<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19391
NAB ASSET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0332956
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
19200 VON KARMAN AVE., STE. 950 92612
IRVINE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 475-4444
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997, was $11,031,279 based upon the closing
price as of such date.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
TITLE OF CLASS OUTSTANDING AT FEBRUARY 28, 1997
-------------- --------------------------------
<S> <C>
Common Stock.... 5,091,300
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13, will be
included in a definitive proxy statement to be filed pursuant to Regulation 14A
and is incorporated herein by reference.
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<PAGE>
PART 1
ITEM 1. BUSINESS
THE COMPANY
NAB Asset Corporation, a Texas corporation (the "Company" or "NAB") is
primarily engaged in the mortgage lending and retail automobile sales
business. The Company commenced operations in July 1991 following its
acquisition and assumption of substantially all the assets and liabilities of
National Asset Bank (a bank in liquidation) (the "Bank") and the Bank's
distribution of the Company's common stock, $.01 par value ("Common Stock"),
to the Bank's stockholders as a final liquidating distribution. The Bank was
formed in 1988 in connection with the merger of Allied Bancshares, Inc.
("Allied") with a subsidiary of First Interstate Bancorp ("First Interstate")
for the purpose of liquidating various non-performing loan and real estate
assets held by Allied and its subsidiaries for the benefit of the prior Allied
stockholders. In connection with the creation of the Company, various
limitations on the business and operations of the Company were imposed on the
Company until December 31, 1996, or such earlier date that either
substantially all of the assets acquired from the Bank have been converted
into cash or certain minimum distributions have been paid to the Company's
shareholders.
Prior to June 5, 1996, the Company's business consisted of the acquisition,
ownership, management and disposition of loans and real estate for its own
account and the accounts of others. The Company's business activities were
limited to the ownership, collection and sale of the assets acquired by the
Company from the Bank and the proceeds therefrom ("Bank Assets"), the
investment in and management of four privately held limited partnerships
formed for the purpose of acquiring non-performing and other troubled loans
and development of new business opportunities utilizing the Company's existing
staff and organization. Prior to 1995, a majority of the Company's revenues
were generated from the collection on and sale of the assets acquired from the
Bank. For 1995, a large part of the Company's revenues were generated from the
Company's management of four limited partnerships.
In 1995, as a result of the Company's large cash position and declining real
estate and loan portfolio, the Board of Directors began a review of various
alternatives for the Company and its available resources. Such alternatives
included (i) a sale of all or a portion of the Company to another party, (ii)
a combination of the Company with another operