptcy of the Company, are meaningless and may be misleading.
13-16
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE I - INCOME TAXES
The following are the components of income tax expense for the
years ended March 31,
1997 1996
---- ----
Current $ 2,160 $ -
Deferred 440,000 49,350
------- -------
$442,160 $ 49,350
======= =======
Federal $440,000 $ 40,517
State 2,160 8,833
------- -------
$442,160 $ 49,350
======= =======
The difference between actual income tax expense and expected income tax
benefit at the statutory federal income tax rate (34%) computes as follows:
1997 1996
---- ----
Expected income tax benefit at statutory rate $(1,576,063) $(1,065,977)
State income taxes, net (221,951) (140,094)
Amortization of excess cost over fair
value of assets acquired 178,431 17,242
Change in valuation allowance 2,276,190 1,183,660
Other, net (214,447) 54,519
------------ ------------
Actual income tax expense $ 442,160 $ 49,350
=========== ===========
13-17
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE I - INCOME TAXES - Continued
The following is the tax effect of temporary differences that give rise to the
significant portions of the deferred tax assets and liabilities at March 31,
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforward $3,600,104 $1,893,261
Valuation reserves 195,002 165,579
Basis difference in purchased
mortgage servicing rights - 343,481
Deferred state taxes 534,071 307,535
Other 1,965 2,383
-------- --------
Total deferred tax assets 4,331,142 2,712,239
Deferred tax liabilities:
Basis difference in excess cost
over fair value of assets - (178,432)
acquired
Basis difference in fixed assets - (37,330)
Deductible prepaid expenses - (3,664)
Other (2,211) (72)
-------- --------
Total deferred tax liabilities (2,211) (219,498)
4,328,931 2,492,741
Valuation allowance (4,328,931) (2,052,741)
---------- ----------
Net deferred tax asset $ - $ 440,000
========== =========
The Company has net operating loss carryforwards of approximately $10.6
million as of March 31, 1997. These net operating losses will expire in the
years ended March 31, 2009 through March 31, 2012.
Total deferred taxes consist primarily of the benefit of the net operating
loss carryforward. Management has established a valuation allowance of
$4,328,931 to reduce the total deferred tax asset to $0. As of March 31, 1997,
the Company has no recoverable income taxes previously paid.
13-18
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE J - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at March 31,
1997 1996
---- ----
Land $ 300,000 $ 300,000
Building 905,344 905,344
Furniture and fixtures 386,034 387,965
Office and computer equipment 957,646 930,667
Automobile 5,331 5,331
--------- ---------
2,554,355 2,529,307
Accumulated depreciation 1,250,553 810,952
--------- ---------
$1,303,802 $1,718,355
========= =========
NOTE K - OTHER INVESTMENT
The Company's other investment consists of a 10% common ownership interest and
a noninterest-bearing note receivable, which has been discounted to yield 9%
to the Company from Home Real Estate Services of Lincoln, Inc. (Home). This
investment results from the issuance of 62,500 shares of the Company's stock
and the sale of substantially all of the assets of Century Realty in December
1994.
Home is a residential real estate brokerage company located in Lincoln,
Nebraska. The Company's investment in Home is accounted for at cost of
approximately $125,000. The balance of the note receivable at March 31, 1996
was $112,336. During the fiscal year ended March 31, 1997, this investment was
sold and the note was collected.
NOTE L - CONTINGENCIES
In March 1994, the Company was named in a lawsuit filed by two former
stockholders and officers of the Company. The lawsuit alleges that the Company
breached an employment contract and violated securities laws, delaying the
ability of these former officers to sell common stock of the Company owned by
them, resulting in alleged losses of $200,000 and $300,000, respectively.
During 1997, the Company reached a settlement with the two former officers.
The Company settled the litigation by agreeing to issue the plaintiffs a total
of 300,000 shares of common stock. In turn, one of the parties pledged 100,000
shares as collateral for a note receivable of $214,000 due to the Company.
13-19
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE L - CONTINGENCIES - Continued
In connection with a review of the Company's servicing operation by Federal
Home Loan Mortgage Company (FHLMC), the Company was advised in January 1996
that unreconciled shortages existed in certain bank accounts used to
accumulate funds related to loans serviced by the Company for FHLMC. The
Company was advised that the shortage approximated $600,000 and that such
amounts should either be researched and resolved or otherwise paid by the
Company. The Company completed its research and determined the shortage to be
$694,000, which was paid during the year ended March 31, 1997.
On December 6, 1996, the Company was notified by the American Stock Exchange
(the Exchange) that trading in its common stock would be halted because the
Company had fallen below certain of the Exchange's continued listing
guidelines. On December 9, 1996, the Exchange also notified the Company that
it had issued 1,000,000 shares of its common stock, through a private
placement, prior to receiving notification from the Exchange that the
securities had been approved for listing. This is a violation of the
Exchange's listing agreement and is a factor considered by the Exchange when
reviewing a Company's continued listing eligibility (see Note G). On December
11, 1996, the Exchange informed the Company that it would proceed with a
filing of an application with the Securities and Exchange Commission to strike
the Company's common stock from listing and registration on the Exchange. The
Exchange subsequently chose to delist the stock.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, Disclosure About Fair
Value of Financial Instruments, and Financial Accounting Standards Board
Statement No. 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments, require that the Company disclose estimated
fair values for its financial instruments. Fair value estimates have been made
as of March 31, 1997 based on the current economic conditions, risk
characteristics of the various financial instruments, and other subjective
factors.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
that value:
Bank overdraft - The carrying amounts approximated fair value because of
the short maturity of these instruments.
Mortgage loans held for sale - The fair values of loans are determined by
outstanding commitments from investors or current investor yield
requirements calculated aggregately.
13-20
<PAGE>
Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997 and 1996
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Mortgage loans held for investment - The carrying amounts approximated fair
value since carried at lower of cost or market.
Notes payable - The fair values of the notes payable are estimated based on
discounted values of contractual cash flows using rates currently available
for similar loan types.
The estimated fair value and carrying value of the Company's financial
instruments are as follows at March 31, 1997:
Carrying value Fair value
-------------- ----------
Financial assets:
Mortgage loans held for sale $305,193 $305,000
Mortgage loans held for investment 12,713 13,000
Financial liabilities:
Bank overdraft 106,676 107,000
Notes payable 1,968,427 1,968,000
13-21
<PAGE>
Advanced Financial, Inc.
ITEM 8. CHANGES TO AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
On July 15, 1996, the Company filed a Form 8-K report stating that the
Company's and the Company's certifying accountant, KPMG Peat Marwick LLP,
mutually agreed to terminate their accountant-client relationship. On March 5,
1997, the Company filed a Form 8-K report stating that the Company had agreed to
engage Grant Thornton LLP as its independent auditors.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
----------------------------------------------------
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
----------------------------------------------------------
Directors and Executive Officers.
- ---------------------------------
As of March 31, 1997, the following persons served as directors and
executive officers of the Company.
NAME AGE POSITION
- --------------------------------------------------------------------------------
William E. Moffatt 44 CEO/President
Thomas C. Schleich 35 Director
Daniel Starczewski 49 Director
William B. Morris 40 Secretary/Sr.
Vice President
William E. Moffatt. Mr. Moffatt was appointed President of the Company and
its subsidiary on July 25, 1996 and served as a Director of the Company from
September 6, 1996 until he resigned from both positions on May 20, 1997. He
received a BBA degree in accounting/marketing from the University of Texas at
Austin in 1975. From 1989 to 1995, he was Executive Vice-President of Capital
Markets of Plaza Home Mortgage Corporation in Santa Ana, California where he was
responsible for all functions of secondary marketing, shipping and product
development. He has also been employed with numerous other mortgage companies,
including First Northern Bank in Garden City, New York from 1988 to 1989 (Senior
Vice President/Secondary Marketing), Liberty Mortgage Company in Oklahoma City,
Oklahoma from 1987 to 1988 (Senior Vice President/Loan Production), Commonwealth
Mortgage Corp. of America in Houston, Texas from 1986 to 1987 (Vice
President/Secondary Marketing and National Refinance), and Colwell Financial
Corp. in Los Angeles, California from 1984 to 1986 (Senior Vice
President/Administration).
Thomas G. Schleich. Mr. Schleich was a Director of the Company from
January, 1995 until his resignation in May, 1997. Mr. Schleich graduated from
Nebraska Wesleyan University in 1985 with a B.S. degree in Business
Administration. He graduated from the University of Nebraska law school in 1988
with a J.D. degree. From 1989 to 1993, he was president of Commercial Investment
Properties in Lincoln, Nebraska. From 1993 to the present, he has been the Chief
Operating Officer of Home Real Estate in Lincoln, Nebraska. In addition to being
a member of the Nebraska State Bar Association, he is also licensed by the State
of Nebraska as a Real Estate Broker.
Daniel Starczewski. Mr. Starczewski was a Director of the Company from
September 6, 1996 until the confirmation of the Company's bankruptcy plan of
reorganization on November, 1998. Mr. Starczewski has been president of Investor
Resource Services, a public and investor relations firm, since 1993. After
working for several years as an office manager, Mr. Starczewski started an
accounting partnership in
Page - 14
<PAGE>
Advanced Financial, Inc.
Winston-Salem, North Carolina in 1975. Currently he serves on the Board of
Directors of both Atlantis Group, Inc. and Tollgate, Inc.
William B. Morris. Since 1991, Mr. Morris has been Secretary and a Director
of the Company and Mr. Morris is the only officer to continue with the Company
after the Company filed for relief under Chapter 11 of the Bankruptcy Code. On
October 14, 1997, although Mr. Morris did not stand for re-election at the
meeting of shareholders on September 6, 1996, the Board of Directors elected Mr.
Morris to fill a Director vacancy for the fiscal year 1998. At that time, the
Board of Directors elected Mr. Morris to the office of Chairman. From 1991 to
1996, Mr. Morris participated with a former officer and director, Mr. Norman L.
Peterson, in a partnership called Lancaster Partners, Shawnee, Kansas, which
provided consulting services to small to mid-sized companies on raising capital
and becoming publicly traded. From 1984 to 1989, Mr. Morris was an account
executive at the investment banking firm of Stuart James & Company, Denver,
Colorado, and from 1983 to 1984, Mr. Morris was an account executive at the
venture capital brokerage firm R.B. Marich, Inc. in Denver, Colorado.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 and the related
regulations require the Company's directors, executive officers and persons who
own more than ten percent of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of their beneficial ownership
of the Company's Common Stock and other equity securities of the Company. In
addition, such persons are required to furnish the Company with copies of all
such filings.
To the Company's knowledge, based solely upon a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended March 31, 1997, all Section
16(a) filing requirements applicable to its directors, executive officers and
ten percent beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table sets forth information regarding compensation paid by
the Company in each of the last three years to the Chief Executive Officer in
the 1995, 1996 and 1997 fiscal years. The Chief Executive Officer was the only
executive officer to receive compensation in excess of $100,000 in any of those
fiscal years.
Page - 15
<PAGE>
Advanced Financial, Inc.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation (1)(2) Awards Payouts
-------------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name and Annual Stock LTIP All Other
Principal Compensation Award(s) Options/ Payouts Compensation
Position Salary ($) Bonus ($) ($) ($) SARs(#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
Norman L. March 31,
Peterson 1997 $ 65,272(4) -0- 500 -0- 0 -0- -0-
Chairman
of the Year Ended
Board March 31,
President 1996 $120,000 -0- 2,500 -0- 25,000(3) -0- -0-
and Chief
Executive Year Ended
Officer March 31.
1995 $120,000 -0- -0- -0- -0 -0- -0-
William E.
Moffatt Year Ended
Chairman March 31,
of the 1997 $157,565 -0- 500 -0- 450,000(3) -0- -0-
Board
President
and Chief
Executive
Officer
</TABLE>
(1) Amounts shown set forth all cash compensation earned by each of the
named individuals in the years shown.
(2) While the named individuals received perquisites or other personal
benefits in the years shown, in accordance with applicable regulations,
the value of these benefits are not indicated since he did not exceed in
the aggregate the lesser of $25,000 or 25% of the individual's salary
and bonus in any year.
(3) These options have expired prior to the filing of this report as a
result of the termination of the executive officers.
(4) Pursuant to an agreement between Mr. Peterson and the Company and in
connection with the termination of Mr. Peterson's employment, the
Company agreed to pay Mr. Peterson $2,000 a month for six months
beginning on December 1, 1996 and health benefits for one year beginning
on December 1, 1996.
Page - 16
<PAGE>
Advanced Financial, Inc.
OPTIONS/SAR GRANTS IN YEAR ENDED MARCH 31, 1997
(a) (b) (c) (d) (e)
% of Total
Options/SARs Granted
Options/SARs to Employees Exercise or Base Expiration
Name Granted (#) in Fiscal Year Price ($/Sh) Date
---- ----------- -------------- ------------ ----
William E. Moffatt 450,000 66.18% 1.00 04/08/07(1)
Norman L. Peterson 0 0% 0.00 N/A
(1) While the expiration date for these options was scheduled to occur in
2007, these options expired early as a result of termination of Mr.
Moffatt's employment.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISED IN YEAR ENDED
MARCH 31, 1997 AND OPTION/SAR VALUES AS OF MARCH 31, 1997
(a) (b) (c) (d) (e)
Values of
Unexercised
Number of In-the-Money
Unexercised Options/SARs at
Shares Options/SARs at FY-End ($)
Acquired on Value FY-End (#) Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Norman L. Peterson -0- -0- 0/0 $-0-
William E. Moffatt -0- -0- 450,000/0 $-0-
</TABLE>
Compensation of Directors
Directors received a fee of $250 for each of two board meetings attended
during the first half of fiscal 1997. The Company suspended payments for board
meetings which occurred in the second half of fiscal 1997.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company entered into an employment agreement with William E. Moffatt
on April 8, 1996. The agreement required the Company to pay to Mr. Moffatt a
base salary of $165,000 for an initial 12 month period and at a rate of $180,000
per year for each fiscal quarter thereafter if the preceding quarter was
profitable. If a merger transaction was completed which created a larger
organization, then the base salary would increase to $200,000 per year. Mr.
Moffatt was to receive 5 weeks of paid vacation per year and was to be
reimbursed for all travel expenses associated with commuting from his home in
California to the Company's offices in Shawnee, Kansas. If terminated, Mr.
Moffatt was to receive 4 months severance to be paid based on a pro rata share
of his existing salary plus benefits. Mr. Moffatt was also granted an option to
purchase up to 450,000 shares of the Company's Common Stock at an exercise $1.00
per share which vested at a rate of 37,500 shares each month for a period of 12
months. Mr. Moffatt resigned on May 20, 1997 and was paid eight weeks of
severance pay and the Company agreed to pay medical and dental benefits for six
months in exchange for his agreement not to pursue his rights under his
employment contract. Pursuant to his employment contract, Mr. Moffatt's option
expired unexercised 90 days from the date of his resignation.
Page - 17
<PAGE>
Advanced Financial, Inc.
Mr. Peterson resigned from the Company on November 21, 1996. As a condition
of his resignation the Company entered into an agreement with Mr. Peterson to
pay Mr. Peterson a severance of $12,000 to be paid in payments of $2,000 a month
for six months starting December 1, 1996. The Company agreed to continue paying
health benefits for a one year period beginning December 1, 1996. The Company
agreed to indemnify Mr. Peterson from adverse claims made by two previous
officers which were pending in the Nebraska State Court and Nebraska Federal
District Court. This litigation was subsequently settled between the parties on
January 31, 1997. Mr. Peterson and the Company agreed to waive and mutually
release each other from any and all claims which they may have against each
other, if any which existed at that time.
The Company has not entered into any other employment contract with any
executive officer or any other contract with respect to the resignation,
retirement or any other termination of such executive officer's employment with
the Company or its subsidiary or resulting from a change-in-control of the
Company or a change in any executive officer's responsibility following a
change-in-control other than those specified above.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of July 26, 1996, the record date for
determining the shareholders of the Company entitled to vote at the shareholders
meeting held September 6, 1996, by: (i) each director; (ii) each executive
officer named in the Summary Compensation Table; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Company
to be beneficial owners of more than five percent of its Common Stock. The
percentage of ownership is based on 3,875,476 shares outstanding on the July 26,
1996 record date. Pursuant to the Company's Plan of Reorganization, on the
effective date of the Plan of Reorganization, all existing shares will be
canceled and each shareholder of record on the effective date shall receive such
shareholder's pro rata share of three hundred thousand (300,000) new shares of
Common Stock of the Company. All currently outstanding options and warrants will
be canceled. See Item 1: "DESCRIPTION OF BUSINESS - SUBSEQUENT EVENTS."
Beneficial Ownership (1)
Beneficial Owner Number of Shares Percent of Total
- --------------------------------------------------------------------------------
Peterson & Sons
5425 Martindale
Shawnee, KS 66218 887,462(2) 22.9%
William B. Morris
5425 Martindale
Shawnee, KS 66218 756,263(3) 18.8%
Mark J. Peterson
770 N. Cotner, #402
Lincoln, NE 68505 887,462(4) 22.9%
Norman L. Peterson
5425 Martindale
Shawnee, KS 66218 1,073,010(5) 26.7%
Page - 18
<PAGE>
Advanced Financial, Inc.
Lancaster Partners
5425 Martindale
Shawnee KS, 66218 267,600(6) 6.9%
Steven J. Peterson
5425 Martindale
Shawnee, KS 66218 1,026,016(7) 25.6%
Thomas G. Schleich
225 N. Cotner #107
Lincoln, NE 68505 75,000(8) 3.0%
All Executive officers
and directors as a group (7 persons) 1,301,125(9) 23.1%
(1) This table is based upon information obtained by the Company's
transfer agent listing the shareholders of record on July 26, 1996,
and Schedules 13D and 13G filed with the Securities and Exchange
Commission (the "Commission"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, each of the stockholders named in this table has sole
voting and investment power with respect to the shares indicated as
beneficially owned.
(2) Includes 267,600 shares controlled by Peterson & Sons Holding Company
as 50% partners in Lancaster Partners, which owns 267,600 shares.
Subsequent to the record date of July 26, 1996, Lancaster Partners was
dissolved and 50% of the shares, or 133,800 shares, were issued
directly to Peterson & Sons Holding Company. Peterson & Sons Holding
Company is 76% controlled by Mark J. Peterson, his brother, Steven J.
Peterson, and their father Norman L Peterson, all of whom are former
officers and directors of the Company.
(3) Consists of 351,163 shares owned personally and 276,600 shares
controlled by William B. Morris as 50% partner of Lancaster Partners
which owns 267,600 shares. Subsequent to the record date of July 26,
1996, Lancaster Partners was dissolved and 50% of the shares, or
133,800 shares, were issued directly to William B. Morris. Also
included is an option to purchase 137,500 shares of common stock which
will be canceled on the effective date of the Plan of Reorganization..
(4) Consists of 887,462 controlled by Peterson & Sons Holding Company.
Peterson & Sons Holding company is 24% owned by Mark J. Peterson.
(5) Consists of 887,462 shares controlled by Peterson & Sons Holding
Company of which Norman L. Peterson disclaims all beneficial
ownership. Also includes options to acquire 137,500 shares all of
which subsequently expired.
(6) Lancaster Partners was 50% owned by William B. Morris and 50% owned by
Peterson & Sons Holding Company. Subsequent to the record date of July
26, 1996, Lancaster Partners was dissolved and William B. Morris and
Peterson & Sons Holding Company each received 133,800 shares directly.
(7) Consists of 887,462 shares controlled by Peterson & Sons Holding
Company. Peterson & Sons Holding company is 24% owned by Steven J.
Peterson. Also includes an option to purchase 137,500 shares of common
stock, all of which subsequently expired.
Page - 19
<PAGE>
Advanced Financial, Inc.
(8) Includes 62,500 shares of common stock held by Home Real Estate Service
of Lincoln, Inc., a private corporation controlled by the family of Mr.
Schleich. Also, includes options to purchase 12,500 shares of common
stock, which will be canceled on the effective date of the Plan of
Reorganization.
[(9) Includes only shares actually issued and outstanding.]
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On December 20, 1994, the Company sold its Century Realty Central, Inc.
Lincoln, Nebraska subsidiary to Home Real Estate Service of Lincoln, Inc.
("Home") for $250,000, consisting of $50,000 cash and a non-interest bearing
promissory note for $200,000. The promissory note was payable in 36 monthly
installments with the entire balance due January 1, 1998. The note was unsecured
but was guaranteed by Austin Realty, Inc., whose vice president is Mr. Thomas G.
Schleich, a former director of the Company. The Company owns 10% of the issued
and outstanding common stock of Home. The family of Thomas G. Schleich controls
Home. The note was paid in full as described below.
On November 11, 1996, the Company entered into an agreement to sell its
10% ownership interest in Home back to Home pursuant to a Stock Redemption
Agreement entered into by the parties on December 20, 1994. Pursuant to the
terms of the Stock Redemption Agreement, the purchase price was determined to be
$141,669 which was paid to the Company in exchange for its 10% ownership of Home
on March 1, 1997. In addition, Home paid the remaining balance of the
non-interest bearing promissory note due the Company. On February 1, 1997, the
Company sold its loan production operations and therefore no longer pays Home a
monthly rental for the use of the three offices in the Lincoln Nebraska area.
PART IV
-------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
*2.1 First Amended Joint Plan of Reorganization dated July 29, 1998 of Advanced
Financial, Inc. and AFI Mortgage Corp. (Exhibit 2.1 to the Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 25,
1998).
*3.1 Articles of incorporation and by-laws (Exhibit 3.2 to Registration
Statement on Form S-2 of Advanced Financial, Inc. filed with the Securities and
Exchange Commission on January 31, 1993 (No. 33-45406)).
*4.1 Instruments Defining Rights of Holders (Exhibit 4.0 to Registration
Statement on Form S-2 of Advanced Financial, Inc. filed with the Securities and
Exchange Commission on January 31, 1993 (No. 33-45406)).
4.2 Variable Rate Commercial Note Secured With Loan Servicing Rights dated July
27, 1994 made by AFI Mortgage Corp., successor to Continental Mortgage, Inc.
("AFIM"), to the order of Commercial Federal Bank, successor to Railroad Savings
Bank, FSB ("Lender") and Agreement dated October 11, 1996 between Advanced
Financial, Inc. and AFIM, as Borrower, and Lender and Matrix Financial Servicers
Corporation
4.3 Variable Rate Commercial Balloon Note for Purchase of Loan Servicing Rights
dated December 31, 1993 made by AFI Mortgage Corp., successor to Continental
Mortgage, Inc. ("Borrower"), to the order of Argo Federal Savings Bank, FSB
("Lender") and Security Agreement For Sale of Mortgage Loan Servicing Rights
dated December 31, 1993 between Borrower and Lender.
*10.1 Commercial Real Estate Contract with Standard Builders (Exhibit 10.1 to
Registration Statement on Form S-2 of Advanced Financial, Inc. filed with the
Securities and Exchange Commission on February 11, 1993 (No. 33-58186)).
Page - 20
<PAGE>
Advanced Financial, Inc.
*10.2 Contract for Services between the Company and Rollie C. Johnson (Exhibit
10.1 to Registration Statement on Form S-2 of Advanced Financial, Inc. filed
with the Securities and Exchange Commission on February 11, 1993 (No.
33-58186)).
10.3 Real Estate Mortgage to Secure a Loan from Citizen's National Bank of Fort
Scott ("Bank") dated February 3, 1997 made by AFI Mortgage Corp., as Mortgagee,
to Bank and accompanying notes as amended.
10.4 Second Mortgage dated March 29, 1996 made by Advance Financial, Inc. and
AFI Mortgage Corp., as Mortgagor, to First Mortgage Investment Co., as
Mortgagee.
21.1 List of Subsidiaries
27.1 Financial Data Schedule
* Asterisk indicates exhibits incorporated by reference as indicated, all other
exhibits are filed herewith.
(b) Reports on Form 8-K
-------------------
Current Report dated March 5, 1997 on Form 8-K was filed with the Securities and
Exchange Commission on March 6, 1997, pursuant to Item 4 of that form stating
that the Company had agreed to engage Grant Thornton LLP as the Company's
independent auditors.
Page - 21
<PAGE>
Advanced Financial, Inc.
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED FINANCIAL, INC.
(Registrant)
Dated: February 16, 1999 By:/s/William B. Morris
---------------------
William B. Morris
Chairman
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/William B. Morris Chairman, Secretary, February 16, 1999
- -------------------- Principal Accounting
William B. Morris Officer
VARIABLE RATE COMMERCIAL NOTE
SECURED WITH LOAN SERVICING RIGHTS
$1,000,000.00 June 27, 1994
This Variable Rate Commercial Note Secured with Loan Servicing Rights
(hereinafter "Note") is made as of the date stated above by CONTINENTAL
MORTGAGE, INC., with a mailing address of 5425 Martindale, Shawnee, Kansas
66218, (hereinafter referred to as "Borrower"), to the order of RAILROAD SAVINGS
BANK, F.S.B., a corporation organized under the laws of the United States of
America (hereinafter referred to as "Lender"), with a mailing address of 110 S..
Main, Wichita, Kansas 67202.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of Lender,
at Lender's office at the address stated above or such other place as Lender may
from time to time designate in writing to Borrower, the principal sum of ONE
MILLION DOLLARS ($1, 000, 000. 00), together with interest thereon as provided
below, all in lawful U.S. dollars.
1. Payments. Borrower shall make 59 consecutive monthly installments of
principal and interest in the amount of TWENTY THOUSAND FIVE HUNDRED SEVENTEEN
DOLLARS ($20,517.00) commencing on August 1, 1994, and continuing on the 1st day
of each month thereafter through and including June 1, 1999, and a final payment
on July 1, 1999 of all outstanding principal and interest then due.
2. Interest. Initially this Note shall bear interest at the rate of EIGHT AND
THREE QUARTERS PERCENT (8.75%) per annum. Thereafter the amount of the monthly
payments and interest rate shall be adjusted in the following manner:
A. The interest rate Borrower shall pay may change on September 1, 1994,
and on the same day of each month thereafter (hereinafter referred to as the
"Change Date").
B. Beginning with the first Change Date, the adjustable interest rate will
be based on the prime rate of interest quoted in the Southwest Addition of the
Wall Street Journal ("Index") with the most recent Index figure available as of
the date 10 days before each Change Date being called the "Current Index." If
the Index is no longer available, Lender shall choose a new index that is based
on comparable information. Lender will give Borrower notice of this choice.
C. Before each Change Date, Lender shall calculate the new interest rate by
adding one and one half percent (1.5%) to the Current Index. This amount will be
the new interest rate until the next Change Date. Borrower's payment will not
change with changes in interest rate. Amortization of principal shall adjust
with each interest rate change.
<PAGE>
3. Application of Payments. All payments shall be applied in the following order
of priority: (a) first, toward payment of any and all late charges due pursuant
to paragraph 11 herein, (b) next, toward payment of other fees and sums due to
Lender pursuant to any other provision hereof or pursuant to the provisions of
any other documents securing repayment of this Note, (c) next, toward payment of
interest which has accrued on the outstanding principal balance under this Note
and which is due and payable; and (d) last, toward payment of the outstanding
principal balance due under this Note.
4. Paydown. In the event Borrower sells any of the servicing rights securing
this Note, Borrower agrees to pay to LENDER a sum equal to that which, when
credited to the principal balance, would reduce the principal amount outstanding
so that the collateral value is equal to or more than One Hundred Twenty Five
Percent (125%) of the principal balance.
5. Prepayments. This Note may be prepaid, in whole or in part, at any time,
without penalty.
6. Events of Defaults. Each of the following shall constitute a "default" by
Borrower:
A. If Borrower fails to pay any sum within fifteen (15) days after it
becomes due, or if Borrower shall in any other way be in default under this
Note, the Security Agreement, then the entire unpaid principal balance of this
Note, together with interest accrued and with all other sums due or owned by
Borrower under this Note, shall at Lender's option and without notice to
Borrower, become due and payable immediately. After the default and acceleration
and until Borrower's indebtedness to Lender is paid in full, including the
period following entry of any judgement, the interest shall accrue annually at
the then current interest rate pursuant to paragraph 7 herein. Borrower shall
also be liable for reasonable attorneys' fees incurred for collection of the
Note in accordance with applicable law and the cost of any title search incurred
by Lender in connection with the proceedings. Payment of these amounts may be
enforced and recovered by the entry of judgment on this Note and the issuance of
execution on the judgement; or
B. Failure to maintain COLLATERAL Value equal to or greater than One
Hundred Twenty-five (125%) percent of the balance of principal outstanding under
this NOTE during the term of this NOTE, and BORROWER'S failure, after written
demand of LENDER, to remit to LENDER within thirty (30) days after receipt of
LENDER'S demand, a sum equal to that required which, when credited to the
outstanding principal balance under this NOTE shall reduce said principal amount
outstanding so that the Collateral Value is equal to or more than one Hundred
Twenty-five (125%) Percent of the Principal Balance; or
2
<PAGE>
C. Borrower's failure to maintain Seller/Servicer status with FNMA or FHLMC
will result in LENDER having the option to demand payment of any and all of the
outstanding principal and interest balance as of the date BORROWER no longer has
Seller/Servicer status with FNMA or FLMC or GNMA.
D. The occurrence of any other DEFAULT (as that term is defined in the
SECURITY AGREEMENT or any of the LOAN DOCUMENTS) that is not cured within any
grace period therein contained. LENDER shall be required to give notice of
monetary defaults under (a) above, but not more often than two (2) times within
any twelve (12) month period. Thereafter, BORROWER'S failure to pay any amount
within thirty (30) days after the same becomes due and payable under this NOTE,
whether interest or principal or both and whether as a monthly installment or on
the MATURITY DATE, shall in and of itself constitute an EVENT OF DEFAULT
hereunder without additional notice. For purposes of this Paragraph, notice
shall be deemed to have been delivered two (2) business days after mailing by
first class United States mail, postage prepaid to the addresses set forth
above.
7. Default Interest Rate. While any DEFAULT exists, BORROWER promises to pay
interest on the unpaid principal balance of the Loan from time to time, at a
rate (the "DEFAULT INTEREST RATE") equal to the NOTE INTEREST RATE plus FIVE
(5%) PERCENT per annum, and all unpaid interest that has accrued under this
NOTE, whether before or after the occurrence of the DEFAULT, shall be paid at
the time of, and as a condition precedent to, the curing of the DEFAULT. While
any DEFAULT exists, LENDER is expressly authorized to apply payments made under
this NOTE as it may elect against (a) any or all amounts, or portions thereof,
then due and payable hereunder to under any of the other LOAN DOCUMENTS, (b) the
unpaid principal balance of the Loan, or (c) any combination thereof.
8. Security for Payment. Payment of this NOTE is secured by one or more
Guarantee Agreements and a SECURITY AGREEMENT (the "SECURITY AGREEMENT") of even
date herewith from BORROWER to LENDER, providing LENDER a Security Interest in
the mortgage loan servicing rights related to the mortgage loan pools as
described in Exhibit "A" to the SECURITY AGREEMENT, the "COLLATERAL" and by
certain other "LOAN DOCUMENTS" (as the term "LOAN DOCUMENTS" is defined in
Exhibit "B" attached hereto and by reference incorporated herein). A default in
payment hereunder, or a default in any of the other above referenced documents
executed in connection with this transaction, shall constitute default
hereunder.
9. Acknowledgment Agreements. Contemporaneous with the execution of this Note,
Borrower has executed an Acknowledgement Agreement between Borrower, Lender and
Federal Home Loan Mortgage Corporation (FHLMC), by which Borrower and FHLMC
acknowledge Lender's security interest in the Collateral created hereunder, as
well as those Uniform Commercial Code ("UCC") filing statements acknowledging,
as a matter of public record, Lender's security interest in the
3
<PAGE>
Collateral. Borrower will cooperate with Lender, to the extent reasonably
requested by Lender, in executing such other and further documentation
acknowledging Lender's security interest in the Collateral as deemed reasonably
necessary by Lender to perfect the same.
Contemporaneous with the execution of this Note, Borrower has executed an
Acknowledgement Agreement between Borrower, Lender and Federal National Mortgage
Association (FNMA), by which Borrower and FNMA acknowledge Lender's security
interest in the collateral created hereunder, as well as those Uniform
Commercial Code ("UCC") filing statements acknowledging, as a matter of public
record, Lender's security interest in the Collateral. Borrower will cooperate
with Lender, to the extent reasonably requested by Lender, in executing such
other and further documentation acknowledging Lender's security interest in the
Collateral as deemed reasonably necessary by Lender to perfect the same.
10. Guaranty Agreement. Advance Financial, Inc., a Delaware corporation, the
parent company of Borrower, will be required to execute and deliver to Lender a
Corporate Guarantee of Note and Indemnification of Guarantor for Benefit of
Lender concurrently with the execution of this NOTE.
11. Subordination Agreement. Borrower will consent to the execution of a
Intercreditor and Subordination Agreement between Bank One, Texas, N.A. and
Lender.
12. Other Security. Borrower will be required to maintain balances in an amount
equal to 10% of the outstanding loan amount. Any shortfall in the balances will
be billed annually by multiplying the shortfall amount times the average note
rate times 110%. Borrower will be given credit to be applied against the
principal balance based on excess compensating balances or escrow balances
maintained with Lender. The credit will be computed monthly and paid quarterly.
The credit will be computed by using Lender's current "Statement Savings Rate."
13. Acceleration of Maturity. At any time during the existence of any DEFAULT,
and at the option of LENDER, the entire unpaid principal balance under this
NOTE, together with interest accrued thereon and all other sums due from
BORROWER hereunder or under any of the other LOAN DOCUMENTS, shall become
immediately due and payable with notice.
14. Late Charges. Borrower agrees that if any payment shall be overdue for more
than fifteen (15) days, in addition to any amounts required to be paid under
paragraph 7 herein, Borrower shall pay to Lender a late payment charge equal to
five percent (5%) of the late amount as compensation for additional collection
efforts. This shall not be construed to obligate Lender to accept any overdue
installment nor to limit Lender's rights and remedies for Borrower's default as
set forth in this Note.
4
<PAGE>
15. Attorneys' Fees. If any attorney, in-house or outside, is engaged (a) to
collect the indebtedness evidenced hereby or due under the other LOAN DOCUMENTS,
where a Default exists, whether or not legal proceedings are thereafter
instituted by LENDER; (b) to represent LENDER in any bankruptcy, reorganization,
receivership, or other proceedings affecting creditor's rights and involving a
claim under this NOTE: (c) to protect the lien of any other proceedings
whatsoever in connection with any other the LOAN DOCUMENTS or the SECURITY
AGREEMENT, THEN BORROWER shall pay to LENDER all reasonable attorneys' fees and
expenses in connection therewith, in addition to all other amounts due
hereunder.
16. Nature of Remedies. LENDER'S remedies under this NOTE, the SECURITY
AGREEMENT, the GUARANTY AGREEMENT and all of the other LOAN DOCUMENTS shall be
cumulative and concurrent and may be pursued singly, successively, or together
against any or all of BORROWER, the SECURITY AGREEMENT, and any other security
described in the LOAN DOCUMENTS or any portion or combination of such COLLATERAL
and other security, and LENDER may resort to every other right or remedy
available at law or in equity without first exhausting the rights and remedies
contained herein, all in LENDER'S sole discretion. Failure of LENDER, for any
period of time or 'on more than one occasion, to exercise its option to
accelerate the MATURITY DATE shall not constitute a waiver of the right to
exercise the same at any time during the continued existence of the DEFAULT or
in the event of any subsequent DEFAULT. LENDER shall not by any other omission
or act be deemed to waive any of its rights or remedies hereunder unless such
waiver is in writing and signed by LENDER, and then only to the extent
specifically set forth therein. A waiver in connection with one event shall not
be construed as continuing or as a bar to or as a waiver of any right or remedy
in connection with a subsequent event.
17. Notices. Except as otherwise hereinabove provided, any notice that LENDER or
BORROWER may desire or be required to give to the other shall be in writing and
shall be mailed or delivered to the intended recipient thereof at its address
hereinabove set forth or at such other address as such intended recipient may,
from time to time, by notice in writing, designate to the sender pursuant
hereto. Any such notice shall be deemed to have been delivered to and received
by BORROWER two (2) business days after mailing by United States registered or
certified mail, return receipt requested, or when delivered in person. Unless
specifically required herein, notice of the exercise of any option granted to
LENDER by this NOTE is not required to be given.
18. Financials. Borrower is required to provide to Lender audited financial
statements at least annually beginning with 1994 financial statements to be
delivered to Lender no later than May 31, 1995 and publicly filed financial
statements on a quarterly basis beginning with the quarter ending December 31,
1994.
5
<PAGE>
19. Governing Law. The place of negotiation, execution, delivery, and payment of
this NOTE, the location of the PROPERTY, and the place of performance under the
LOAN DOCUMENTS being the STATE OF KANSAS, this NOTE, the SECURITY AGREEMENT, and
the other LOAN DOCUMENTS shall be governed by and construed in accordance with
the laws of the State of Kansas.
20. Waiver, Consents, Etc. BORROWER, any Guarantor hereof, and any and all
others who are now or may become liable for all or part of the obligations of
BORROWER under this NOTE (all of the foregoing being referred to herein
collectively as "OBLIGORS") agree to be jointly and severally bound hereby and
jointly and severally (a) waive and renounce any and all redemption and
exemption rights and the benefit of all valuation and appraisal privileges
against the indebtedness evidenced hereby or by any extension or renewal hereof;
(b) waive presentment and demand for payment, notices of nonpayment and of
dishonor, protest of dishonor, and notice of protest; (c) waive all notices in
connection with the delivery and acceptance hereof and all other notices in
connection with the performance, default, or enforcement of the payment hereof;
(d) agree that the liability of each of OBLIGORS shall be unconditional and
without regard to the liability of any other person or entity for the payment
hereof, and shall not in any manner be affected by any indulgence or forbearance
granted or consented to by LENDER with respect hereto; (e) consent to any and
all extensions of time, renewals, waivers, or modification that may be granted
by LENDER with respect to the payment or other provisions hereof, and to the
release of any security at any time given for the payment hereof, or any part
thereof, with or without substitution, and to the release of any person or
entity liable for the payment hereof; and (f) consent to the addition of any and
all other makers, endorsers, guarantors, and other OBLIGORS for the payment
hereof, and agree that the addition of any such OBLIGORS or security shall not
affect the liability of any of OBLIGORS for the payment hereof. LENDER agrees to
provide notice of the happening of events under Subsection (e) hereof, to any
Guarantor of this NOTE.
21. Interpretation. The headings of sections and paragraphs in this NOTE are for
convenience only and shall not be construed to limit or define the content,
scope, or intent of the provisions hereof. As used in this NOTE, the singular
shall include the plural, and masculine, feminine, and neuter pronouns shall be
fully interchangeable, where the context so requires. If any provision of this
NOTE, or any paragraph, sentence, clause, phrase, or word, or the application
thereof, in any circumstances, is adjudicated to be invalid, the validity of the
remainder of this NOTE shall be construed as if such invalid part were never
included herein. Time is-of the essence of this NOTE. This Agreement, if in
conflict with any other agreement, executed in connection with this transaction,
the documents when taken together, shall be construed to give LENDER the highest
right or benefit. This NOTE incorporates the terms of the SECURITY AGREEMENT,
GUARANTY AGREEMENT and any other LOAN DOCUMENTS and shall be construed with
6
<PAGE>
their terms.
22. Subsequent Holders. Upon any endorsement, assignment, or other transfer of
this NOTE by LENDER or by operation of law, the term "LENDER," as used herein,
shall mean the endorsee, assignee, or other transferee or successor to LENDER
then becoming the holder of this NOTE.
23. Subsequent Obligors. This NOTE and all provisions hereof shall be binding on
all persons claiming under or through BORROWER. The terms "BORROWER" and
"OBLIGORS" as used herein, shall include the respective successors, assigns,
legal and personal representatives, executors, administrators, devisees,
legatees, and heirs of BORROWER and any other OBLIGORS.
24. Valuation. No less than annually, BORROWER will obtain from Hamilton Carter
Smith, or such other independent, third party valuation firm as LENDER shall
approve in writing, a written valuation appraisal, disclosing the market value
of the COLLATERAL. BORROWER shall submit such market value appraisal to LENDER
no later than the last business day of each year, beginning in 1994. The
valuation appraisal shall be subject to the provisions of Paragraph 6B hereof.
25. Waiver of Jury Trial. The parties hereby waive trial by jury.
26. Modification. This NOTE may only be modified in writing, executed by
authorized representatives of the parties.
IN WITNESS WHEREOF, CONTINENTAL MORTGAGE, INC., a Nebraska corporation,
NOT personally, but as aforesaid has caused these presents to be signed by its
Corporate President, and its corporate seal to be hereunto affixed and attested
by its Corporate Secretary, as of this 27th day of June, 1994.
ATTEST: CONTINENTAL MORTGAGE, INC.
By: /s/ Cindy L. Williams By:/s/ William B. Morris
------------------------ ----------------------
Its: Secretary Its: President
7
AGREEMENT
This Agreement is entered into effective as of the 11th day of October,
1996, by and between ADVANCED FINANCIAL, INC., a Delaware corporation, and AFI
MORTGAGE CORPORATION, a Nebraska corporation, formerly known as Continental
Mortgage, Inc., a Nebraska corporation (collectively "Borrower"), COMMERCIAL
FEDERAL BANK, A FEDERAL SAVINGS BANK, successor-in-interest by merger with
Railroad Savings Bank, F.S.B. of Wichita, Kansas ("Lender") and MATRIX FINANCIAL
SERVICES CORPORATION, an Arizona corporation ("Buyer").
R E C I T A L S:
A. On or about June 27, 1994, Borrower entered into a loan transaction with
Lender evidenced by a Variable Rate Commercial Note ("Note") in the original
principal amount of One Million Dollars ($1,000,000.00), which provides for
monthly payments of principal and interest in the amount of Twenty Thousand Five
Hundred Seventeen Dollars ($20,517.00).
B. The payment and performance obligations of the Note are secured by a
Security Agreement for Mortgage Loan Servicing Rights, one or more Financing
Statements, and one or more Guarantee Agreements dated on or about June 27,
1994. The Security Agreement and Financing Statements convey to Lender a first
and prior lien security interest in certain mortgage loan servicing rights
generally described on Exhibit "A" attached hereto ("Lender's Original
Collateral"). The Note, Security Agreement, Financing Statements, and Guarantee
Agreements are collectively referred to herein as "Loan Documents."
C. Borrower is in default in the payment and performance obligations under
the Loan Documents and has requested that Lender grant to it certain
accommodations, which Lender is willing to do on the terms and conditions of
this Agreement.
D. Borrower has also requested that Lender agree to substitute other
collateral in place of its first and prior lien position with respect to
Lender's Original Collateral, in connection with Borrower's proposed sale of the
same (together with other collateral of other lenders) to Buyer. Lender is
willing to do so on the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Borrower and Buyer agree to proceed diligently and in good faith to
consummate a purchase by Buyer of loan servicing rights currently owned by
Borrower, which loans have current unpaid principal balances aggregating
approximately Two Hundred Forty-One Million Three Hundred Thousand Dollars
($241,300,000.00), less certain loans which constitute REO properties or are
deemed to be "non-eligible" under the terms of the purchase agreement between
Borrower and Buyer. After deduction of REO and non-eligible loans, the unpaid
principal balances of the loans related to the servicing rights being purchased
by Buyer equals approximately Two Hundred Thirty-Six Million Three Hundred
Thirty Thousand Dollars ($236,330,000.00), with a purchase price of 85 basis
points to be paid by Buyer.
<PAGE>
2. Borrower and Buyer acknowledge and agree that the closing of such
purchase shall occur in two stages as described in this paragraph and in
paragraph 4 below. On or before October 16, 1996, Buyer will consummate its
purchase of that portion of the total package described above constituting
servicing rights on a net package of loans (i.e. after deduction of REO and
non-eligible loans) having unpaid principal balances aggregating approximately
Eighty-Nine Million One Hundred Fifty Thousand Dollars ($89,150,000.00) and
insured by FHLMC (the "Freddie Mac Pool"). Buyer, Borrower and Lender
acknowledge and agree that all sale proceeds of such purchase, to wit,
approximately Seven Hundred Fifty-Seven Thousand Dollars ($757,000.00) shall be
utilized by Buyer to fund all shortages and all other sums due to FHLMC
("Freddie Mac"), thereby fully discharging all obligations due with respect to
that pool (but not including escrow balances which were transferred from
Borrower to Buyer), with the balance of the proceeds being held by Buyer as a
portion of the holdback ("Holdback") to be held and disbursed pursuant to the
purchase agreement between Borrower and Buyer and pursuant to this Agreement.
Contemporaneously with Buyer's payment of the shortage and other sums due to
Freddie Mac, Buyer shall provide written evidence to Lender of such payment and
confirmation that the same has been paid in direct satisfaction of the sums due
on the Freddie Mac Pool.
3. On or before the date of transfer of servicing of the Freddie Mac Pool
from Borrower to Buyer, Lender agrees to deliver to Buyer a release of Lender's
financing statement liens against the Freddie Mac Pool, provided that prior to
such delivery Lender has been provided by Borrower with fully executed originals
of financing statements granting Lender a security interest in servicing rights
on a pool of loans with unpaid principal balances aggregating approximately One
Hundred Sixty Million Dollars ($160,000,000.00) and insured by GNMA (the
"Substitute Collateral"), which Substitute Collateral is generally described on
Exhibit "B" attached hereto. Such financing statements shall be delivered to
Lender by Borrower far enough in advance of the transfer of the Freddie Mac Pool
so that Lender shall have time to file such financing statements in the
respective offices of the Secretaries of State of Kansas and Nebraska prior to
the transfer date of the Freddie Mac Pool. Borrower warrants and represents to
Lender, which shall be deemed to be a material inducement to Lender entering
into this transaction and agreeing to accept the Substitute Collateral, that
upon Lender's filing of the financing statements, Lender shall then have a third
priority lien in the Substitute Collateral, subordinate and inferior only to the
first priority lien of Bank One, Texas, N.A. ("Bank One") and a second priority
lien of First Mortgage Investment Company ("First Mortgage"), both of which
shall be released as provided below.
4. As the second stage of the purchase, on or about November 1, 1996, Buyer
will consummate the purchase from Borrower of the remaining servicing rights
attendant to loans aggregating an unpaid principal balance of approximately One
Hundred Forty-Seven Million One Hundred Eighty Thousand Dollars
($147,180,000.00) (after deduction of non-eligible loans) which, based upon a
purchase price of 85 basis points, results in sale proceeds of approximately One
Million Two Hundred Fifty Thousand Dollars ($1,250,000.00). The servicing rights
transferred hereunder consist of loans serviced for FNMA, GNMA (exclusive of
those loans whose servicing constitutes the Substitute Collateral), and certain
private investors in which
2
<PAGE>
Lender, Bank One, First Mortgage, and Argo Federal have various collateral lien
positions (the "Miscellaneous Pool"). Buyer and Borrower agree that of the total
proceeds of approximately One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00), Buyer will deliver to Lender, free and clear of any claims of
Borrower or any third party, the sum of Three Hundred Thousand Dollars
($300,000.00) by wire transfer on the earlier of the seventh (7th) business day
after transfer of the Miscellaneous Pool servicing to Buyer or the first date
any part of the purchase price related to the Miscellaneous Pool is paid or made
available to anyone. Buyer and Borrower acknowledge and agree that Eight Hundred
Thirty -Thousand Dollars ($830,000.00) of the sale proceeds shall be paid to
other lenders, consisting of First Mortgage, Bank One and Argo Federal. Borrower
warrants and represents to Lender that Borrower has obtained written commitments
(copies of which have been provided to Lender and to Buyer) from Bank One and
First Mortgage that upon receipt of their respective payments described in this
paragraph, each of them will release their liens against both the Miscellaneous
Pool and the Substitute Collateral by virtue of execution and delivery to Buyer
of fully executed financing statement releases for filing in all states and
offices in which they have filed financing statements, together with their
commitments to do any and all other acts deemed necessary by Borrower, Buyer, or
Lender to release and discharge in full any claims or rights which they may have
in the Miscellaneous Pool and in the Substitute Collateral. Buyer agrees to
promptly and immediately cause such releases to be filed of record and copies of
the filed releases will be promptly delivered to Lender. Borrower warrants and
represents to Lender, as a material inducement to Lender's willingness to enter
into this Agreement, that upon the filing of such releases Lender shall have a
first and prior lien position in the Substitute Collateral, inferior to no one,
which shall be deemed fully perfected and which shall secure Borrower's payment
and performance obligations under the Note.
5. On or before the transfer of the Miscellaneous Pool servicing rights to
Buyer from Borrower, Lender agrees to execute and deliver to Buyer fully
executed releases, releasing that portion of the Miscellaneous Pool in which
Lender has a first priority lien position. Buyer may at any time after transfer
of the Miscellaneous Pool is consummated cause such releases to be filed of
record.
6. The sum of Three Hundred Thousand Dollars ($300,000.00) paid to Lender
pursuant to paragraph 4 above shall be applied by Lender against sums due under
the Note, first to accrued and unpaid interest, then to due and unpaid late and
other charges, with the balance applied as a principal reduction.
Notwithstanding such principal reduction, Borrower shall continue to make
monthly payments of principal and interest in the amount specified in paragraph
1 of the Note, which will be applied by Lender to first discharge accrued
interest and other charges, with the balance as principal reductions. Borrower
hereby reaffirms all terms and conditions of the Note, as modified by this
Agreement, and agrees to perform all duties and obligations under the Loan
Documents, as modified hereby.
7. In connection with Buyer's purchase of the Miscellaneous Pool servicing
rights, the balance of the funds not initially disbursed to Lender and the other
lenders as described above shall also constitute a portion of the Holdback. The
total amount of the Holdback
3
<PAGE>
resulting from the sales of the Freddie Mac Pool and the Miscellaneous Pool
shall be held by Buyer for a period of up to, but no greater than, twelve (12)
months from November 1, 1996, and shall be utilized by Buyer solely to reimburse
Buyer for losses and expenses incurred by it (not including the payment which
Buyer is obligated to make to fund the shortage in connection with the Freddie
Mac Pool as described in paragraph 2 above), as described in the purchase
agreement between Borrower and Buyer. Under no circumstances shall Lender be
liable for any of such losses or expenses except as provided in paragraph 10
below. Notwithstanding the twelve (12) month term referenced above, such
Holdback may be released prior to November 1, 1997 in accordance with the terms
of the agreement between Borrower and Buyer. When the unused balance of the
Holdback is required or available to be released by Buyer, Buyer and Borrower
warrant and represent to Lender that one-half (1/2) of such amount shall be paid
by wire transfer to Lender and one-half (1/2) of such amount shall be paid to
Argo Federal. Lender shall apply its portion as an additional payment on the
Note, first to accrued and unpaid interest, then to accrued and unpaid other
charges, with the balance applied as a principal reduction. Borrower warrants
and represents to Lender that, except to the extent that some or all of such
Holdback may be utilized by Buyer for purposes authorized under the purchase
agreement in effect as of the date hereof, no lender or third party has any
lien, claim, or rights to receive the same other than Lender and Argo Federal.
8. Borrower warrants and represents to Lender that Borrower possesses, free
and clear of any claims or rights of Buyer or any third party, certain claims
against Resolution Trust Corporation, and/or its predecessors, affiliates,
successors, or assigns in amounts aggregating approximately Two Hundred Fifty
Thousand Dollars ($250,000.00) and related to the Freddie Mac Pool and/or the
Miscellaneous Pool. Borrower agrees to file and diligently prosecute such claims
at Borrower's sole expense and to provide copies immediately to Lender of any
documents, correspondence, or decisions transmitted by or received by Borrower
or its agents in connection therewith. Borrower shall not settle or compromise
any such claims without the prior written consent of Lender, which shall not be
unreasonably withheld. All proceeds derived from such claims, after deduction of
reasonable costs and expenses incurred by Borrower in favor of unrelated third
parties (which have been documented to Lender in writing to Lender's
satisfaction) shall be immediately paid to Lender and applied by Lender first to
interest accrued and unpaid under the Note, and then to other accrued charges,
with the balance applied as a principal reduction. Such proceeds shall be
delivered to Lender free and clear of any liens or claims of anyone, and
Borrower warrants and represents to Lender that no liens or rights have been or
will be granted by Borrower in such proceeds to anyone except Lender.
9. The terms, conditions, rights, duties, and obligations of this Agreement
shall apply to and be binding upon the successors and assigns of each of the
parties hereto, and shall be specifically binding upon any entity into which
Borrower merges or consolidates, or which purchases all or substantially all of
the assets of Borrower (excluding Buyer with respect to the Freddie Mac Pool and
Miscellaneous Pool).
10. For a period from the date Lender receives the Three Hundred Thousand
Dollar ($300,000.00) payment referenced in paragraph 4 above to and including
the date five (5) years thereafter, Buyer may make written claims to Lender on
loans in the Freddie Mac Pool or Miscellaneous Pool, the servicing rights for
which were part of Lender's Original Collateral, where Freddie Mac or FNMA have
rejected post-foreclosure claims for reimbursement of losses
4
<PAGE>
of Buyer or where Buyer has sustained a loss arising from any act or omission
with respect to the origination, acquisition or servicing prior to the transfer
of servicing rights to Buyer, subject to the following conditions:
a. The basis for rejection of the claim by Freddie Mac or FNMA or the
loss of Buyer is not due, in whole or in part, to errors, omissions,
or practices of Buyer or its successors or assigns;
b. Buyer has through its loss reimbursements depleted the funds remaining
in the Holdback or, if such funds have been previously released, Buyer
has tendered a written request for reimbursement to Borrower and
Borrower has failed for a period of sixty (60) calendar days after the
date of such request to pay or make satisfactory arrangements for
payment of the same to Buyer;
c. Lender has determined that reimbursement of the claim is appropriate
hereunder;
d. Lender shall have the option to take whatever action it deems
necessary or appropriate with respect to such loan to minimize or
reduce the amount of its requested reimbursement, including but not
limited to obtaining the REO property from Buyer and receiving an
assignment from Buyer of all rights to seek reimbursement from any
responsible party;
e. The aggregate amount of all losses and claims reimbursed or paid by
Lender shall not exceed Three Hundred Thousand Dollars ($300,000.00);
and
f. When the period identified above expires or when Lender's
reimbursements or payments under (e) above aggregate Three Hundred
Thousand Dollars ($300,000.00), Lender shall automatically be deemed
discharged and released from any claims by Buyer, its successors or
assigns.
Lender shall have the right from and after the date of any reimbursement or
payment made under this paragraph to obtain reimbursement or recovery of the
same from Borrower and/or from any responsible party, and Borrower agrees
whether or not it is ultimately the responsible party for such loss to
indemnify, hold harmless, and reimburse Lender promptly upon demand by Lender.
11. Time is of the essence of the performance of each and every term of
this Agreement.
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<PAGE>
This Agreement may be executed in one or more counterparts which when
brought together shall be deemed one and the same Agreement executed by the
parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first written above.
ADVANCED FINANCIAL, INC., a Delaware
Attest: corporation, Borrower
/s/ William B. Morris By: /s/ William E. Moffatt
- ------------------------------ -------------------------------------
Secretary/Assistant Secretary Its: President
AFI MORTGAGE CORPORATION, a Nebraska
corporation, formerly known as Continental
Attest: Mortgage, Inc., a Nebraska corporation,
Borrower
/s/ William B. Morris By: /s/ William E. Moffatt
- ------------------------------ --------------------------------------
Secretary/Assistant Secretary Its: President
COMMERCIAL FEDERAL BANK, A FEDERAL
SAVINGS BANK, successor-in-interest by merger
with Railroad Savings Bank, F.S.B. of Wichita,
Attest: Kansas, Lender
/s/ Illegible By: /s/ Illegible
- ----------------------------- -------------------------------------
Secretary/Assistant Secretary Its: First Vice President
MATRIX FINANCIAL SERVICES
Attest: CORPORATION, an Arizona corporation, Buyer
By:
- ----------------------------- -------------------------------------
Secretary/Assistant Secretary Its:
6
VARIABLE RATE COMMERCIAL BALLOON NOTE
FOR PURCHASE OF LOAN SERVICING RIGHTS
$632,328.58 December 31, 1993
THIS VARIABLE RATE COMMERCIAL BALLOON NOTE for Purchase of Mortgage
Servicing Rights (hereinafter "this NOTE") is made as of the date stated
hereinabove by CONTINENTAL MORTGAGE, INC., with a mailing address of 5425
Martindale (URM) Shawnee, Kansas 66218, (hereafter referred to as "BORROWER") ,
to the order of ARGO FEDERAL SAVINGS BANK, FSB, a corporation of the United
States ("LENDER"), with a mailing address at 7600 W. 63rd Street, Summit,
Illinois 60501-1812.
I
PAYMENT
FOR VALUE RECEIVED, BORROWER hereby promises to pay to the order of LENDER,
at LENDER'S office at the address stated hereinabove or such other place as
LENDER may from time to time designate in writing to BORROWER, the principal sum
of Six Hundred Thirty-Two Thousand, Three Hundred Twenty-Eight and 58/100
($632,328.58) Dollars, or so much thereof as may be from time to time disbursed
to or for the benefit of the BORROWER, together with interest thereon as
provided below, all in lawful money of the United States of America, as follows:
1.1 Payment of Principal and Interest. The principal sum evidenced by this
NOTE, shall bear interest on the balance of principal from time to time unpaid
at the annual rate of the INDEX RATE. The INDEX RATE shall be the rate of
interest announced by The Wall Street Journal from time to time as its Prime
Rate of Interest. The INDEX RATE shall be determined monthly on the 25th day of
each month and shall not change during the month.
Interest on the principal sums advance under this NOTE shall accrue in
arrears until repayment. BORROWER hereby agrees to pay, LENDER (as more fully
described in the Security Agreement (the "SECURITY AGREEMENT") dated of even
date herewith), interest accrued on advances under this NOTE. BORROWER'S
obligation to make payment of accrued interest on amounts disbursed to or on
behalf of BORROWER shall continue until all sums disbursed under this NOTE are
repaid to LENDER in full.
BORROWER agrees the aggregate of all principle amounts, accrued interest
and ADDITIONAL INDEBTEDNESS, as defined below, disbursed to or for the benefit
of the BORROWER, under the terms of
1
<PAGE>
this NOTE shall, in all events, be due and payable on the FIRST (1st) DAY OF THE
TWENTY-FOURTH (24th) MONTH, or, January 1, 1996 ("MATURITY DATE") following the
closing of the transactions contemplated hereunder.
For the purposes of this NOTE, the term "INDEBTEDNESS" shall mean (i) the
principal and interest (of whatever nature) owed to LENDER hereunder; and all
other debts, obligations and liabilities of BORROWER hereunder; (ii) all other
indebtedness owed by the BORROWER to the LENDER arising pursuant to the
provisions of the "SECURITY AGREEMENT" or any of the other "LOAN DOCUMENTS" (as
those terms are hereinafter defined) ; (iii) all renewals and extensions, in
whole or in part, of all or any funds of the INDEBTEDNESS described in this
NOTE; and (iv) all funds advanced by LENDER to or for the benefit of BORROWER
pursuant to the provisions of the SECURITY AGREEMENT or any of the other LOAN
DOCUMENTS.
1.2 Computation of Interest. Interest shall: (a) be computed in arrears on
the basis of a year equal to three hundred sixty (360) days; (b) be charged for
the actual number of days within the period for which interest is being charged;
and (c) be charged only on the loan principal balance and other advances at any
time disbursed and not repaid.
1.3 Application of Payments Prior to Defau1t. Prior to the LENDER'S
invocation of the terms and provisions of Paragraph 2.4 hereof, all monies paid
by BORROWER to LENDER shall be applied in the following order of priority: (a)
first, toward payment of all amounts due and owing pursuant to Paragraph 2.5
hereof; (b) next, toward payment of interest which has accrued on the
outstanding principal balance under this NOTE and which is due and payable; (c)
next, toward payment of other fees and sums due to LENDER pursuant to Paragraph
2.6 or other provision hereof or pursuant to the provisions of any other
documents securing repayment of this NOTE; and (d) last, toward payment of the
outstanding principal balance under this NOTE.
1.4 Prepayments. This NOTE may be prepaid, in whole or in part, at any time
without premium.
II
SECURITY, DEFAULTS, AND REMEDIES
2.1 Security for Payment. Payment of this NOTE is secured by a SECURITY
AGREEMENT (the "SECURITY AGREEMENT") of even date herewith from BORROWER to
LENDER, providing LENDER a Purchase Money Security Interest in those Loan
Servicing Rights described in Exhibit "A" to the SECURITY AGREEMENT, this NOTE
(the "COLLATERAL") and by certain other "LOAN DOCUMENTS" (as the term "LOAN
DOCUMENTS" is defined in Exhibit "B" attached hereto and by reference
2
<PAGE>
incorporated herein).
2.2 Events of Default. Each of the following shall constitute a "DEFAULT"
by BORROWER:
(a) Failure to maintain COLLATERAL Value equal to or greater than One
Hundred Twenty (120%) percent of the balance of principal outstanding under
this NOTE during the term of this NOTE, and BORROWER'S failure, after
written demand of LENDER, to remit to LENDER within thirty (30) days after
receipt of LENDER'S demand, a sum equal to that required which, when
credited to the outstanding principal balance under this NOTE shall reduce
said principal amount outstanding so that the Collateral Value is equal to
or less than One Hundred Twenty (120%) Percent of the Principal Balance; or
(b) The occurrence of any other DEFAULT (as that term is defined in
the SECURITY AGREEMENT or any of the LOAN DOCUMENTS) that is not cured
within any grace period therein contained. LENDER shall be required to give
notice of monetary defaults under (a) above, but not more often than two
(2) times within any twelve (12) month period. Thereafter, BORROWER'S
failure to pay any amount within thirty (30) days after the same becomes
due and payable under this NOTE, whether interest or principal or both and
whether as a monthly installment or on the MATURITY DATE, shall in and of
itself constitute an EVENT OF DEFAULT hereunder without additional notice.
For purposes of this Paragraph, notice shall be deemed to have been
delivered two (2) business days after mailing by first class United States
mail, postage prepaid to the addresses set forth above.
2.3 Acceleration of Maturity. At any time during the existence of any
DEFAULT, and at the option of LENDER, the entire unpaid principal balance under
this NOTE, together with interest accrued thereon and all other sums due from
BORROWER hereunder or under any of the other LOAN DOCUMENTS, shall become
immediately due and payable with notice.
2.4 Default Interest Rate. While any DEFAULT exists, BORROWER promises to
pay interest on the unpaid principal balance of the Loan from time to time, at a
rate (the "DEFAULT INTEREST RATE") equal to the SECURITY AGREEMENT INTEREST RATE
plus FIVE (5%) PERCENT per annum, and all unpaid interest that has accrued under
this NOTE, whether before or after the occurrence of the DEFAULT, shall be paid
at the time of, and as a condition precedent to, the curing of the DEFAULT.
While any DEFAULT exists, LENDER is expressly authorized to apply payments made
under this NOTE as it may elect against (a) any or all amounts, or portions
thereof, then due and payable hereunder or under any of the other LOAN
DOCUMENTS,
3
<PAGE>
(b) the unpaid principal balance of the Loan, or (c) any combination thereof.
2.5 Late Charges. If any installment of interest or the unpaid principal
balance due under this NOTE or any escrow fund payment for taxes or insurance
required under the SECURITY AGREEMENT is not paid to LENDER within ten (10) days
of the date such installment or payment is due, BORROWER shall pay to LENDER in
addition to all other payments, whether or not as a result of Default, a late
charge of FIVE ($.05) CENTS for each dollar so overdue to defray part of the
increased cost of collecting the late payments and the opportunity cost incurred
by LENDER because of the unavailability of the funds.
2.6 Attorneys' Fees. If any attorney is engaged (a) to collect the
indebtedness evidenced hereby or due under the other LOAN DOCUMENTS, where a
Default exists, whether or not legal proceedings are thereafter instituted by
LENDER; (b) to represent LENDER in any bankruptcy, reorganization, receivership,
or other proceedings affecting creditor's rights and involving a claim under
this NOTE; (c) to protect the lien of any other proceedings whatsoever in
connection with any of the LOAN DOCUMENTS or the SECURITY AGREEMENT, then
BORROWER shall pay to LENDER all reasonable attorneys' fees and expenses in
connection therewith, in addition to all other amounts due hereunder.
2.7 Nature of Remedies. LENDER'S remedies under this NOTE, the SECURITY
AGREEMENT, and all of the other LOAN DOCUMENTS shall be cumulative and
concurrent and may be pursued singly, successively, or together against any or
all of BORROWER,, the SECURITY AGREEMENT, and any other security described in
the LOAN DOCUMENTS or any portion or combination of such COLLATERAL and other
security, and LENDER may resort to every other right or remedy available at law
or in equity without first exhausting the rights and remedies contained herein,
all in LENDER'S sole discretion. Failure of LENDER, for any period of time or on
more than one occasion, to exercise its option to accelerate the MATURITY DATE
shall not constitute a waiver of the right to exercise the same at any time
during the continued existence of the DEFAULT or in the event of any subsequent
DEFAULT. LENDER shall not by any other omission or act be deemed to waive any of
its rights or remedies hereunder unless such waiver is in writing and signed by
LENDER, and then only to the extent specifically set forth therein. A waiver in
connection with one event shall not be construed as continuing or as a bar to or
as a waiver of any right or remedy in connection with a subsequent event.
III
OTHER MATTERS
4
<PAGE>
3.1 Notices. Except as otherwise hereinabove provided, any notice that
LENDER or BORROWER may desire or be required to give to the other shall be in
writing and shall be mailed or delivered to the intended recipient thereof at
its address hereinabove set forth or at such other address as such intended
recipient may, from time to time, by notice in writing, designate to the sender
pursuant hereto. Any such notice shall be deemed to have been delivered to and
received by BORROWER two (2) business days after mailing by United States
registered or certified mail, return receipt requested, or when delivered in
person. Unless specifically required herein, notice of the exercise of any
option granted to LENDER by this NOTE is not required to be given.
3.2 Governing .Law. The place of negotiation, execution, delivery, and
payment of this NOTE, the location of the PROPERTY, and the place of performance
under the LOAN DOCUMENTS being the STATE OF ILLINOIS, this NOTE, the SECURITY
AGREEMENT, and the other LOAN DOCUMENTS shall be governed by and construed in
accordance with the laws of the State.
3.3 Waiver, Consents, Etc. BORROWER, any Guarantor hereof, and any and all
others who are now or may become liable for all or part of the obligations of
BORROWER under this NOTE (all of the foregoing being referred to herein
collectively as "OBLIGORS") agree to be jointly and severally bound hereby and
jointly and severally (a) waive and renounce any and all redemption and
exemption rights and the benefit of all valuation and appraisal privileges
against the indebtedness evidenced hereby or by any extension or renewal hereof;
(b) waive presentment and demand for payment, notices of nonpayment and of
dishonor, protest of dishonor, and notice of protest; (c) waive all notices in
connection with the delivery and acceptance hereof and all other notices in
connection with the performance, default, or enforcement of the payment hereof;
(d) agree that the liability of each of OBLIGORS shall be unconditional and
without regard to the liability of any other person or entity for the payment
hereof, and shall not in any manner be affected by any indulgence or forbearance
granted or consented to by LENDER with respect hereto; (e) consent to any and
all extensions of time, renewals, waivers, or modification that may be granted
by LENDER with respect to the payment or other provisions hereof, and to the
release of any security at any time given for the payment hereof, or any part
thereof, with or without substitution, and to the release of any person or
entity liable for the payment hereof; and (f) consent to the addition of any and
all other makers, endorsers, guarantors, and other OBLIGORS for the payment
hereof, and to the acceptance of any and all other security for the payment
hereof, and agree that the addition of any such OBLIGORS or security shall not
affect the liability of any of OBLIGORS for the payment hereof. LENDER agrees to
provide notice of the happening of events under Subsection (e) hereof, to any
Guarantor of this NOTE
5
<PAGE>
3.4 Interpretation. The headings of sections and paragraphs in this NOTE
are for convenience only and shall not be construed to limit or define the
content, scope, or intent of the provisions hereof. As used in this NOTE, the
singular shall include the plural, and masculine, feminine, and neuter pronouns
shall be fully interchangeable, where the context so requires. If any provision
of this NOTE, or any paragraph, sentence, clause, phrase, or word, or the
application thereof, in any circumstances, is adjudicated to be invalid, the
validity of the remainder of this NOTE shall be construed as if such invalid
part were never included herein. Time is of the essence of this NOTE.
3.5 Business Loan. BORROWER hereby represents that the proceeds of the Loan
will be used for the purpose specified in Subsection 4(l) (c) of Section 6404 of
Chapter 17 of the Illinois Revised Statutes, as amended, and that the
indebtedness evidenced hereby constitutes a "business loan" within the purview
of that Subsection.
3.6 Interest Laws. It being the intention of LENDER and BORROWER to comply
with the laws of the STATE OF ILLINOIS, it is agreed that notwithstanding any
provision to the contrary in this NOTE, the SECURITY AGREEMENT, or any of the
other LOAN DOCUMENTS, no such provision shall require the payment or permit the
collection of any amount ("EXCESS INTEREST") in excess of the maximum amount of
interest permitted by law to be charged for the use or detention, or the
forbearance in the collection, of all or any portion of the indebtedness
evidenced by this NOTE. If any EXCESS INTEREST is provided for, or is
adjudicated to be provided for, in this NOTE, the SECURITY AGREEMENT, or any of
the other LOAN DOCUMENTS, then in such event (a) the provisions of this
paragraph shall govern and control; (b) neither BORROWER nor any of the other
OBLIGORS shall be obligated to pay any EXCESS INTEREST; (c) any EXCESS INTEREST
that LENDER may have received hereunder shall, at the option of LENDER, be (i)
applied as a credit against the then outstanding principal balance of the Loan,
accrued and unpaid interest thereon not to exceed the maximum amount permitted
by law, or both, (ii) refunded to the payor thereof, or (iii) any combination of
the foregoing; (d) the applicable interest rate or rates hereunder shall be
automatically subject to reduction to the maximum lawful contract rate allowed
under the applicable usury laws of the aforesaid State, and this NOTE, the
SECURITY AGREEMENT, and the other LOAN DOCUMENTS shall be deemed to have been,
and shall be, reformed and modified to reflect such reduction in such applicable
interest rate or rates; and (3) neither BORROWER nor any of the other OBLIGORS
shall have any action against LENDER for any damages whatsoever arising out of
the payment or collection of any EXCESS INTEREST.
3.7 Subsequent Holders. Upon any endorsement, assignment, or other transfer
of this NOTE by LENDER or by operation of law, the term "LENDER," as used
herein, shall mean the endorsee, assignee,
6
<PAGE>
or other transferee or successor to LENDER then becoming the holder of this
NOTE.
3.8 Subsequent Obligors. This NOTE and all provisions hereof shall be
binding on all persons claiming under or through BORROWER. The terms "BORROWER"
and "OBLIGORS" as used herein, shall include the respective successors, assigns,
legal and personal representatives, executors, administrators, devisees,
legatees, and heirs of BORROWER and any other OBLIGORS.
3.9 Valuation. No less than annually, BORROWER will obtain from Hamilton
Carter Smith, or such other independent, third party valuation firm as LENDER
shall approve in writing, a written valuation appraisal, disclosing the market
value of the COLLATERAL. BORROWER shall submit such market value appraisal to
LENDER no later than the last business day of each year, beginning in 1994. The
valuation appraisal shall be subject to the provisions of Paragraph 2.2 hereof.
IN WITNESS WHEREOF, CONTINENTAL MORTGAGE, INC., a corporation of the United
States, NOT personally, but as aforesaid has caused these presents to be signed
by its ___________ President, and its corporate seal to be hereunto affixed and
attested by its Secretary, as of this 31st day of December, 1993.
ATTEST: CONTINENTAL MORTGAGE, INC.
By: /s/ Cindy L. Williams By: /s/ William B. Morris
Its: Secretary Its: President
6
<PAGE>
STATE OF Kansas )
) ss.
COUNTY OF Jordon )
I, the undersigned, a Notary Public in and for said County, in the
state aforesaid, DO HEREBY CERTIFY, that Brad Morris, _______ President of
Continental Mortgage, Inc., and Cindy Williams, __________ Secretary of said
corporation, who are personally known to me to be the same persons whose names
are subscribed to the foregoing instrument as such _____________President, and
Secretary, respectively, appeared before me this day in person and acknowledged
that they signed and delivered the said instrument as their own free and
voluntary act and as the free and voluntary act of said corporation, for the
uses and purposes therein set forth; and the said ___________ Secretary then and
there acknowledged that he/she, as custodian of the corporate seal of said
corporation, did affix said seal to said instrument as their own free and
voluntary act as the free and voluntary act of said corporation, for the uses
and purposes therein set forth.
_________GIVEN under my hand and Notarial Seal as of this 31st day of
December, 1993.
Wendy R. Simpson
Notary Public
My Commission Expires: 3-22-96
7
<PAGE>
EXHIBIT "A"
LOAN SERVICING RIGHTS
(Attach 12/31/93 Trial Balance)
9
<PAGE>
EXHIBIT "B"
Loan Documents
The term "LOAN DOCUMENTS," as used herein, means the following documents
and any other documents previously, now, or hereafter given to evidence, secure,
or govern the disbursement of the indebtedness of BORROWER to LENDER, including
any and all extensions, renewals, amendments, modifications, and supplements
thereof or thereto:
1. Variable Rate Commercial Balloon Note for Purchase of Loan Servicing
Rights executed by Continental Mortgage, Inc., in favor of LENDER, dated as of
December 31, 1993, in the amount of $632,328.58;
2. Corporate Guaranty of Note and Indemnification of Guarantor for Benefit
of Lender executed by Advance Financial, Inc., a Nebraska Corporation, in favor
of LENDER, dated as of December 31, 1993;
3. Security Agreement executed by Continental Mortgage, Inc., providing
LENDER a purchase money security interest in and to the COLLATERAL, dated as of
December 31, 1993;
4. FNMA Acknowledgement Agreement, executed by FNMA, Continental Mortgage,
Inc, and Argo Federal Savings Bank, FSB, in favor of LENDER, and dated as of
December 31, 1993, relating to the COLLATERAL;
5. UCC-1 and UCC-2 filings made by Continental Mortgage, Inc., and Argo
Federal Savings Bank, FSB in favor of LENDER made in the following states:
Kansas
Illinois
Nebraska
Colorado
<PAGE>
SECURITY AGREEMENT FOR SALE OF
MORTGAGE LOAN SERVICING RIGHTS
This Security Agreement (this "Agreement"), is entered into as of
December 31, 1993, between Continental Mortgage, Inc., a Nebraska corporation
(the "Borrower"), and ARGO FEDERAL SAVINGS BANK, FSB (the "Lender"), in
consideration of, and upon, the terms, conditions and covenants set forth in
this Agreement.
1. Factual Background.
(a) Pursuant to that certain Loan Servicing Purchase and Sale Agreement
dated as of December 27, 1993 (the "P&S Agreement"), Lender, as Seller, sold
Borrower, as Purchaser, FNMA and Citimae mortgage loan servicing rights
effective December 31, 1993;
(b) The P&S Agreement provides that Seller, as Lender, shall provide
financing to Purchaser, as Borrower, to assist in consummation of the
transaction, in an amount equal to fifty (50%) percent of the Purchase Price, as
said term is defined in the P&S Agreement;
(c) In furtherance of the obligations of the parties as set forth in the
P&S Agreement, Lender and Borrower have entered into that certain Commercial
Balloon Note for Purchase of Mortgage Loan Servicing Rights (the "Note") of even
date herewith setting forth the financing agreement and other terms agreed to by
the parties;
(d) The Note provides that Purchaser will enter into this Agreement and
will further grant Seller, as Lender, a security interest in the mortgage loan
servicing rights sold pursuant to the P&S Agreement, as further described
herein.
2. Grant of Security Interest. To secure the payment and performance of the
obligations of Borrower under the Note and the P&S Agreement (the
"Obligations"), Borrower hereby grants to Lender a continuing security interest
in and to all of the right, title and interest of Borrower in the Mortgage Loan
Servicing Rights described in Exhibit A attached hereto and by this reference
incorporated herein (the "Collateral").
3. Acknowledgment of Security Interest. Contemporaneous with the execution
of this Agreement, Borrower has executed that certain Federal National Mortgage
Association ("FNMA") Acknowledgement Agreement dated as of December 31, 1993
(the "Acknowledgement") by and between Borrower, Lender and the Dallas, Texas
Regional Office of FNMA, by which Borrower and FNMA acknowledge Lender's
security interest in the Collateral created hereunder, as well as those Uniform
Commercial Code ("UCC") filing statements acknowledging, as a matter of public
record, Lender's security interest in the Collateral. Borrower will cooperate
with Lender, to the extent reasonably requested by Lender, in executing such
other and further documentation acknowledging Lender's security interest in the
Collateral as deemed reasonably necessary by Lender to perfect the same.
4. Representations, Warranties and Covenants. Borrower represents, warrants
and covenants to Lender that:
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(a) Good Title. Borrower presently owns and holds free and marketable title
to the Collateral, subject only to the interests of FNMA and Lender.
(b) Financing Statement; Further Assurances. Borrower concurrently with the
execution of this Agreement and from time to time thereafter as requested by
Lender, shall execute and deliver to Lender such financing statements,
continuation statements, amendments to financing statements and other documents,
in a form satisfactory to Lender, as Lender may reasonably require to perfect
and continue in effect the security interest of Lender in the Collateral.
(c) Enforceability. Borrower has the power and authority to enter into this
Agreement and has taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement. This Agreement is the
legal, valid and binding obligation of Borrower, enforceable in accordance with
its terms.
(d) No Violation. No provision or obligation of Borrower contained in this
Agreement violates any applicable law, regulation or ordinance, or any order or
ruling of any court or governmental entity.
(e) Value of Collateral. The value of the Collateral is and will continue
to equal no less than one hundred twenty (120%) percent of the maximum amount of
indebtedness granted pursuant to the Note, irrespective of the actual amount of
indebtedness outstanding.
5. Default; Remedies Upon Default.
(a) Event _of Default. An "Event of Default" shall mean an event of Default
as defined in the Note.
(b) Remedies. If an Event of Default is declared by Lender, within twenty
(20) days of the date of Borrower's receipt of notice of Lender's declaration of
such Event of Default, Borrower will provide notice to Lender specifically
valuing the Collateral, irrespective of the date of the last valuation appraisal
supplied to Lender pursuant to the terms of the Note. Valuation of the
Collateral upon Lender's declaration of an Event of Default shall be performed
by Hamilton Carter Smith, or such other appraisal specialist as Lender shall
approve in writing. In the event any shortage exists with respect to the value
of the Collateral, Borrower shall immediately submit to Lender, via wire
transfer, verifiable funds in an amount equal to those sums necessary to bring
the value of Collateral in line with the requirements of Section 4(e). Such
notice by Borrower shall also specify Borrower's proposed plan for the
disposition of the Collateral or to repay Borrower's obligations under the Note.
If either (i) Borrower does not provide the notice required above within such
twenty (20) day period, or (ii) Borrower provides such notice and does not remit
the required funds or dispose of the Collateral within a period of one hundred
twenty (120) days from the date of Borrower's receipt of notice of Lender's
declaration of such Event of Default, or (iii) Borrower does not provide for
some other form of remedy deemed acceptable to Lender within the same one
hundred twenty (120) day period set forth in Section 5(b)(ii), then, in any such
event, Lender shall have the right to dispose of the Collateral in a
commercially reasonable manner and otherwise in accordance with the Uniform
Commercial Code and applicable law.
6. Right to Transfer Collateral. Until repayment of the Note, in full,
Borrower shall
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neither pledge, assign, transfer or otherwise sell Borrower's interest in the
Collateral without Lender's prior written approval.
7. Waivers. Except as set forth in this Agreement, to the extent permitted
by applicable law, Borrower waives demand, diligence, grace, presentment for
payment, protest, notice of nonpayment, nonperformance, extension, dishonor,
maturity, protest and default. Lender may extend the time for payment of or
renew this Agreement, release Collateral as security for the indebtedness
evidenced hereby or release any party from liability hereunder, and any such
extension, renewal, release or other indulgence shall not alter or diminish the
liability of Borrower, except to the extent expressly set forth in a writing
evidencing or constituting such extension, renewal, release or other indulgence
and executed by Lender.
8. Costs of Collection. Borrower agrees to pay costs of collection,
including, without limitation, reasonable attorneys' fees and costs of suit, to
enforce payment of this Agreement. Attorneys' fees shall be set by the court and
not by the jury and shall be included in any judgment obtained by Lender.
9. No Waiver by Lender. No delay or failure of Lender in exercising any
right hereunder shall affect such right, nor shall any single or partial
exercise of any right preclude further exercise thereof.
10. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois.
11. Jurisdiction and Venue. Borrower and Lender agree that in the event any
legal proceedings are initiated involving this Agreement or arising out of the
transactions evidenced or contemplated hereby, such legal proceedings may be
brought in Cook County, Illinois. Borrower and Lender each submit to the
jurisdiction of the State of Illinois for such purposes and agree that the venue
for such legal proceedings shall properly lie in the Circuit Courts of Cook
County, Illinois, or the United States District Courts located or sitting in
Cook County, Illinois.
12. Time of Essence. Time is of the essence of the Agreement and each and
every provision hereof.
13. Amendments. No amendment, modification, change, waiver, release or
discharge hereof and hereunder shall be effective unless evidenced by an
instrument in writing and signed by the party against whom enforcement is
sought.
14. Severability. If any provisions hereof is invalid or unenforceable, the
other provisions hereof shall remain in full force and effect.
15. Binding Nature. The provisions of this Agreement shall be binding upon
Borrower and Lender and their respective successors and assigns.
16. Notice. Any notice or other communication with respect to this
Agreement shall (a) be in writing, (b) be effective on the day of receipt by
hand-delivery or facsimile transmission thereof to the party to whom directed,
one business day following the day of deposit thereof with
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delivery charges prepaid, with a national overnight delivery service, or two (2)
business days following the day of deposit thereof with postage prepaid, with
the United States Postal Service by regular first class, certified mail, (c) if
directed to Lender, be addressed to Lender at the office of Lender set forth
above, or to such other address as Lender shall have specified to Borrower by
like notice, and (d) if directed to Borrower, be addressed to Borrower at the
address for Borrower set forth below Borrower's name, or to such other address
as Borrower shall have specified by like notice.
17. Counterparts. This Agreement may be executed in counterparts, and all
counterparts shall constitute but one and the same document.
18. Section Headings. The section headings set forth in this Agreement are
for convenience only, do not define or limit any terms or provisions and shall
not have substantive meaning hereunder or be deemed part of this Agreement.
19. Interpretation. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The word "include(s)" means
"include(s), without limitation," and the word "including" means "including, but
not limited to." No listing of specific instances, items or matters in any way
limits the scope or generality of any language of this Agreement.
20. Construction. This Agreement shall be construed as a whole, in
accordance with its fair meaning, and without regard to or taking into account
any presumption or other rule of law requiring construction against the party
preparing this Agreement.
IN WITNESS HEREOF, this Agreement has been executed and delivered by each
of the parties hereto by a duly authorized officer of each such party on the
date first set forth above.
BORROWER:
CONTINENTAL MORTGAGE, INC.,
a Nebraska corporation
By: /s/ William B. Morris
-------------------------------
Its: President
LENDER:
ARGO FEDERAL SAVINGS BANK, FSB
By: /s/ Frances M. Pitt
-------------------------------
Its: Senior Vice President
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EXHIBIT A
MORTGAGE LOAN SERVICING RIGHTS
(Attach 12/31/93 Trial Balance)
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(Space above this line for recording purposes)
REAL ESTATE MORTGAGE
To Secure a Loan
From CITIZENS NATIONAL BANK OF FORT SCOTT
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1. DATE AND PARTIES. The date of this Real Estate Mortgage (Mortgage) is
February 3, 1997 and the parties and their mailing addresses are the
following
MORTGAGOR:
AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE
a NEBRASKA corporation
5425 MARTINDALE
SHAWNEE, KS 66203
BANK:
CITIZENS NATIONAL BANK OF FORT SCOTT
a national banking association
200 South Main
P.O. Bxo 899
Fort Scott, Kansas 66701
Tax I.D. # 48-0168914
(as Mortgagee)
2. MAXIMUM OBLIGATION LIMIT. The total principal amount of the Obligations
secured by this Mortgage at any one time shall not exceed $739,031.00. This
limitation of amount does not include interest and other fees and charges
validly made pursuant to this Mortgage. Also, this limitation does not
apply to advances made under the terms of this Mortgage to protect Bank's
security and to perform any of the covenants contained in this Mortgage.
This limit is for the purposes set forth in K.S.A. 79-3012 and 58-2336.
3. OBLIGATIONS DEFINED. The Term "Obligations" is defined as and includes the
following:
A. A promissory note, NO. 12558, (Note) dated February 3, 1997, with
a maturity date of March 28, 1998, and executed by ADVANCED
FINANCIAL, INC. and AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE
(Borrower) payable to the order of Bank, which evidences a loan
(Loan) to Borrower in the amount of $739,031.00, plus interest,
and all extensions, renewals, modifications or substitutions
thereof.
B. All future advances by Bank to Borrower, to Mortgagor, to any one
of them or to any one of them and others (and all other
obligations referred to in the subparagraph(s) below, whether or
not this Mortgage is specifically referred to in the evidence of
indebtedness with regard to such future and additional
indebtedness and whether or not such future advances are incurred
for any purpose that was related or unrelated to the purpose of
the Obligations).
C. All additional sums advanced, and expenses incurred, by Bank for
the purpose of insuring, preserving or otherwise protecting the
Property (as herein defined) and its value, and any other sums
advanced, and expenses incurred by Bank pursuant to this
Mortgage, plus interest at the same rate provided for in the Note
computed on a simple interest method.
D. All other obligations, now existing or hereafter arising, by
Borrower owing to Bank to the extent the taking of the Property
(as herein defined) as security therefor is not prohibited by
law, including but not limited to liabilities for overdrafts, all
advances made by Bank on Borrower's, and/or Mortgagor's, behalf
as authorized by this Mortgage and liabilities as guarantor,
endorser or surety, of Borrower to Bank, due or to become due,
direct or indirect, absolute or contingent, primary or secondary,
liquidated or unliquidated, or joint, several, or joint and
several.
E. Borrower's performance of the terms in the Note or Loan,
Mortgagor's performance of any terms in this Mortgage, and
Borrower's and Mortgagor's performance of any terms in any deed
of trust, any trust deed, any trust indenture, any other
mortgage, any deed to secure debt, any security agreement, any
assignment, any construction loan agreement, any loan agreement,
any assignment of beneficial interest, any guaranty agreement or
any other agreement which secures, guaranties o otherwise relates
to the Note or Loan.
However, this Mortgage will not secure another debt:
A. if bank fails to make any disclosure of the existence of this
Mortgage required by law for such other debt.
4. CONVEYANCE. In consideration of the Loan and Obligations, and to secure
the Obligations (which includes the Note according to its specific terms
and the obligations in this Mortgage), Mortgagor hereby bargains, grants,
mortgages, sells, conveys and warrants to Bank, as Mortgagee, the
following described property (Property) situated in JOHNSON County,
KANSAS, to-wit:
LOT 1, BLOCK 2, MILLWOOD BUSINESS PARK FIRST
PLAT, A SUBDIVISION IN THE CITY OF SHAWNEE,
JOHNSON COUNTY, KANSAS.
The Property may be commonly referred to as
5425 MARTINDALE, SHAWNEE, KANSAS 66203
such property not constituting the homestead of Borrower, together
with all buildings, improvements, fixtures and equipment now or
hereafter attached to the Property, including, but not limited to,
all heating, air conditioning, ventilation, plumbing, cooling,
electrical and lighting fixtures and equipment; all landscaping; all
exterior and interior improvements; all easements, issues, rights,
appurtenances, rents, royalties, oil and gas rights, privileges,
proceeds, profits, other minerals, water, water rights, and water
stock, crops, grass and timber at any time growing upon said land,
including replacements and additions thereto, all of which shall be
deemed to be and remain a part of the Property. All of the foregoing
Property shall be collectively hereinafter referred to as the
Property. To have and to hold the Property, together with the rights,
privileges and appurtenances thereto belonging, unto Bank forever to
secure the Obligations. Mortgagor does hereby warrant and defend the
Property unto Bank forever, against any claim or claims, of all
persons claiming or to claim the Property or any part thereof.
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5. LIENS AND ENCUMBRANCES. Mortgagor warrants and represents that the Property
Is free and clear of all lions and encumbrances whatsoever. Mortgagor
agrees to pay all claims when due that might result, if unpaid, in the
foreclosure, execution or imposition of any lien, claim or encumbrance on
or against the Property or any part thereof. Mortgagor may in good faith
contest any such lien, claim or encumbrance by posting any bond in an
amount necessary to prevent such claim from becoming a lien, claim or
encumbrance or to prevent its foreclosure or execution.
6. WARRANTY OF TITLE. Mortgagor agrees to forever warrant and defend the
title to the Property and represents and warrants that Mortgagor is the
fee simple owner of the Property, that it is authorized to convey the
Property and that it will forever defend the title against all claims.
7. CORPORATE WARRANTIES AND REPRESENTATIONS. If Mortgagor is a corporation,
Mortgagor makes to Bank the following warranties and representations which
shall be continuing so long as the Obligations remain outstanding:
A. Mortgagor Is a corporation which is duly organized and validly
existing in Mortgagor's-state of incorporation as represented in
the DATE AND PARTIES paragraph above; Mortgagor is in good
standing under the laws of all states in which Mortgagor
transacts business; Mortgagor has the corporate power and
authority to own the Property and to carry on its business as now
being conducted; Mortgagor is qualified to do business in every
jurisdiction in which the nature of its business or its property
makes such qualification necessary; and Mortgagor is in
compliance with all laws, regulations, ordinances and orders of
public authorities applicable to it.
B. The execution, delivery and performance of this Mortgage by
Mortgagor and the borrowing evidenced by the Note: (1) are within
the corporate powers of Mortgagor; (2) have been duly authorized
by all requisite corporate action; (3) have received all
necessary governmental approval; (4) will not violate any
provision of law, any order of any court or other agency of
government or Mortgagor's Articles of Incorporation or Bylaws;
and (5) will not violate any provision of any indenture,
agreement or other instrument to which Mortgagor is a party or to
which Mortgagor is or any of Mortgagor's property is subject,
Including but not limited to any provision prohibiting the
creation or Imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of Mortgagor's property or assets. The
Note and this Mortgage when executed and delivered by Mortgagor
will constitute the legal, valid and binding obligations of
Mortgagor, and of the other obligors named therein, if any, In
accordance with their respective terms.
C. All other Information, reports, papers and data given to Bank
with respect to Mortgagor or to others obligated under the terms
of this Mortgage are accurate and correct in all material
respects and complete insofar as completeness may be necessary to
give Bank a true and accurate knowledge of the subject matter.
D. Mortgagor has not changed its name within the last six years,
unless otherwise disclosed in writing; other than the trade names
or fictitious names actually disclosed to Bank prior to execution
of this Mortgage, Mortgagor uses no other names; and until the
Obligations shall have been paid in full, Mortgagor hereby
covenants and agrees to preserve and keep in full force and
effect its existing name, corporate existence, rights, franchises
and trade names, and to continue the operation of Its business in
the ordinary course.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor grants, bargains, mortgages,
sells, conveys, warrants, assigns and transfers as additional security all
the right, title and interest in and to any and all:
A. Existing or future leases, subleases, licenses, guaranties and
any other written or verbal agreements for the use and occupancy
of any portion of the Property, including any extensions,
renewals, modifications or substitutions of such agreements (all
referred to as "Leases").
B. Rents, issues and profits (all referred to as "Rents"), including
but not limited to security deposits, minimum rent, percentage
rent, additional rent, common area maintenance charges, parking
charges, real estate taxes, other applicable taxes, insurance
premium contributions, liquidated damages following default,
cancellation premiums, loss of rents, insurance, guest receipts,
revenues, royalties, proceeds, bonuses, accounts, contract
rights, general intangibles, and all rights and claims which
Mortgagor may have that in any way pertain to or are on account
of the use or occupancy of the whole or any part of the Property.
In the event any item listed as Leases or Rents is determined to be
personal property, this Mortgage will also be regarded as a security
agreement.
Mortgagor will promptly provide Bank with true and correct copies of all
existing and future Leases. Mortgagor may collect, receive, enjoy and use
the Rents so long as Mortgagor is not in default. Except for one lease
period's rent, Mortgagor will not collect in advance any Rents due in
future lease periods, unless Mortgagor first obtains Bank's written
consent. Upon default, Mortgagor will receive any Rents in trust for Bank
and Mortgagor will not commingle the Rents with any other funds. Any
amounts collected shall be applied at Bank's discretion first to costs of
managing, protecting and preserving the Property, and to any other
necessary related expenses including Bank's court costs. Any remaining
amounts shall be applied to reduce the Obligations.
Mortgagor agrees that this assignment is immediately effective between the
parties to this Mortgage and effective as to third parties on the
recording of this Mortgage. Mortgagor agrees that Bank is entitled to
notify Mortgagor or Mortgagor's tenants to make payments of Rents due or
to become due directly to Bank after such recording, however Bank agrees
not to notify Mortgagor's tenants until Mortgagor defaults and Bank
notifies Mortgagor of the default and demands that Mortgagor and
Mortgagor's tenants pay all Rents due or to become due directly to Bank.
On receiving the notice of default, Mortgagor will endorse and deliver to
Bank any payments of Rents. If Mortgagor becomes subject to a voluntary or
involuntary bankruptcy, then Mortgagor agrees that Bank is entitled to
receive relief from the automatic stay in bankruptcy for the purpose of
enforcing this assignment under state and federal law and within
Mortgagor's bankruptcy proceedings.
Mortgagor warrants that no default exists under the Leases or any
applicable landlord law. Mortgagor also warrants and agrees to maintain,
and to require the tenants to comply with, the Leases and any applicable
law. Mortgagor will promptly notify Bank of any noncompliance. If
Mortgagor neglects or refuses to enforce compliance with the terms of the
Leases, then Bank may opt to enforce compliance to the extent that the law
permits. Mortgagor will obtain Bank's written authorization before
Mortgagor consents to sublet, modify, cancel, or otherwise alter the
Leases, to accept the surrender of the Property covered by such Leases
(unless the Leases so requite), or to assign, compromise or encumber the
Leases or any future Rents. Mortgagor will hold Bank harmless and
indemnify Bank for any and all liability, loss or damage that Bank may
incur as a consequence of the assignment under this paragraph.
9. EVENTS OF DEFAULT. Mortgagor shall be In default upon the occurrence of
any of the following events, circumstances or conditions (Events of
Default):
A. Failure by any party obligated on the Obligations to make payment
when due; or
B. A default or breach by Borrower, Mortgagor or any co-signer,
endorser, surety, or guarantor under any of the terms of this
Mortgage, the Note, any construction loan agreement or other loan
agreement, any security agreement, mortgage, deed to secure debt,
deed of trust, trust deed, or any other document or Instrument
evidencing, guarantying, securing or otherwise relating to the
Obligations; or
C. The making or furnishing of any verbal or written representation,
statement or warranty to Bank which is or becomes false or
incorrect In any material respect by or on behalf of Mortgagor,
Borrower, or any one of them, or any co-signer, endorser, surety
or guarantor of the Obligations; or
D. Failure to obtain or maintain the insurance coverages required by
Bank, or Insurance as is customary and proper for the Property
(as herein defined); or
E. The death, dissolution or insolvency of, the appointment of a
receiver by or on behalf of, the assignment for the benefit of
creditors by or on behalf of, the voluntary or Involuntary
termination of existence by, or the commencement of any
proceeding under any present or future federal or state
Insolvency, bankruptcy, reorganization, composition or debtor
relief law by or against Mortgagor, Borrower, or any one of them,
or any co-signer, endorser, surety or guarantor of the
Obligations; or
F. A good faith belief by Bank at any time that Bank is insecure
with respect to Borrower, or any co-signer, endorser, surety or
guarantor, that the prospect of any payment is impaired or that
the Property (as herein defined) is impaired; or
G. Failure to pay or provide proof of payment of any tax,
assessment, rent, insurance premium, escrow or escrow deficiency
on or before Its due date; or
H. A material adverse change in Mortgagor's business, including
ownership, management, and financial conditions, which in
<PAGE>
Bank's opinion, impairs the Property or repayment of the
Obligations; or
I. A transfer of a substantial part of Mortgagor's money or
property; or
J. If all or any part of the Properly or any interest therein is
sold, leased or transferred by Mortgagor except as permitted in
the paragraph below entitled "DUE ON SALE OR ENCUMBRANCE'.
10. REMEDIES ON DEFAULT. At the option of Bank, all or any part of the
principal of, and accrued Interest on, the Obligations shall become
Immediately due and payable without notice or demand upon the occurrence of
an Event of Default or at any time thereafter. In addition, upon the
occurrence of any Event of Default, Bank, at its option, may Immediately
commence foreclosure proceedings and may immediately invoke any or all
other remedies provided in the Note, this Mortgage or related documents.
Bank is entitled to all rights and remedies provided at law or equity
whether or not expressly slated in this Mortgage. By choosing any remedy,
Bank does not waive its right to an immediate use of any other remedy if
the event of default continues or occurs again.
11. DUE ON SALE OR ENCUMBRANCE. Bank may, at Bank's option, declare the entire
balance with all accrued interest on the Obligations to be immediately due
and payable upon the contract for, or creation of, any lien, encumbrance,
transfer or sale of the Property, or any portion thereof, by Mortgagor.
Lapse of time or the acceptance of payments by Bank after such creation of
any lien, encumbrance, transfer or sale, or contract for any of the
foregoing, shall not be deemed a waiver or estoppel of Bank's right to
accelerate the Obligations. If Bank exercises such option to accelerate,
Bank shall mail, by certified mail or otherwise, Mortgagor notice of
acceleration to the address of Mortgagor shown on Bank's records; the
notice shall provide for a period of not less then 30 days from the date
the notice is mailed within which Mortgagor shall pay the sums declared
due. If Mortgagor fails to pay such sums prior to the expiration of such
period, Bank may, without further notice or demand on Mortgagor, invoke any
remedies permitted on Default. This covenant shall run with the Property
and shall remain in effect until the Obligations and this Mortgage are
fully paid.
In the preceding paragraph, the phrase "transfer or sale" includes the
conveyance of any right, title or interest in the Property, whether
voluntary or involuntary, by outright sale, deed, installment contract
sale, land contract, contract for deed, leasehold interest with a term
greater than three years, lease-option contract or any other method of
conveyance of the Property interests; the term "interest" includes,
whether legal or equitable, any right, title, interest, lien, claim,
encumbrance or proprietary right, choate or inchoate, any of which is
superior to the lien created by this Mortgage.
12. POSSESSION ON FORECLOSURE. If an action Is brought to foreclose this
Mortgage for all or any part of the Obligations, Mortgagor agrees that the
Bank shall be entitled to Immediate possession as Mortgagee In Possession
of the Property; or the court may appoint, and Mortgagor hereby consents to
such appointment, without notice, a receiver to take possession of the
Property and to collect and receive rents and profits arising therefrom.
Any amounts so collected shall be used to pay taxes on, provide Insurance
for, pay costs of needed repairs and for any other expenses relating to the
Property or the foreclosure proceedings, sale expenses or as authorized by
the court. Any sum remaining after such payments will be applied to the
Obligations.
13. PROPERTY OBLIGATIONS. Mortgagor shall promptly pay all taxes, assessments,
levies, water rents, other rents, insurance premiums and all amounts due on
any encumbrances, if any, as they become due. Mortgagor shall provide
written proof to Bank of such payment(s).
14. INSURANCE. Mortgagor shall insure and keep insured the Properly against
loss by fire, and other hazard, casualty and loss, with extended coverage
including but not limited to the replacement value of all improvements,
with an insurance company acceptable to Bank and in an amount acceptable to
Bank. Such insurance shall contain the standard "Mortgagee Clause" and
where applicable, "Loss Payee Clause" which shall name and endorse Bank as
mortgagee and loss payee. Such insurance shall also contain a provision
under which the insurer shall give Bank at least 30 days notice before the
cancellation, termination or material change in coverage.
If an insurer elects to pay a fire or other hazard loss or damage claim
rather than to repair, rebuild or replace the Property lost or damaged,
Bank shall have the option to apply such insurance proceeds upon the
Obligations secured by this Mortgage or to have said Property repaired or
rebuilt. Mortgagor shall deliver or cause to deliver evidence of such
coverage and copies of all notices and renewals relating thereto. Bank
shall be entitled to pursue any claim under the Insurance if Mortgagor
falls to promptly do so.
Mortgagor shall pay the premiums required to maintain such insurance in
effect until such time as the requirement for such insurance terminates. In
the event Mortgagor fails to pay such premiums, Bank may, at its option,
pay such premiums. Any such payment by Bank shall be repayable upon demand
of Bank or it no demand is made, in accordance with the paragraph below
titled "BANK MAY PAY".
15. WASTE. Mortgagor shall not alienate or encumber the Property to the
prejudice of Bank, or commit, permit or suffer any waste, impairment or
deterioration of the Property, and regardless of natural depreciation,
shall keep the Property and all its improvements at all times in good
condition and repair. Mortgagor shall comply with and not violate any and
all laws and regulations regarding the use, ownership and occupancy of the
Property. Mortgagor shall perform and abide by all obligations and
restrictions under any declarations, covenants and other documents
governing the use, ownership and occupancy of the Property.
16. CONDITION OF PROPERTY. As to the Property, Mortgagor shall:
A. keep all buildings occupied and keep all buildings, structures
and Improvements in good repair.
B. retrain from the commission or allowance of any acts of waste or
impairment of the value of the Property or Improvements thereon.
C. not cut or remove, or permit to be cut or removed, any wood or
timber from the Property, which cutting or removal would
adversely affect the value of the Property.
D. prevent the spread of noxious or damaging weeds, preserve and
prevent the erosion of the soil and continuously practice
approved methods of farming on the Property If used for
agricultural purposes.
17. ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
A. As used in this paragraph:
(1) "Environmental Law" means, without limitation, the
Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA", 42 U.S.C. 9601 et seq.), all
federal, state and local laws, regulations, ordinances,
court orders, attorney general opinions or interpretive
letters concerning the public health, safety, welfare,
environment or a Hazardous Substance (as defined herein).
(2) "Hazardous Substance" means any toxic, radioactive or
hazardous material, waste, pollutant or contaminant which
has characteristics which render the substance dangerous or
potentially dangerous to the public health, safety, welfare
or the environment. The term includes, without limitation,
any substances defined as "hazardous material," "toxic
substances," "hazardous waste" or "hazardous substance"
under any Environmental Law.
B. Mortgagor represents, warrants and agrees that:
(1) Except as previously disclosed and acknowledged in writing
to Bank, no Hazardous Substance has been, is or will be
located, transported, manufactured, treated, refined, or
handled by any person on, under or about the Property except
in the ordinary course of business and in strict compliance
with all applicable Environmental Law.
(2) Except as previously disclosed and acknowledged in writing
to Bank, Mortgagor has not and shall not cause, contribute
to or permit the release of any Hazardous Substance on the
Property.
(3) Mortgagor shall Immediately notify Bank if: (a) a release or
threatened release of Hazardous Substance occurs on, under
or about the Property or migrates or threatens to migrate
from nearby property; or (b) there is a violation of any
Environmental Law concerning the Property. In such an event,
Mortgagor shall take all necessary remedial action in
accordance with any Environmental Law.
(4) Except as previously disclosed and acknowledged in writing
to Bank, Mortgagor has no knowledge of or reason to believe
there is any pending or threatened investigation, claim, or
proceeding of any kind relating to (a) any Hazardous
Substance located on, under or about the Property or (b) any
violation by Mortgagor or any tenant of any Environmental
Law. Mortgagor shall Immediately notify Bank in writing as
soon as Mortgagor has reason to believe there is any such
pending or threatened investigation, claim, or proceeding.
In such an event, Bank has the right, but not the
obligation, to participate in any such proceeding including
the right to receive copies of any documents relating to
such proceedings.
<PAGE>
(5) Except as previously disclosed and acknowledged in writing
to Bank, Mortgagor and every tenant have been, are and shall
remain in full compliance with any applicable Environmental
Law.
(6) Except as previously disclosed and acknowledged in writing
to Bank, there are no underground storage tanks, private
dumps or open wells located on or under the Property and no
such tank, dump or well shall be added unless Bank first
agrees in writing.
(7) Mortgagor will regularly inspect the Property, monitor the
activities and operations on the Property, and confirm that
all permits, licenses or approvals required by any
applicable Environmental Law are obtained and complied with.
(8) Mortgagor will permit, or cause any tenant to permit, Bank
or Bank's agent to enter and inspect the Property and review
all records at any reasonable time to determine: (a) the
existence, location and nature of any Hazardous Substance
on, under or about the Property; (b) the existence,
location, nature, and magnitude of any Hazardous Substance
that has been released on, under or about the Property; (c)
whether or not Mortgagor and any tenant are in compliance
with any applicable Environmental Law.
(9) Upon Bank's request, Mortgagor agrees, at Mortgagor's
expense, to engage a qualified environmental engineer to
prepare an environmental audit of the Property and to submit
the results of such audit to Bank. The choice of the
environmental engineer who will perform such audit Is
subject to the approval of Bank.
(10) Bank has the right, but not the obligation, to perform any
of Mortgagor's obligations under this paragraph at
Mortgagor's expense.
(11) As a consequence of any breach of any representation,
warranty or promise made in this paragraph, (a) Mortgagor
will indemnify and hold Bank and Bank's successors or
assigns harmless from and against all losses, claims,
demands, liabilities, damages, cleanup, response and
remediation costs, penalties and expenses, including without
limitation all costs of litigation and reasonable attorneys'
fees to the extent not prohibited by law, which Bank and
Bank's successors or assigns may sustain; and (b) at Bank's
discretion, Bank may release this Mortgage and in return
Mortgagor will provide Bank with collateral of at least
equal value to the Property secured by this Mortgage without
prejudice to any of Bank's rights under this Mortgage.
(12) Notwithstanding any of the language contained in this
Mortgage to the contrary, the terms of this paragraph shall
survive any foreclosure or satisfaction of any deed of
trust, mortgage or any obligation regardless of any passage
of title to Bank or any disposition by Bank of any or all of
the Property. Any claims and defenses to the contrary are
hereby waived.
18. INSPECTION BY BANK. Bank or its agents may make or cause to be made
reasonable entries upon the Property and inspect the Property provided that
Bank shall make reasonable efforts to give Mortgagor prior notice of any
such inspection.
19. PROTECTION OF BANK'S SECURITY. If Mortgagor fails to perform any covenant,
obligation or agreement contained in the Note, this Mortgage or any loan
documents or if any action or proceeding is commenced which materially
affects Bank's interest in the Property, including, but not limited to,
foreclosure, eminent domain, insolvency, housing or Environmental Law or
law enforcement, or arrangements or proceedings involving a bankrupt or
decedent, then Bank, at Bank's sole option, may make such appearances,
disburse such sums, and take such action as is necessary to protect Bank's
Interest. Mortgagor hereby assigns to Bank any right Mortgagor may have by
reason of any prior encumbrance on the Property or by law or otherwise to
cure any default under said prior encumbrance. Without Bank's prior written
consent, Mortgagor will not partition or subdivide the Property,
20. COLLECTION COSTS. In the event of default and to the extent not prohibited
by law, Mortgagor agrees to pay reasonable costs incurred to collect this
debt or realize on the security. This includes without limitation,
collection agency fees or attorneys' fees, but not both, and other legal
costs and expenses incurred by Bank in exercising any remedy under this
Loan or under the law. Any such fees and expenses shall be added to the
principal amount of the Obligations and shall accrue interest at the same
rate as the Obligations and shall be secured by the Collateral and
Property.
21. CONDEMNATION. In the event all or any part of the Property (including but
not limited to any easement therein) is sought to be taken by private
taking or by virtue of the law of eminent domain, Mortgagor will promptly
give written notice to Bank of the institution of such proceedings.
Mortgagor further agrees to notify Bank of any attempt to purchase or
appropriate the Property or any easement therein, by any public authority
or by any other person or corporation claiming or having the right of
eminent domain or appropriation. Mortgagor further agrees and directs that
all condemnation proceeds or purchase money which may be agreed upon or
which may be found to be due shall be paid to Bank as a prepayment under
the Note. Mortgagor also agrees to notify the Bank of any proceedings
instituted for the establishment of any sewer, water, conservation, ditch,
drainage, or other district relating to or binding upon the Property or any
part thereof. All awards payable for the taking of title to, or possession
of, or damage to all or any portion of the Property by reason of any
private taking, condemnation, eminent domain, change of grade, or other
proceeding shall, at the option of Bank, be paid to Bank. Such awards or
compensation are hereby assigned to Bank, and judgment therefor shall be
entered in favor of Bank.
When paid, such awards shall be used, at Bank's option, toward the payment
of the Obligations or payment of taxes, assessments, repairs or other items
provided for in this Mortgage, whether due or not, all in such order and
manner as Bank may determine. Such application or release shall not cure or
waive any default. In the event Bank deems it necessary to appear or answer
in any condemnation action, hearing or proceeding, Mortgagor shall hold
Bank harmless from and pay all legal expenses, including but not limited to
reasonable attorneys' fees to the extent not prohibited by law, court costs
and other expenses.
22. OTHER PROCEEDINGS. If any action or proceeding is commenced to which Bank
is made or chooses to become a party by reason of the execution of the
Note, this Mortgage, any loan documents or the existence of any Obligations
or in which Bank deems it necessary to appear or answer in order to protect
its interests, Mortgagor agrees to pay and to hold Bank harmless for all
liabilities, costs and expenses paid or incurred by Bank in such action or
proceedings.
23. WAIVER BY MORTGAGOR. To the extent not specifically prohibited by law,
Mortgagor hereby waives and releases any and all rights and remedies
Mortgagor may now have or acquire in the future relating to:
A. homestead;
B. exemptions as to the Property;
C. redemption;
D. appraisement;
E. marshalling of lions and assets; and
F. statutes of limitations.
Mortgagor acknowledges that the Property is not used for either residential
or agricultural purposes.
In addition, redemption by Mortgagor after foreclosure sale is expressly
waived to the extent not prohibited by law.
24. BANK MAY PAY. If Mortgagor falls to pay when due any of the items it is
obligated to pay or fails to perform when obligated to perform, Bank may,
at its option:
A. pay, when due, installments of principal, interest or other
obligations, in accordance with the terms of any mortgage senior
to that of Bank's lien interest;
B. pay, when due, installments of any real estate tax imposed on the
Property; or
C. pay or perform any other obligation relating to the Property
which affects, at Bank's sole discretion, the interest of Bank in
the Property.
Mortgagor agrees to Indemnify Bank and hold Bank harmless for all the
amounts so paid and for Bank's costs and expenses.
Such payments when made by Bank shall be added to the principal balance of
the Obligations and shall bear interest at the rate provided for by the
Note as of the date of such payment. Such payments shall be a part of this
lien and shall be secured by this Mortgage, having the benefit of the lien
and its priority. Mortgagor agrees to pay and to reimburse Bank for all
such payments.
25. WAIVER OF JURY TRIAL. To the extent permitted by law, Mortgagor and Bank
hereby waive the rights which the party may
<PAGE>
have, to a trial by jury in respect to any litigation arising from the
Obligations, or any other agreement executed in conjunction with this Loan.
Mortgagor and Bank each acknowledge that this paragraph has either been
brought to the attention of each party's legal counsel or that each party
had the opportunity to do so.
26. GENERAL PROVISIONS.
A. TIME IS OF THE ESSENCE. Time is of the essence in Mortgagor's
performance of all duties and obligations imposed by this
Mortgage.
B. NO WAIVER BY BANK. Bank's course of dealing, or Bank's
forbearance from, or delay in, the exercise of any of Bank's
rights, remedies, privileges or right to insist upon Mortgagor's
strict performance of any provisions contained in this Mortgage,
or other loan documents, shall not be construed as a waiver by
Bank, unless any such waiver is in writing and is signed by Bank.
The acceptance by Bank of any sum in payment or partial payment
on the Obligations after the balance is due or is accelerated or
after foreclosure proceedings are filed shall not constitute a
waiver of Bank's right to require full and complete cure of any
existing default for which such actions by Bank were taken or its
right to require prompt payment when due of all other remaining
sums due under the Obligations, nor will it cure or waive any
default not completely cured or any other defaults, or operate as
a defense to any foreclosure proceedings or deprive Bank of any
rights, remedies and privileges due Bank under the Note, this
Mortgage, other loan documents, the law or equity.
C. AMENDMENT. The provisions contained in this Mortgage may not be
amended, except through a written amendment which is signed by
Mortgagor and Bank.
D. INTEGRATION CLAUSE. This written Mortgage and all documents
executed concurrently herewith, represent the entire
understanding between the parties as to the Obligations and may
not be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements of the parties.
E. FURTHER ASSURANCES. Mortgagor agrees, upon request of Bank and
within the time Bank specifies, to provide any information, and
to execute, acknowledge, deliver and record or file such further
instruments or documents as may be required by Bank to secure the
Note or confirm any lien.
F. GOVERNING LAW. This Mortgage shall be governed by the laws of the
State of KANSAS, provided that such laws are not otherwise
preempted by federal laws and regulations.
G. FORUM AND VENUE. In the event of litigation pertaining to this
Mortgage, the exclusive forum, venue and place of jurisdiction
shall be in the State of KANSAS, unless otherwise designated in
writing by Bank or otherwise required by law.
H. SUCCESSORS. This Mortgage shall inure to the benefit of and bind
the heirs, personal representatives, successors and assigns of
the parties; provided however, that Mortgagor may not assign,
transfer or delegate any of the rights or obligations under this
Mortgage.
I. NUMBER AND GENDER. Whenever used, the singular shall include the
plural, the plural the singular, and the use of any gender shall
be applicable to all genders.
J. DEFINITIONS. The terms used in this Mortgage, it not defined
herein, shall have their meanings as defined in the other
documents executed contemporaneously, or in conjunction, with
this Mortgage.
K. PARAGRAPH HEADINGS. The headings at the beginning of any
paragraph, or any subparagraph, in this Mortgage are for
convenience only and shall not be dispositive in interpreting or
construing this Mortgage.
L. IF HELD UNENFORCEABLE. If any provision of this Mortgage shall be
held unenforceable or void, then such provision to the extent not
otherwise limited by law shall be severable from the remaining
provisions and shall in no way affect the enforceability of the
remaining provisions nor the validity of this Mortgage.
M. CHANGE IN APPLICATION. Mortgagor will notify Bank in writing
prior to any change in Mortgagor's name, address, or other
application Information.
N. NOTICE. All notices under this Mortgage must be in writing. Any
notice given by Bank to Mortgagor hereunder will be effective
upon personal delivery or 24 hours after mailing by first class
United States mail, postage prepaid, addressed to Mortgagor at
the address indicated below Mortgagor's name on page one of this
Mortgage. Any notice given by Mortgagor to Bank hereunder will be
effective upon receipt by Bank at the address indicated below
Bank's name on page one of this Mortgage. Such addresses may be
changed by written notice to the other party.
O. FILING AS FINANCING STATEMENT. Mortgagor agrees and acknowledges
that this Mortgage also suffices as a financing statement and as
such, may be filed of record as a financing statement for
purposes of Article 9 of the KANSAS Uniform Commercial Code. A
carbon, photographic or other reproduction of this Mortgage is
sufficient as a financing statement.
27. ACKNOWLEDGMENT. By the signature(s) below, Mortgagor acknowledges that this
Mortgage has been read and agreed to and that a copy of this Mortgage has
been received by the Mortgagor.
MORTGAGOR:
AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE
a Nebraska corporation
(Corporate Seal*)
By: _______________________________________
WILLIAM B. MORRIS,
SR. VICE PRESIDENT
_______________________________________
Attest
(*Corporate seal may be affixed, but failure to affix shall not affect
validity or reliance.)
STATE OF )
) ss:
COUNTY OF )
This instrument was acknowledged before me on _____________________, 19___
by WILLIAM E. MORRIS, SENIOR VICE PRESIDENT OF AFI MORTGAGE CORP. F/K/A
Continental Mortgage, a NEBRASKA corporation , on behalf of said corporation.
______________________________________
NOTARY PUBLIC
My appointment expires:
_______________________
Please return this document after recording to CITIZENS NATIONAL BANK OF FORT
SCOTT, 200 South Main, P.O. Box 899, Fort Scott, Kansas 66701.
THIS IS THE LAST PAGE OF A 5 PAGE DOCUMENT. EXHIBITS AND/OR ADDENDA MAY FOLLOW.
<PAGE>
- --------------------------------------------------------------------------------
LOAN NO. LOAN NAME ACCOUNT NO. NOTE DATE RATE NOTE AMOUNT MATURITY INITIALS
12784 ADVANCED 04/01/98 11.75% $725,163.73 10/01/98 JRS
(For Bank Purposes Only-AC)
- --------------------------------------------------------------------------------
PROMISSORY NOTE
(Business Purpose)
CITIZENS NATIONAL BANK
- --------------------------------------------------------------------------------
1. DATE AND PARTIES. The date of this Promissory Note (Note) is April 1,
1998. This Note evidences a loan which includes all extensions, renewals,
modifications and substitutions (Loan). The patties to this Note and Loan
are:
BORROWER:
ADVANCED FINANCIAL, INC.
a Delaware corporation
5425 Martindale Street
Shawnee, Kansas 66203
Tax I.D. # 48-1069416
AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE, INC.
a Nebraska corporation
5425 Martindale
Shawnee, KS 66218
Tax I.D. # 47-0643940
BANK:
CITIZENS NATIONAL BANK
a national banking association
7900 Quivera
Lenexa, Kansas 66215
Tax I.D. # 48-0168914
Branch No. 012
2. PROMISE TO PAY. For value received, Borrower promises to pay to Bank's
order at its office at the above address, or such other place as Bank
may designate, the sum of $725,163.73 (Principal) plus interest from
April 1, 1998, on the unpaid principal balance at the late of 11.75% per
annum (Contract Rate) until this Note matures or the obligation is
accelerated. After maturity or acceleration, the unpaid balance shall
bear interest at the rate of 16.75% per annum, or if less, the maximum
allowable rate permitted by law, until this Note is paid in full. The
Loan and this Note are limited to the maximum lawful amount of interest
(Maximum Lawful Interest) permitted under federal and state laws. If
the interest accrued and collected exceeds the Maximum Lawful Interest
as of the time of collection, such excess shall be applied to reduce the
principal amount outstanding, unless otherwise required by law. If or
when no principal amount is outstanding, any excess interest shall be
refunded to Borrower according to the actuarial method. Interest shall
be computed on the basis of a 360-day year and the actual number of days
elapsed.
Principal and accrued interest are due and payable in 5 equal monthly
payments of $8,812.01 on the 1st day of each month, beginning May 1, 1998,
or the day following if the payment day is a holiday or is a non-business
day for Bank. Unless paid prior to maturity, the last scheduled payment
plus all other unpaid principal, accrued interest, costs and expenses are
due and payable on October 1, 1996, which is the date of maturity. These
payment amounts are based upon timely payment of each installment. All
amounts shall be paid in legal U.S. currency. Any payment made with a
check will constitute payment only when collected.
3. EFFECT OF PREPAYMENT. Borrower may prepay this Loan in full, subject to
any prepayment penalty or minimum charge as agreed to below. However, no
partial prepayment shall excuse or defer Borrower's subsequent payments or
entitle Borrower to a release of any collateral. Interest will cease to
accrue on the amounts prepaid on the day actually credited by Bank.
4. RIGHT TO PREPAY. Borrower may prepay this Note in whole or in part,
without penalty.
5. LATE CHARGE. Borrower agrees to pay Bank a late charge equal to 5% of the
unpaid installment or $25.00, whichever is less, it payment is not made in
full on or before 10 days after the scheduled due date.
6. RETURNED CHECK CHARGE. To the extent not prohibited by law, Borrower
agrees to pay Bank $10.00 for each check presented for payment and
dishonored because of insufficient funds or no account. This charge will
be assessed 14 days after the date of million demand.
7. EVENTS OF DEFAULT. Borrower shall be in default upon the occurrence of
any of the following events, circumstances or conditions (Events of
Default):
A. Failure by any party obligated on this Note or any other
obligations Borrower has with Bank to make payment where due; or
B. A default or breach by Borrower or any co-signer, endorser, surety,
or guarantee under any of the terms of this Note, any construction
loan agreement or other loan agreement, any Security agreement,
mortgage, deed to secure debt, deed of trust, trust deed, or any other
document or instrument evidencing, guarantying, securing or otherwise
relating to this Note or any other obligations Borrower has with Bank;
or
C. The making or furnishing of any verbal or written
representation, statement or warranty to Bank which is or becomes
false or incorrect in any material respect by or on behalf of
Borrower, or any one of them, or any co-signer, endorser, surety or
guarantor of this Note or any other obligations Borrower has with
Bank; or
D. Failure to obtain or maintain the insurance coverages required by
Bank, or insurance as is customary and proper for any collateral (as
herein defined); or
E. The death, dissolution or insolvency of, the appointment of a
receiver by or on behalf of, the assignment for the benefit of
creditors by or on behalf of, the voluntary or involuntary termination
of existence by, or the commencement of any proceeding under any
present or future federal or state insolvency, bankruptcy,
reorganization, composition or debtor relief law by or against
Borrower, or any one of them, or any co-signer, endorser, surety or
guarantor of this Note or any other obligations Borrower has with
Bank; or
F. A good faith belief by Bank at any time that Bank is insecure with
respect to Borrower, or any co-signer, endorser, surety or guarantee,
that the prospect of any payment is impaired or that any collateral
(as herein defined) is impaired; or
G. Failure to pay or provide proof of payment of any tax,
assessment, rent, insurance premium, escrow or escrow deficiency on or
before its due date; or
H. A material adverse change in Borrower's business, including
ownership, management, and financial conditions, which in Bank's
opinion, impairs any collateral or repayment of the Obligations; or
I. A transfer of a substantial part of Borrower's money or property.
8. REMEDIES ON DEFAULT. On or after the occurrence of an Event of Default,
at the option on Bank, all or any part of the Principal and accrued
interest on this Note, the Loan and all other obligations which Borrower
owes Bank shall become immediately due and payable without notice or
demand. Bank may exercise all rights and remedies provided by law,
equity, this Note, any mortgage, deed of trust or similar instrument and
any other security, loan, guaranty or surety agreements pertaining to
this Note and all other obligations of Borrower to Bank. Bank is
entitled to all rights and remedies provided at law or equity whether or
not expressly stated in this Note. By choosing any remedy, Bank does
not waive its right to an immediate use of any other remedy if the event
of default continues or occurs again. In addition to the remedies
provided by law upon default, Bank also has the right of set-off against
this Note, including but without limiting the generality, all money owed
by Bank to Borrower, whether or not due.
9. COLLECTION COSTS. In the event of default and to the extent not
prohibited by law, Borrower agrees to pay reasonable costs incurred to
collect this debt or realize on the security. This includes without
limitation, collection agency fees or attorneys' fees, but not both, and
other legal costs and expenses incurred by Bank in exercising any remedy
under this Loan or under the law. Any such fees and expenses shall be
added to the principal amount of this Note and shall accrue interest at
the same rate as this Note and shall be secured by the Collateral and
Property.
10. NO DUTY BY BANK. Bank is under no duty to preserve or protect any
Collateral until Bank is in actual, or constructive, possession of the
Collateral.
<PAGE>
or purposes of this paragraph, Bank shall only be considered to be in
"actual" possession of the Collateral when Bank has physical, immediate
and exclusive control over the Collateral and has affirmatively accepted
such control. Bank shall only be considered to be in "constructive"
possession the Collateral when Bank has both the power and the intent to
exercise control over the Collateral.
11. WAIVER AND CONSENT BY BORROWER AND OTHER SIGNERS. Regarding this Note, to
the extent not prohibited by law, Borrower and any other signers:
A. waive protest, presentment for payment, demand, notice of
acceleration, notice of intent to accelerate and notice of dishonor.
B. consent to any renewals and extensions for payment on this Note,
regardless of the number of such renewals or extensions.
C. consent to Bank's release of any borrower, endorser, guarantee,
surety, accommodation maker or any other co-signer.
D. consent to the release, substitution or impairment of any collateral.
E. consent that Borrower, or any Borrower herein, is authorized to
modify the terms of this Note or any instrument securing, guarantying
or relating to this Note.
F. consent to Bank's right of set-off as well as any right of
set-off of any bank participating in the Loan.
G. consent to any and all sales, repurchases and participations of
this Note to any person in any amounts and waive notice of such sales,
repurchases or participations of this Note.
12. SECURITY. This Note is secured by the following type(s) (or items) of
property (Collateral):
Real Estate
The real property portion of the Collateral includes the following
described property (Property) situated in JOHNSON County, KANSAS, to-wit:
Lot 1, Block 2, MILLWOOD BUSINESS PARK FIRST PLAT, a subdivision in
the city of Shawnee, Johnson County, Kansas.
The Property may be commonly referred to as 5425
Martindale, Shawnee, Kansas
The term "Collateral" further includes, but is not limited to, the
following property, whether now owned or hereafter acquired, and whether
or not held by a bailee for the benefit of the Owner or Owners, all:
accessions, accessories, additions, fittings, increases, insurance
benefits and proceeds, parts, products, profits, renewals, rents,
replacements, special tools and substitutions, together with all books and
records pertaining to the Collateral and access to the equipment
containing such books and records including computer stored information
and all software relating thereto, plus all cash and non-cash proceeds and
all proceeds of proceeds arising from the type(s) (items) of property
listed above.
This Note is secured by the following described real estate documents: (1)
REAL ESTATE MORTGAGE EXECUTED BY AFI MORTGAGE CORP., F/K/A CONTINENTAL
MORTGAGE ON FEBRUARY 3, 1997 FOR $739,031.00 AND RECORDED IN THE REGISTER
OF DEEDS FOR JOHNSON COUNTY ON FEBRUARY 14, 1997 AS DOCUMENT #2677207, IN
BOOK 5109, AT PAGE 99. (2) SUBORDINATION AGREEMENT EXECUTED BY FIRST
MORTGAGE DIVESTMENT, CO. ON FEBRUARY 3, 1997 SUBORDINATING THEIR FIRST
MORTGAGE THAT WAS RECORDED IN THE REGISTER OF DEEDS FOR JOHNSON COUNTY ON
APRIL 10, 1996 AS DOCUMENT #2585617 IN BOOK 4846 AT PAGE 23 TO CITIZENS
NATIONAL BANK.
13. PAYMENTS APPLIED. All payments, including but not limited to regular
payments or prepayments, received by Bank shall be applied first to costs,
then to interest and the balance, it any, to Principal except as otherwise
required by law.
14. LOAN PURPOSE. Borrower represents and warrants that the purpose of this
Loan is renewal of Note #12558 with an increase which was origin any used
refinance mortgage.
15. JOINT AND SEVERAL. Borrower, and any one of them, or any other signers
shall be jointly and severally liable under this Note.
16. FINANCIAL STATEMENTS. Until this Note is paid, in full, Borrower shall
furnish Bank upon Bank's request and in the event at no request, at least
annually a current financial statement which is certified by Borrower and
Borrower's accountant to be true, complete and accurate.
17.
<PAGE>
GENERAL PROVISIONS.
A. TIME IS OF THE ESSENCE. Time is of the essence in Borrower's
performance of all duties and obligations imposed by this Note.
B. NO WAIVER BY BANK. Bank's course of dealing, or Bank's
forbearance from, or delay in, the exercise of any of Bank's rights,
remedies, privileges or right to insist upon Borrower's strict
performance of any provisions contained in this Note, or other loan
documents, shall not be construed as a waiver by Bank, unless any such
waiver is in writing and is signed by Bank.
C. AMENDMENT. The provisions contained in this Note may not be amended,
except through a written amendment which is signed by Borrower and
Bank.
D. INTEGRATION CLAUSE. This written Note and all documents executed
concurrently herewith, represent the entire understanding between the
parties is to the Obligations and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements of the
parties.
E. FURTHER ASSURANCES. Borrower agrees, upon request of Bank and
within the time Bank specifies, to provide any information, and to
execute, acknowledge, deliver and record or file such further
instruments or documents as may be required by Bank to secure this
Note or confirm any lien.
F. GOVERNING LAW. This Note shall be governed by the laws of the State
of KANSAS, provided that such laws ate not otherwise preempted by
federal laws and regulations.
G. FORUM AND VENUE. In the event of litigation pertaining to this
Note, the exclusive forum, venue and place of jurisdiction shall be in
the State of KANSAS, unless otherwise designated in writing by Bank or
otherwise required by law.
H. SUCCESSORS. This Note shall inure to the benefit of and bind the
heirs, personal representatives, successors and assigns of the
parties; provided however, that Borrower may not assign, transfer or
delegate any of the rights or obligations under this Note.
I. NUMBER AND GENDER. Whenever used, the singular shall include
the plural, the singular, and the use of any gender shall be
applicable to all genders.
J. DEFINITIONS. The terms used in this Note, if not defined herein,
shall have their meanings as defined in the other documents executed
contemporaneously, or in conjunction, with this Note.
K. PARAGRAPH HEADINGS. The headings at the beginning of any paragraph, or
any subparagraph, in this Note are for convenience only and shall not
be dispositive in interpreting or construing this Note.
L. IF HELD UNENFORCEABLE. If any provision of this Note shall be
found unenforceable or void, then such provision to the extent not
otherwise limited by law shall be severable from the remaining
provisions and shall in no way affect the enforceability of the
remaining provisions nor the validity of this Note.
M. CHANGE IN APPLICATION. Borrower will notify Bank in writing
prior to any change in Borrower's name, address, or other application
information.
N. NOTICE. All notices under this Note must be in writing. Any notice
given by Bank to Borrower hereunder will be effective upon personal
delivery or 24 hours after mailing by first class United States mail,
postage prepaid, addressed to Borrower at the address indicated below
Borrower's name on page one of this Note. Any notice given by Borrower
to Bank hereunder will be effective upon receipt by Bank at the
address indicated below Bank's name on page one of this Note. Such
addresses may be changed by written notice to the other party.
O. HOLDER. The term "Bank" shall include any transferee and
assignee of Bank or other holder of this Note.
P. BORROWER DEFINED. The term "Borrower" includes each and every
person signing this Note as a Borrower and any co-signers.
18. WAIVER OF JURY TRIAL. To the extent permitted by law, Borrower and Bank
hereby waive the right, which either party may have, to a trial by jury in
respect to any litigation arising from this Note or any other agreement
executed in conjunction with this Loan. Borrower and Bank each acknowledge
that this paragraph has either been brought to the attention of each
party's legal counsel or that each party had the opportunity to do so.
19. RECEIPT OF COPY. By signing below, Borrower acknowledges that Borrower has
read and received a copy of this Note.
BORROWER:
ADVANCED FINANCIAL, INC. (Corporate Seal*)
a Delaware corporation
By: /s/ William B. Morris
_____________________________________
WILLIAM B. MORRIS, SR. VICE PRESIDENT
<PAGE>
_______________________________________
Attest
(Corporate seal may be affixed, but failure to affix shall not affect
validity or reliance.)
AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE, INC.
a Nebraska corporation
By: /s/ William B. Morris
______________________________________
WILLIAM B. MORRIS, SR. VICE PRESIDENT
______________________________________
Attest
(Corporate seal may be affixed, but failure to affix shall not affect
validity or reliance.)
THIS IS THE LAST PAGE OF A 3 PAGE DOCUMENT. EXHIBITS AND/OR ADDENDA
MAY FOLLOW.
<PAGE>
- --------------------------------------------------------------------------------
LOAN NO. LOAN NAME ACCOUNT NO. NOTE DATE RATE NOTE AMOUNT MATURITY INITIALS
12586 ADVANCED 02/03/98 11.75% $739,031.00 03/29/98 JRS
FINANCIAL
(For Bank Purposes Only-AC)
- --------------------------------------------------------------------------------
PROMISSORY NOTE
(Business Purpose)
CITIZENS NATIONAL BANK OF FORT SCOTT
- --------------------------------------------------------------------------------
1. DATE AND PARTIES. The date of this Promissory Note (Note) is February 3,
1997. This Note evidences a loan which includes all extensions, renewals,
modifications and substitutions (Loan). The parties to this Note and Loan
are:
BORROWER:
ADVANCED FINANCIAL, INC.
a DELAWARE corporation
5425 MARTINDALE STREET
SHAWNEE, KANSAS 66203
AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE
a NEBRASKA corporation
5425 MARTINDALE
SHAWNEE, KS 66218
BANK:
CITIZENS NATIONAL BANK OF FORT SCOTT
a national banking association
200 South Main
P.O. Bxo 899
Fort Scott, Kansas 66701
2. PROMISE TO PAY.For value received, Borrower promises to pay to Bank's order
at its office at the above address, or such other place as Bank may
designate, the sum of $739,031.00 (Principal) plus interest from February
3, 1997, on the unpaid principal balance at the rate of 11.75% per annum
(Contract Rate) until this Note matures or the obligation is accelerated.
After maturity or acceleration, the unpaid balance shall continue to bear
interest at the Contract Rate until this Note is paid in full. The Loan and
this Note are limited to the maximum lawful amount of interest (Maximum
Lawful Interest) permitted under federal and state laws. If the interest
accrued and collected exceeds the Maximum Lawful Interest as of the time of
collection, such excess shall be applied to reduce the principal amount
outstanding, unless otherwise required by law. If or when no principal
amount is outstanding, any excess interest shall be refunded to Borrower
according to the actuarial method. Interest shall be computed on the basis
of a 360-day year and the actual number of days elapsed.
A. BORROWER AGREES TO MAKE THIRTEEN (13) MONTHLY PRINCIPAL AND INTEREST
PAYMENTS OF $8,812.01 BEGINNING FEBRUARY 28, 1997. ALL OTHER UNPAID
RINCIPAL AND ACCRUED INTEREST SHALL BE DUE IN FULL ON MARCH 28, 1998,
WHICH IS THE DATE OF MATURITY. ALL AMOUNTS SHALL BE PAID IN U.S.
CURRENCY. ANY PAYMENT MADE WITH A CHECK WILL CONSTITUTE PAYMENT ONLY
WHEN COLLECTED.
3. EFFECT OF PREPAYMENT. Borrower may prepay this Loan in full, subject to any
prepayment penalty or minimum charge as agreed to below. However, no
partial prepayment shall excuse or defer Borrower's subsequent payments or
entitle Borrower to a release of any collateral. Interest will cease to
accrue on the amounts prepaid on the day actually credited by Bank.
4. RIGHT TO PREPAY. Borrower may prepay this Note in whole or in part, without
penalty.
5. LATE CHARGE. Borrower agrees to pay Bank a late charge equal to 5% of the
unpaid installment or $25.00, whichever is less, if payment is not made in
full on or before 10 days after the scheduled due date.
6. RETURNED CHECK CHARGE. To the extent not prohibited by law, Borrower agrees
to pay Bank $10.00 for each check presented for payment and dishonored
because of insufficient funds or no account. This charge will be assessed
14 days after the date of million demand.
7. EVENTS OF DEFAULT. Borrower shall be in default upon the occurrence of any
of the following events, circumstances or conditions (Events of Default):
A. Failure by any party obligated on this Note or any other obligations
Borrower has with Bank to make payment where due; or
<PAGE>
B. A default or breach by Borrower or any co-signer, endorser, surety, or
guarantor under any of the terms of this Note, any construction loan
agreement or other loan agreement, any Security agreement, mortgage,
deed to secure debt, deed of trust, trust deed, or any other document
or instrument evidencing, guarantying, securing or otherwise relating
to this Note or any other obligations Borrower has with Bank; or
C. The making or furnishing of any verbal or written representation,
statement or warranty to Bank which is or becomes false or incorrect
in any material respect by or on behalf of Borrower, or any one of
them, or any co-signer, endorser, surety or guarantor of this Note or
any other obligations Borrower has with Bank; or
D. Failure to obtain or maintain the insurance coverages required by
Bank, or insurance as is customary and proper for any collateral (as
herein defined); or
E. The death, dissolution or insolvency of, the appointment of a receiver
by or on behalf of, the assignment for the benefit of creditors by or
on behalf of, the voluntary or involuntary termination of existence
by, or the commencement of any proceeding under any present or future
federal or state insolvency, bankruptcy, reorganization, composition
or debtor relief law by or against Borrower, or any one of them, or
any co-signer, endorser, surety or guarantor of this Note or any other
obligations Borrower has with Bank; or
F. A good faith belief by Bank at any time that Bank is insecure with
respect to Borrower, or any co-signer, endorser, surety or guarantee,
that the prospect of any payment is impaired or that any collateral
(as herein defined) is impaired; or
G. Failure to pay or provide proof of payment of any tax, assessment,
rent, insurance premium, escrow or escrow deficiency on or before its
due date; or
H. A material adverse change in Borrower's business, including ownership,
management, and financial conditions, which in Bank's opinion, impairs
any collateral or repayment of the Obligations; or
I. A transfer of a substantial part of Borrower's money or property.
8. LOAN FEE. Borrower has agreed to pay Bank a non-refundable loan fee of
$10,875.00, which will either be paid in cash upon execution of this Note,
or be financed as a portion of the Principal
9. REMEDIES ON DEFAULT. On or after the occurrence of an Event of Default, at
the option on Bank, all or any part of the Principal and accrued interest
on this Note, the Loan and all other obligations which Borrower owes Bank
shall become immediately due and payable without notice or demand. Bank may
exercise all rights and remedies provided by law, equity, this Note, any
mortgage, deed of trust or similar instrument and any other security, loan,
guaranty or surety agreements pertaining to this Note and all other
obligations of Borrower to Bank. Bank is entitled to all rights and
remedies provided at law or equity whether or not expressly stated in this
Note. By choosing any remedy, Bank does not waive its right to an immediate
use of any other remedy if the event of default continues or occurs again.
In addition to the remedies provided by law upon default, Bank also has the
right of set-off against this Note, including but without limiting the
generality, all money owed by Bank to Borrower, whether or not due.
10. COLLECTION COSTS. In the event of default and to the extent not prohibited
by law, Borrower agrees to pay reasonable costs incurred to collect this
debt or realize on the security. This includes without limitation,
collection agency fees or attorneys' fees, but not both, and other legal
costs and expenses incurred by Bank in exercising any remedy under this
Loan or under the law. Any such fees and expenses shall be added to the
principal amount of this Note and shall accrue interest at the same rate as
this Note and shall be secured by the Collateral and Property.
11. NO DUTY BY BANK.Bank is under no duty to preserve or protect any
Collateral.
2
<PAGE>
until Bank is in actual, or constructive, possession of the Collateral. For
purposes of this paragraph, Bank shall only be considered to be in "actual"
possession of the Collateral when Bank has physical, immediate and
exclusive control over the Collateral and has affirmatively accepted such
control. Bank shall only be considered to be in "constructive" possession
the Collateral when Bank has both the power and the intent to exercise
control over the Collateral.
12. WAIVER AND CONSENT BY BORROWER AND OTHER SIGNERS. Regarding this Note, to
the extent not prohibited by law, Borrower and any other signers:
A. waive protest, presentment for payment, demand, notice of
acceleration, notice of intent to accelerate and notice of dishonor.
B. consent to any renewals and extensions for payment on this Note,
regardless of the number of such renewals or extensions.
C. consent to Bank's release of any borrower, endorser, guarantee,
surety, accommodation maker or any other co-signer.
D. consent to the release, substitution or impairment of any collateral.
E. consent that Borrower, or any Borrower herein, is authorized to modify
the terms of this Note or any instrument securing, guarantying or
relating to this Note.
F. consent to Bank's right of set-off as well as any right of set-off of
any bank participating in the Loan.
G. consent to any and all sales, repurchases and participations of this
Note to any person in any amounts and waive notice of such sales,
repurchases or participations of this Note.
13. SECURITY. This Note is secured by the following type(s) (or items) of
property (Collateral):
Real Estate
The real property portion of the Collateral includes the following
described property (Property) situated in JOHNSON County, KANSAS, to-wit:
Lot 1, Block 2, MILLWOOD BUSINESS PARK FIRST PLAT, A
SUBDIVISION IN THE CITY OF SHAWNEE, JOHNSON COUNTY,
KANSAS.
The Property may be commonly referred to as 5425
MARTINDALE, SHAWNEE, KANSAS
The term "Collateral" further includes, but is not limited to, the
following property, whether now owned or hereafter acquired, and whether
or not held by a bailee for the benefit of the Owner or Owners, all:
accessions, accessories, additions, fittings, increases, insurance
benefits and proceeds, parts, products, profits, renewals, rents,
replacements, special tools and substitutions, together with all books and
records pertaining to the Collateral and access to the equipment
containing such books and records including computer stored information
and all software relating thereto, plus all cash and non-cash proceeds and
all proceeds of proceeds arising from the type(s) (items) of property
listed above.
This Note is secured by the following described real estate documents: A
SEPARATE REAL ESTATE MORTGAGE DATED FEBRUARY 3, 1997.
14. PAYMENTS APPLIED. All payments, including but not limited to regular
payments or prepayments, received by Bank shall be applied first to costs
and then in an appropriate manner as determined by Bank in its sole
discretion except as otherwise required by law.
15. LOAN PURPOSE. Borrower represents and warrants that the proceeds of this
Note shall only be used for business purposes.
16. JOINT AND SEVERAL. Borrower, and any one of them, or any other signers
shall be jointly and severally liable under this Note.
17. FINANCIAL STATEMENTS. Until this Note is paid, in full, Borrower shall
furnish Bank upon Bank's request and in the event at no request, at least
annually a current financial statement which is certified by Borrower and
Borrower's accountant to be true, complete and accurate.
18. GENERAL PROVISIONS.
A. TIME IS OF THE ESSENCE. Time is of the essence in Borrower's
performance of all duties and obligations imposed by this Note.
3
<PAGE>
B. NO WAIVER BY BANK. Bank's course of dealing, or Bank's forbearance
from, or delay in, the exercise of any of Bank's rights, remedies,
privileges or right to insist upon Borrower's strict performance of
any provisions contained in this Note, or other loan documents, shall
not be construed as a waiver by Bank, unless any such waiver is in
writing and is signed by Bank.
C. AMENDMENT. The provisions contained in this Note may not be amended,
except through a written mendment which is signed by Borrower and
Bank.
D. INTEGRATION CLAUSE. This written Note and all documents executed
concurrently herewith, represent the entire understanding between the
parties as to the Obligations and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements of the
parties.
E. FURTHER ASSURANCES. Borrower agrees, upon request of Bank and within
the time Bank specifies, to provide any Information, and to execute,
acknowledge, deliver and record or file such further Instruments or
documents as may be required by Bank to secure this Note or confirm
any lion.
F. GOVERNING LAW. This Note shall be governed by the laws of the State of
KANSAS, provided that such laws are not otherwise preempted by federal
laws and regulations.
` G. FORUM AND VENUE. In the event of litigation pertaining to this Note,
the exclusive forum, venue and place of jurisdiction shall be in the
State of KANSAS, unless otherwise designated in writing by Bank or
otherwise required by law.
H. SUCCESSORS. This Note shall inure to the benefit of and bind the
heirs, personal representatives, successors and assigns of the
parties; provided however, that Borrower may not assign, transfer or
delegate any of the rights or obligations under this Note.
I. NUMBER AND GENDER. Whenever used, the singular shall include the
plural, the plural the singular, and the use of any gender shall be
applicable to all genders.
J. DEFINITIONS. The terms used in this Note, if not defined herein, shall
have their meanings as defined in the other documents executed
contemporaneously, or in conjunction, with this Note.
K. PARAGRAPH HEADINGS. The headings at the beginning of any paragraph, or
any subparagraph, in this Note are for convenience only and shall not
be dispositive in interpreting or construing this Note.
L. IF HELD UNENFORCEABLE. If any provision of this Note shall be held
unenforceable or void, then such provision to the extent not otherwise
limited by law shall be severable from the remaining provisions and
shall in no way affect the enforceability of the remaining provisions
nor the validity of this Note.
M. CHANGE IN APPLICATION. Borrower will notify Bank in writing prior to
any change in Borrower's name, address, or. other application
information.
N. NOTICE. All notices under this Note must be in writing. Any notice
given by Bank to Borrower hereunder will be effective upon personal
delivery or 24 hours after mailing by first class United States mail,
postage prepaid, addressed to Borrower at the address indicated below
Borrower's name on page one of this Note. Any notice given by Borrower
to Bank hereunder will be effective upon receipt by Bank at the
address indicated below Bank's name on page one of this Note. Such
addresses may be changed by written notice to the other party.
O. HOLDER. The term "Bank" shall include any transferee and assignee of
Bank or other holder of this Note.
P. BORROWER DEFINED. The term "Borrower" includes each and every person
signing this Note as a Borrower and any co-signers,
19. WAIVER OF JURY TRIAL. To the extent permitted by law, Borrower and Bank
hereby waive the right, which either party may have, to a trial by jury in
respect to any litigation arising from this Note or any other agreement
executed in conjunction with this Loan. Borrower and Bank each acknowledge
that this paragraph has either been brought to the attention of each
party's legal counsel or that each party had the opportunity to do so.
4
<PAGE>
20. RECEIPT OF COPY. By signing below, Borrower acknowledges that Borrower has
read and received a copy of this Note.
BORROWER:
ADVANCED FINANCIAL, INC. (Corporate Seal*)
a NEBRASKA corporation
By: /s/ William B. Morris
____________________________________
WILLIAM B. MORRIS, SR. VICE PRESIDENT
Attest
(Corporate seal may be affixed, but failure to affix shall not affect
validity or reliance.)
AFI MORTGAGE CORP. F/K/A CONTINENTAL MORTGAGE, INC.
a Nebraska corporation
By: /s/ William B. Morris
_____________________________________
WILLIAM B. MORRIS, SR. VICE PRESIDENT
Attest
(Corporate seal may be affixed, but failure to affix shall not affect
validity or reliance.)
THIS IS THE LAST PAGE OF A 3 PAGE DOCUMENT. EXHIBITS AND/OR
ADDENDA MAY FOLLOW.
5
SECOND MORTGAGE
Dated as of March 29, 1996
ADVANCED FINANCIAL, INC.
and
AFI MORTGAGE CORP.
a
Mortgagor
TO:
FIRST MORTGAGE INVESTMENT CO.
a
Mortgagee
This instrument was prepared by and recorded
counterparts should
be returned to:
SHUGHART THOMSON & KILROY, P.C.
ATTENTION: STEVEN H. GOODMAN
Suite 1800
120 W. 12th Street
Kansas City, Missouri 64105
(816) 421-3355
<PAGE>
SECOND MORTGAGE
THIS MORTGAGE, dated the 29th day of March, 1996, is granted by Advanced
Financial, Inc., a Delaware corporation, located at 5425 Martindale, Shawnee,
Kansas 66218, and AFI Mortgage Corp., a Nebraska corporation, located at P.O.
Box 3217, Shawnee, Kansas 66203 (collectively referred to as "Mortgagor"), to
First Mortgate Investment Co., a Missouri corporation, having offices located at
5225 W. 75th Street, Suite 100, P.O. Box 8357, Prairie Village, Kansas 66208
("Mortgagee").
W I T N E S S E T H:
WHEREAS, Mortgagor is the fee owner of certain real property legally
described in Exhibit A, attached hereto and made a part hereof (herein called
the "Premises"); and
WHEREAS, Mortgagor has delivered to Mortgagee its Promissory Note in the
principal amount of Three Hundred Fifty Thousand Dollars No/100 ($350,000.00)
executed on or about even date herewith payable to Mortgagee (the "Note"), a
true and accurate copy of which is attached hereto and incorporated herein by
reference as Exhibit B; and
WHEREAS, the indebtedness evidenced by the Note is secured by the property
hereinafter described and it is to be paid, together with interest, as set forth
in the Note; and
WHEREAS, the Mortgagee has required, as a condition for its acceptance of
the Note, that the Mortgagor execute and deliver this Mortgage to secure the
following:
(i) The principal amount of the Note; plus
(ii) Interest on the principal amount as provided in the Note; plus
(iii)All other amounts payable under the Note, the Term Loan and Security
Agreement (hereinafter "Loan Agreement"), this Mortgage, or any of the
Loan Documents (as hereinafter defined), including all future advances
made according to the terms of the Note or the Loan Agreement and
those advances to protect the security and costs of enforcement, as
the same may be amended, modified and supplemented and where the
maturity thereof may be extended or renewed.
All amounts described in (i)-(iii) hereof and the other monetary and
non-monetary obligations contained in the instruments evidencing or securing the
foregoing, as applicable, are herein collectively called the "Obligations."
NOW, THEREFORE, for and in consideration of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Mortgagor, to secure the punctual payment by Mortgagor when due,
whether at stated maturity, by acceleration or otherwise, of the Obligations and
the performance and observance of all other
2
<PAGE>
covenants, obligations and liabilities of Mortgagor under this Mortgage, and all
other documents required to be delivered by the Loan Agreement (such documents
being herein collectively called the "Loan Documents"), Mortgagor does hereby
GRANT, BARGAIN, ASSIGN, TRANSFER, SELL, MORTGAGE, WARRANT and CONVEY, unto
Mortgagee, its successors and assigns, each and all of the following real
property, and further grants to Mortgagee, its successors and assigns, as
applicable, a security interest in and to all other property described in
Granting Clauses First through Third below (all such real property and other
property being herein collectively called the "Premises"):
GRANTING CLAUSES
Subject to all prior interests therein, all the estate, right, title and
interest of Mortgagor now owned or hereafter acquired, in, to and under, or
derived from:
FIRST
Real Property
That real property more particularly described in Exhibit A, attached
hereto and incorporated herein by reference, and all rights, privileges,
royalties and easements relating thereto (hereinafter the "Real Property").
SECOND
Improvements
All buildings, structures, facilities, fixtures, and other improvements
now or hereafter located on the Real Property (hereinafter the "Improvements").
THIRD
Equipment
All chattels and articles of personal property and all appurtenances and
additions thereto and betterments, renewals, substitutions and replacements
thereof, of every character and wherever situated, now or hereafter owned by
Mortgagor which is either, in any way belonging, relating or appertaining to, or
located on, the properties referred to in GRANTING CLAUSES FIRST AND SECOND
(hereinafter the "Equipment"). Without limitation, Mortgagor hereby grants to
Mortgagee, as applicable, a security interest in and to all of Mortgagor's
present and future Equipment and Improvements, and Mortgagee shall have, in
addition to all rights and remedies provided in the Loan Documents, all of the
rights and remedies of a "secured party" under the Uniform Commercial Code of
the state in which the Premises are located. This Mortgage constitutes and shall
be deemed to be a "security agreement" for all purposes of said Uniform
Commercial Code. To the extent permitted by law, this Mortgage, once properly
filed with the
3
<PAGE>
recorder's office of the county in which the Real Property is located, shall
also be deemed a financing statement which perfects Mortgagee's security
interest in fixtures and personal property under the Uniform Commercial Code.
TO HAVE AND TO HOLD subject to the prior mortgage of Citizens Bank of
Shawnee, the holder of a perfected first security interest in the Real Property
recorded January 12, 1993 in Book 3823, Page 752 as Document No. 2207255, and
the interests of prior lienholders (hereinafter the "Permitted Encumbrances"),
together with all the rights, privileges and appurtenances thereunto belonging,
unto Mortgagee, its substitutes, successors and assigns forever, for the uses
and purposes herein set forth.
Mortgagor, represents, warrants, covenants and agrees with Mortgagee as
follows:
ARTICLE I
Representations and Warranties of Mortgagor
SECTION 1.01. Title. Subject to the Permitted Encumbrances, Mortgagor is
the lawful owner of the Premises and that it has good right and lawful authority
to mortgage same; that it has not made, done, executed or suffered, and will not
make, do, execute or suffer, any act or thing whereby its estate or interest in
and title to the Premises or any part thereof shall or may be further impaired,
changed or encumbered in any manner whatsoever; that it does warrant and will
defend the title to the Premises against all claims and demands whatsoever not
specifically excepted herein.
SECTION 1.02. Lien. The lien created by this Mortgage is a valid second
lien on the Premises and Mortgagor will keep the Premises free from superior or
equal liens and claims of every kind to the lien of this Mortgage (subject only
to the Permitted Encumbrances). Mortgagor shall not do or cause to be done, any
act or omission which would increase the principal balance or amount owed on any
Permitted Encumbrances.
SECTION 1.03. Authority. Mortgagor hereby represents and
warrants to Mortgagee that:
(A) The execution, delivery and performance by Mortgagor of this Mortgage,
the Note, the Loan Agreement, the Loan Documents and the borrowing evidenced by
the Note: (i) are within the powers of Mortgagor; (ii) have been duly authorized
by all requisite action; (iii) have received all necessary governmental
approvals; and (iv) will not violate any provision of law, any order of any
court or other agency of government.
SECTION 1.04. Certificates and Permits. (i) Mortgagor has and will
maintain in effect all necessary certificates, licenses, authorizations,
registrations, permits and/or approvals necessary for the operation of all or
any part of the Premises, (ii) the present and contemplated use and/or occupancy
of the Premises does not conflict with or violate any of the same, and (iii)
Mortgagor, promptly upon request by the Mortgagee, shall deliver to the
Mortgagee copies of all of the same.
4
<PAGE>
ARTICLE II
Covenants of Mortgagor
SECTION 2.01. General Covenants.
(a) Payment of Obligations. Mortgagor will punctually pay when due the
Obligations and will perform and observe all of its obligations under this
Mortgage.
(b) Filing and Recording. Mortgagor will, at the request of Mortgagee,
promptly record and rerecord, file and refile, register and reregister this
Mortgage, and any financing or continuation statements.
(c) Maintenance. Mortgagor will cause the Premises and every part thereof
to be maintained, preserved and kept in safe and good repair and condition, in
accordance with its present condition, and will abstain from and not permit the
commission of waste in or about the Premises. Mortgagor will also make all
necessary and proper repairs, renewals, replacements, additions and betterments
thereto, so that the value and efficient use thereof shall be preserved and
maintained and so that all laws and regulations as aforesaid shall be complied
with.
(d) Real Estate Taxes, Other Governmental Charges- Liens, and Utility
Charges. Mortgagor shall, before any penalty attaches thereto, pay and discharge
or cause to be paid and discharged all taxes, assessments, utility charges and
other governmental charges imposed upon or against the Premises or upon or
against the Note and the indebtedness secured hereby, and will not suffer to
exist any mechanics, statutory or other lien on the Premises or any part thereof
unless such lien is inferior to this Mortgage, consented to by Mortgagee in
writing, or is a Permitted Encumbrance. Copies of paid real estate tax and
assessment receipts shall be furnished to Mortgagee upon request not less than
ten (10) days prior to the delinquent dates.
(e) Advances. If Mortgagor shall fail to comply with any of the terms,
covenants, conditions herein with respect to procuring of insurance, the payment
of taxes, assessments and other charges, the keeping of the Premises in repair,
or any other term, covenant or condition herein contained, Mortgagee may make
advances to perform the same. Mortgagor agrees to repay all sums so advanced
upon demand, with interest at the default rate as set forth in the Note. All
sums so advanced, with interest at the default rate provided in the Note, shall
be secured hereby in equal priority to the indebtedness evidenced by the Note,
but no such advance shall be deemed to relieve Mortgagor from any default
hereunder. Nothing in this Mortgage shall be construed to obligate Mortgagee to
make any renewals or additional loans or advances.
(f) WAIVER OF JURY TRIAL. THE MORTGAGOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES, TO THE EXTENT PERMITTED BY LAW, THE RIGHT BE MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY CLAIM, COUNTERCLAIM OR LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS MORTGAGE, THE LOAN SECURED
HEREBY OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR
5
<PAGE>
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
MORTGAGEE ACCEPTING THIS MORTGAGE AND MAKING THE LOAN SECURED HEREBY.
(g) Use of Premises. Mortgagor shall furnish and keep, if appropriate, in
force a Certificate of Occupancy or its equivalent (with respect to any
structures located on the Premises), and comply with all restrictions laws,
ordinances, acts, rules, regulations affecting the Premises.
SECTION 2.02. Insurance.
(a) Insurance In General. Mortgagor shall procure and maintain
continuously in effect with respect to the Premises:
(i) Direct damage insurance covering at least the risk of loss from
Fire, Extended Coverage Perils, and Vandalism and Malicious Mischief,
on a replacement cost basis in an amount sufficient to pay off the
Note. The policies required by this paragraph shall be subject to no
co-insurance clause and may include a deductibility provision not
exceeding $10,000.00.
(ii) Minimum Insurance Amount of One Million Dollars and No/100
($1,000,000.00) on the Premises.
All insurance provided for herein shall be effective under a valid and
enforceable policy or policies issued by an insurer of recognized
responsibility. Each policy of insurance herein required shall contain a
provision that the insurer shall not cancel, refuse to renew or materially
modify it without giving written notice to Mortgagee at least thirty (30) days
before such cancellation, nonrenewal or modification becomes effective.
SECTION 2.03. Damage and Destruction.
(a) Mortgagee's Rights. In case of loss or damage to the Premises by
fire, vandalism or any other casualty, Mortgagee is authorized (but not
required) (a) to settle and adjust any claim under insurance policies which
insure against such risks, or (b) to allow Mortgagor to agree with the insurance
company or companies on the amount to be paid in regard to such loss. In either
case, the Mortgagee is authorized to collect and issue a receipt for any such
insurance money. In the event of loss or damage to a portion or all of the
Premises, the insurance proceeds may, at the sole option of the Mortgagee,
either be applied in reduction of the Obligations secured hereby, whether due or
not, without prepayment charge, or be held by the Mortgagee and used to
reimburse Mortgagor for the cost of the rebuilding or restoration of the
Premises, or any combination thereof, subject to the prior lien of Citizens tank
of Shawnee.
(b) Mortgagor's Obligations; Risk of Loss. In the event of any damage to
or loss or destruction of the Premises, Mortgagor shall promptly notify
Mortgagee of such event and take such steps as shall be reasonably necessary to
preserve any undamaged portion of the Premises.
6
<PAGE>
Mortgagor expressly assumes all risk of loss, including a decrease in the use,
enjoyment or value of the Premises from any casualty whatsoever, whether or not
insurable or insured against.
SECTION 2.04. Condemnation.
(a) Mortgagor's Obligations; Proceedings. Mortgagor, immediately upon
obtaining knowledge of any pending or threatened institution of any proceedings
for the condemnation of all or any portion of the Premises or the exercise of
any right of eminent domain over all or any portion of the Premises, shall
immediately notify Mortgagee of the threat or pendency thereof. If the Premises,
or any part thereof, is taken or damaged by reason of any public improvement or
condemnation proceedings, or in any other manner, subject to the rights of
existing lien holders and mortgagees, Mortgagee shall be entitled to all
compensation, awards and other payments or relief therefor to which Mortgagor
shall be entitled. Subject to the rights of existing lien holders and
mortgagees, Mortgagee may, through Mortgagee's or Mortgagor's attorney,
participate in any such proceedings, and Mortgagor from time to time will
execute and deliver to Mortgagee all instruments reasonably required by
Mortgagee to permit such participation.
(b) Application of Proceeds. Subject to the rights of existing lien
holders and mortgagees, Mortgagor hereby absolutely and unconditionally assigns,
transfers and sets over to the Mortgagee the entire proceeds of any award or any
claim for damages remaining after the Obligations of the First Mortgage are
satisfied for any of the Premises taken or damages under the power of eminent
domain or by condemnation and all compensation, award, damages, rights of action
and proceeds to which Mortgagor shall be entitled. The Mortgagee may elect to
apply the proceeds of the award upon or in reduction of the Obligations secured
hereby, whether due or not, without prepayment charge, or make said proceeds
available for restoration or rebuilding of the Premises in accordance with the
terms and conditions governing insurance proceeds under Section 2.03 herein.
SECTION 2.05. Compliance with Legal Requirements; Environmental Laws.
Mortgagor will use its best efforts to promptly and faithfully comply with all
present and future judicial decisions, statutes, rulings, orders, decrees,
rules, regulations, permits, certificates or ordinances of any governmental
authority in any way applicable to Mortgagor's ability to perform under this
Mortgage (the "Legal Requirements").
Mortgagor shall not cause asbestos-containing materials to be present in
any of the Improvements or other structures located on or which are a part of
the Premises; Mortgagor shall use his best efforts not to violate any
environmental laws or other regulation or ordinance of any governmental
authority relating to health or the environment (collectively the "Applicable
Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.) ("CERCLA"), Superfund Amendments and Reauthorizations Act
of 1986, the Resource Conversion and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq.) ("RCRA"), or any applicable state laws. Mortgagor covenants (i)
that it will not cause any Hazardous Materials (as defined in CERCLA) to be
located on the Premises, (ii) that Mortgagor's operations will not involve the
generation, transportation, treatment or disposal of Hazardous Materials, (iii)
that to the best of Mortgagor's knowledge, during the time period prior to
Mortgagor's ownership of the Premises, there has been no disposal
7
<PAGE>
or release of any Hazardous Materials on the Premises or that affects the
Premises, (iv) that Mortgagor will not install any underground storage tank or
similar facility on the Premises without (1) first notifying Mortgagee of its
intent to install such a facility and the proposed location of that facility,
(2) certifying to Mortgagee that the facility and the installation of the
facility will be in compliance with all Legal Requirements, and (3) providing
evidence and certifying to Mortgagee that the facility, after its installation,
has in fact been installed in compliance with all Legal Requirements, and (v)
that Mortgagor will not handle process or allow to be brought upon the Premises
any substance or material that might result in a violation of any Applicable
Environmental Laws. Mortgagor will not do, and will prevent others from doing
anything on the Premises that could subject Mortgagor, Mortgagee or the Premises
to penalty or liability for violations of any Applicable Environmental Laws.
ARTICLE III
Assignment of Rents and Other Sums
SECTION 3.01. Assignment.
(a) In the event of an Event of Default, Mortgagor hereby absolutely,
presently and unconditionally grants, bargains, sells, transfers, assigns and
sets over to Mortgagee all rents, income, profits, proceeds and any and all
cash collateral to be derived from the leases and the use, possession or
occupation of all or part of the Premises remaining after the obligations to
existing lienholders or mortgagees are satisfied. Mortgagee shall be entitled
to receive all of the benefits and exercise all of the rights related to or
arising therefrom in the same manner and to the same extent as Mortgagor.
Nothing contained in the preceding sentence shall be construed to bind
Mortgagee to the performance of any of the provisions of any such contract,
bond, lease, rental agreement or other document or otherwise impose any
obligation upon Mortgagee. In addition, Mortgagee shall not be responsible for
the control, care, management or repair of the Premises; nor shall it operate
to make the Mortgagee responsible or liable for any waste committed on the
Premises or for any dangerous or defective condition on the Premises or for any
negligence in connection with the Premises. This assignment of leases, rents
and income is a perfected, absolute and present assignment.
(b) Notwithstanding any law to the contrary, if there is an Event of
Default as defined in Section 6.01, and if there is any law requiring Mortgagee
to take actual possession of the Premises (or some action equivalent thereto,
such as securing the appointment of a receiver) in order for Mortgagee to
"perfect" or "activate" its fights and remedies as set forth herein, then
Mortgagor waives the benefits of the law and agrees that the law shall be
satisfied solely by: (1) Mortgagee sending Mortgagor written notice that
Mortgagee intends to enforce and is enforcing its rights in and to the Premises
and the rents, revenues, profits and other items assigned herein; and (2)
Mortgagee sending written notice to any or all tenants on the Premises that said
tenants should commence making payments under the Leases directly to Mortgagee
or its designee.
(c) Notwithstanding the provisions set forth in subsection 3.0 1 (a)
above, so long as no Event of Default hereunder shall exist, and except as
otherwise expressly provided herein,
8
<PAGE>
Mortgagor shall have a revocable license to collect, as the same shall accrue,
said rents, income, profits, proceeds and cash collateral. Subject to the rights
of existing lienholders and mortgagees, Mortgagor agrees to hold the same in
trust and to use the same in payment of the Obligations.
(d) Upon the occurrence and during the continuance of any such Event of
Default, the license set forth in subsection (c) of this Section may be revoked
in whole or in part by Mortgagee by written notice to Mortgagor and the tenants,
and thereafter Mortgagee shall have the right and authority to exercise any of
the rights or remedies referred to or set forth in Article VI hereof.
ARTICLE IV
Indemnity
SECTION 4.01. Indemnity. Mortgagor agrees to indemnify and hold harmless
Mortgagee from and against any, and all losses, liabilities, suits, obligations,
fines, damages, judgments, penalties, claims, charges, costs and expenses
(including reasonable attorneys' fees and disbursements) which may be imposed
on, incurred or paid by or asserted against Mortgagee by reason or on account
of, or in connection with (i) any default or Event of Default by Mortgagor
hereunder, and (ii) Mortgagee's exercise of any of its rights and remedies, or
the performance of any of its duties hereunder, except that no such indemnity
shall apply if there is any fraud, willful misconduct or gross negligence on the
part of Mortgagee in its exercise of such rights and remedies or the performance
of any of its duties hereunder.
ARTICLE V
Transfer of the Premises and Release of Mortgage
SECTION 5.01. Continuous Ownership of Premises. Mortgagor acknowledges
that the continuous ownership by Mortgagor of the Premises is a material
covenant of the Mortgagor in this Mortgage and the Note which it secures.
Mortgagor agrees that Mortgagor will not, directly or indirectly, voluntarily or
involuntarily, sell, grant, convey, encumber, assign, divest or otherwise
transfer or permit to be subject of a transfer, any part or all of the Premises
or any legal or beneficial interest therein superior to the Mortgage, except the
Permitted Encumbrances, without Mortgagee's prior written consent.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Event of Default. In addition to and not in limitation of
any events of Default contained in the Loan Agreement or in the Note, the term
"Event of Default", as used in this Mortgage, shall mean the occurrence of any
of the following events:
9
<PAGE>
(a) Default shall be made and shall continue unremedied beyond the
applicable cure period in the Loan Agreement or the Note, if any, or in any
note secured by a Permitted Encumbrance; or
(b) Any representation, warranty or statement made by Mortgagor in this
Mortgage, the Note, the Loan Agreement, or any other documents executed
contemporaneously herewith, shall prove to have been materially false; or
(c) Failure to perform or observe any material obligations, conditions,
agreements or covenants under this Mortgage, which is not cured within ten (10)
days of any such failure, or under any other Loan Documents, which is not cured
within the applicable cure period set forth in such document; or
(d) Any assignment, sale, conveyance or divestment by Mortgagor of its
interest or title in any manner whatsoever, in any portion of the Premises
serving as security for the Note without the prior written consent of Mortgagee;
or
(e) If Mortgagor is named as "debtor" in any petition filed under the
United States Bankruptcy Code, or under any similar or successor federal
statute relating to bankruptcy, insolvency, arrangements, or reorganizations,
or under any similar state bankruptcy or insolvency act, or files an answer in
an involuntary proceeding admitting insolvency or inability to pay debts, or if
Mortgagor fails to obtain a vacation or stay of involuntary proceedings brought
for the reorganization, dissolution, or liquidation of Mortgagor within thirty
(30) days of the date of filing such proceeding, or if Mortgagor is adjudged a
bankrupt, or if a trustee or receiver is appointed for Mortgagor or for any of
Mortgagor's property, or if Mortgagor makes an assignment for the benefit of
creditors, or if there is any attachment, execution, or other judicial seizure
of all or any portion of the Premises.
SECTION 6.02. Remedies. In addition to all other remedies available to
Mortgagee, Mortgagee may take the following actions, each of which may be
pursued concurrently or otherwise, to the extent permitted by law, at such time
and in such order as Mortgagee may determine:
(a) subject to any right of reinstatement pursuant to applicable law,
declare by written notice to the Mortgagor the entire balance of the Obligations
to be immediately due and payable; or
(b) to the extent permitted by law, institute a proceeding or proceedings,
judicial or otherwise, for the complete or partial foreclosure of this Mortgage
under any applicable provision of law and, to the extent the Premises are
located in a state where permitted, Mortgagee shall have the statutory power of
sale in addition to all other rights and remedies hereunder; or
(c) to the extent permitted by applicable law, sell the Premises, and all
estate, right, title, interest, claim and demand of Mortgagor therein, and a
rights of redemption thereof, at one or more sales, as an entirety or in
parcels, with such elements of real and/or personal property (and, to the extent
permitted by applicable law, may elect to deem all of the Premises to be real
10
<PAGE>
property for purposes thereof, and at such time and place and upon such
terms as it may deem expedient; or
(d) sue and recover a judgment on the Obligations as the same become due
and payable, or on account of any default or defaults by Mortgagor, or either of
them, hereunder; or
(e) apply for the appointment of a receiver, custodian, trustee,
liquidator or conservator of the Premises, to be vested with the fullest powers
permitted under applicable law, as a matter of right and without regard to or
the necessity to disprove the adequacy of the security for the Obligations or
the solvency of Mortgagor, or either of them or any other person liable for the
payment of the Obligations, and Mortgagor and each other person so liable waives
or shall be deemed to have waived such necessity and consents or shall be deemed
to have consented to such appointment, and Mortgagor and each other person so
liable waives any notice or bond which may be required to be given or posted and
agrees to deliver immediate possession of the Premises to the parties so
appointed; or
(f) with or without the entrance upon or taking possession of the
Premises, collect and receive all earnings, revenues, rents, issues, profits,
income and cash collateral derived from the Premises, and to make demand
directly to any or all tenants under the leases for payment of such items
directly to Mortgagee; or
(g) release any portion of the Premises for such consideration as
Mortgagee may reasonably require without, as to the remainder of the Premises,
in any way impairing or affecting the lien or priority of this Mortgage.
SECTION 6.03. Expenses. In any proceeding, judicial or otherwise, to
foreclose this Mortgage or enforce any other remedy of Mortgagee under any Loan
Documents or hereunder, there shall be allowed and included as an addition to
and a part of the Obligations in the decree for sale or other judgment or decree
all reasonable expenditures and expenses which may be paid or incurred in
connection with the exercise by Mortgagee of any of its rights and remedies
provided or referred to herein, and the same shall be secured by this Mortgage.
SECTION 6.04. Application of Proceeds. Subject to the fights of existing
lienholders and mortgagees, the purchase money, proceeds or avails of any sale
referred to herein shall, except as herein expressly provided to the contrary,
be applied as follows:
FIRST: To the payment of all costs and expenses of any such sale,
including reasonable compensation to Mortgagee, its agents and counsel,
and all other costs incurred by the Mortgagee as authorized under the Loan
Documents.
SECOND: Ratably, to the payment in full of the Obligations (including
principal, interest, and all other sums owed) in such order as Mortgagee
may elect.
THIRD: To the extent permitted by applicable law, to be set aside by
Mortgagee as adequate security in its judgment for the payment of sums
which would have been paid by application under clauses First and Second
above to Mortgagee, which proceeds will, upon
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<PAGE>
the request of Mortgagor, be place in an independent escrow account
pending resolution of any matters arising out of an obligation or
liability with respect to which Mortgagor has agreed to indemnify it, but
which sums are not yet due and payable or liquidated.
FOURTH: To the payment of the surplus, if any, to whomsoever may be
lawfully entitled to receive the same.
SECTION 6.05. Waiver of Rights and Defenses. To the full extent Mortgagor
may do so under applicable law, Mortgagor, for it and its heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming an interest in the Premises, hereby waives and releases all fights of
redemption, appraisement, valuation, and notice of intention to mature or
declare due the whole of the Obligations.
ARTICLE VII
SECTION 7.01. Defeasance. If all the Obligations shall have been paid in
full, then and in that event only, all rights hereunder shall terminate and the
Premises shall become wholly released and cleared of the liens, security
interests, conveyances and assignments evidenced hereby.
SECTION 7.02. Control of Documents. In the event that this Mortgage
conflicts with any of the terms, covenants and conditions of the Note of even
date herewith, the Note shall control. In the event this Mortgage conflicts with
any off the terms, covenants and conditions of the Term Loan and Security
Agreement of even date herewith, the Loan Agreement shall control. In all other
events this Mortgage shall be read in conjunction with the Note and the Loan
Agreement of even date herewith and be construed in accordance with the terms
thereof.
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage on the date first
above written.
MORTGAGOR:
ADVANCED FINANCIAL, INC.
By: /s/ William B. Morris
_____________________________________
Title: Secretary
AFI MORTGAGE CORP.
By: /s/ William B. Morris
_____________________________________
Title: Secretary
12
<PAGE>
ACKNOWLEDGMENT
STATE OF __________________ )
) ss.
COUNTY OF _________________ )
I, __________________________________, Notary Public, do hereby certify
that on the ___ day of ___________, 1999, ______________________________
personally appeared before me and being first duly sworn by me severally
acknowledged that he/she signed as his/her free act and deed the foregoing
document as _______________ of Advanced Financial, Inc., and declared that the
statements therein contained are true, to his/her best knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year
above written.
___________________________________
Notary Public
My Commission Expires:
______________________
13
<PAGE>
ACKNOWLEDGMENT
STATE OF ___________________ )
) ss.
COUNTY OF __________________ )
I, __________________________________, Notary Public, do hereby certify
that on the ___ day of ___________, 1999, ______________________________
personally appeared before me and being first duly sworn by me severally
acknowledged that he/she signed as his/her free act and deed the foregoing
document as _______________ of AFI Mortgage Corp., and declared that the
statements therein contained are true, to his/her best knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year
above written.
__________________________________
Notary Public
My Commission Expires:
_______________________
14
<PAGE>
EXHIBIT A
REAL PROPERTY
Property Description:
"Lot 1, Block 2, MILLWOOD BUSINESS PARK FIRST PLAT, a subdivision in the
City of Shawnee, Johnson County, Kansas."
<PAGE>
EXHIBIT B
PROMISSORY NOTE
Date: March 29, 1996 Principal: $350,000
Due Date: March 29, 1998
FOR VALUE RECEIVED, the undersigned, Advanced Financial, Inc., 5425
Martindale, Shawnee, Kansas 66218, a Delaware corporation, and AFI Mortgage
Corp., a Nebraska corporation, P.O. Box 3217, Shawnee, Kansas 66203 (hereinafter
collectively referred to as "Maker"), do hereby promise to pay to the order of
First Mortgage Investment Co., 5225 W. 75th Street, Suite 100, P.O. Box 8357,
Prairie Village, Kansas 66208, a Missouri corporation, (hereinafter referred to
as "Holder"), the sum of Three Hundred Fifty Thousand ($350,000) Dollars and
No/100, plus interest thereon. The principal amount is to be paid as set forth
below. Interest shall be calculated at a variable rate equal to the Base Rate
(as defined below) plus four (4%) percentage points, which rate shall be
adjusted quarterly in accordance with the announced Base Rate of Citizens
National Bank of Fort Scott, Kansas. The interest rate shall increase to a
variable rate equal to the Base Rate plus six (6%) percentage points, upon the
sale by Borrower of all of Borrower's servicing rights (as defined in Section
6.19 of that certain Term Loan and Security Agreement of even date herewith
between Maker and Holder (the "Agreement")).
The accrued interest shall be paid in eight (8) quarterly installments due
on June 30, September 30, December 31 and March 31 beginning on the 30th day of
June, 1996 and continuing until March 29, 1998. Upon the sooner of the sale of
all of the Borrower's servicing rights (as defined in Section 6.19 of the
Agreement) or the repayment of the Servicing Portfolio Note of even date
herewith, -a principal payment of One Hundred Fifty Thousand Dollars and No/100
($150,000.00) shall be due and payable, together with any accrued and unpaid
interest through such date. The entire unpaid principal balance and all then
accrued interest thereon shall be due and payable in full on the 29th day of
March, 1998. Unless prohibited by applicable law, this Note shall bear interest
(computed as aforesaid) on any principal or interest which is more than ten (10)
days overdue, or upon the occurrence of any Event of Default (as defined in the
Agreement), at the rate equal to the Base Rate plus seven (7%) percentage points
(or, in each case at the highest rate permitted by applicable law, whichever is
less). The principal and accrued interest shall be paid by the undersigned in
lawful money of the United States of America, at 5225 W. 75th Street, Suite 100,
P.O. Box 8357, Prairie Village, Kansas 66208, or such other place as may be
designated by Holder from time to time.
For purposes of this Note, "Base Rate" means the interest rate which from
time to time is announced, published and used by the Citizens National Bank of
Fort Scott, Kansas as its "prime rate." The interest rate which is designated as
the "Base Rate" is not necessarily the lowest interest rate charged by the
Citizens National Bank or the Holder on other credit; and the term "Base Rate"
does not imply or-indicate that the interest rate which is designated as the
"Base Rate" is lower than other credit extended by the Citizens National Bank or
the Holder.
<PAGE>
The Maker reserves the right to prepay all or any part of the principal
balance owing on this Note at any time or times prior to maturity without
payment of any premium or penalty, subject to the conversion rights set forth in
the Agreement.
This Note is convertible, if an Event of Default occurs at any time until
the Note has been paid in full, into Common Stock of the Maker in the manner,
and upon the terms and conditions, provided in the Agreement.
From time to time, this Note may be extended or renewed in whole or in
part upon mutual written agreement of Maker and Holder. As to any extension or
renewal, the rate of interest thereon may be changed or fees in consideration of
loan extensions may be imposed and any related right or security therefor may be
waived, exchanged, surrendered, or otherwise dealt with and any of the acts
mentioned in this Note may be done, all without affecting the liability of the
Maker or endorsers, each of whom agrees to remain liable under said Note until
the debt represented thereby is actually paid in full to Holder. The release of
any party liable upon or in respect to said Note shall not release any other
such party. The Maker hereby waives presentment, demand of payment, protest, and
notice of non-payment, and of protest and any and all other notices and demands
whatsoever. The acceptance by Holder of additional security for the performance
of the terms and provisions herein contained shall not in any way affect the
liability of the Maker.
Maker agrees to pay on demand any expenditures made by Holder in
accordance with the Agreement. At the option of Maker, all such expenditures may
be added to the unpaid principal balance on this Promissory Note and become a
part of and on a parity with the principal indebtedness secured by the
Agreements and other instruments executed herewith, and shall accrue interest at
the rate as may be payable from time to time on the original principal
indebtedness or may be declared immediately due and payable.
Maker expressly agrees that upon failure to pay any sums herein specified
when due, or the occurrence of an Event of Default under the Agreement, the
entire principal debt, or so much thereof as may remain unpaid at the time,
together with all accrued interest, shall, at the continuing option of Holder,
become immediately due and payable, and any sum not so paid when due shall bear
interest at the default rate specified above, and in addition thereto, there
shall be due and payable all costs incurred and, to the extent permitted by law,
reasonable attorney's fees in the event collection efforts are commenced by the
placement of this Promissory Note into the possession of an attorney, such
reasonable attorney's fees to be paid irrespective of whether or not actions or
foreclosure proceedings are commenced or continued into judgment.
In no event shall interest (including any charge or fee held to be
interest by a court of competent jurisdiction) accrue to be payable hereon in
excess of the highest contract rate allowable by law at the time such
indebtedness shall be outstanding and unpaid, and if, by reason of the
acceleration of maturity of such indebtedness or for any other reason, interest
in excess of the highest legal rate shall be due or paid, any such excess shall
constitute and be treated as a payment on the principal hereof and shall operate
to reduce such principal by the amount of such excess, or if in excess of the
principal indebtedness, such excess shall be waived or refunded to the Maker.
<PAGE>
This Promissory Note is to be construed in accordance with the laws of the
State of Kansas. if any charges made in connection with this loan at any time
whatsoever or provisions hereof are judicially determined to be invalid, then
the interest rate shall be reduced to an amount which is legally permissible,
and that portion thereof which is declared invalid shall not affect the
remaining provisions hereof
This Promissory Note is subject to the prior security interests of those
persons set forth on Exhibit 4.0 to the Agreement, including without limitation,
Bank One, Texas. The Agreement shall constitute security for the payment and
full performance of this obligation as well as all expenditures made and sums
advanced on principal hereunder. Incorporated herein by reference are the terms,
conditions, covenants, representations, and warranties of the Agreement and any
other instrument securing this Promissory Note.
In this Promissory Note and any instrument securing the payment of the
same, the singular shall include the plural; the masculine shall include the
feminine and the neuter genders; "maker" or "undersigned" shall include the
Maker, endorser, guarantor, and assumer. In the event this Note is executed,
endorsed, guaranteed, or assumed by more than one person and/or firm, and/or
corporations, all of the obligations herein contained shall be joint and several
as among all of said parties. All persons liable, either now or hereafter, for
the payment of this Note shall be jointly and severally liable, and waive
presentment, demand, protest, and notice of non-payment and of protest, and
agree that any modifications of the terms of payment or extension of time or
payment shall in no way impair its/ their joint and several liability.
IN WITNESS WHEREOF, the undersigned hereby executes this Agreement on the
date first above written.
MAKER:
ADVANCED FINANCIAL, INC.
By: ________________________________
Title: _____________________________
AFI MORTGAGE CORP.
By: ________________________________
Title: _____________________________
AFI Mortgage Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial informa-
tion extracted from audited financial statements
for the fiscal year ended March 31, 1997 and is
qualified in its entirety by reference to such
financial statements
</LEGEND>
<CIK> 823314
<NAME> Advanced Financial, Inc.
<MULTIPLIER> 1
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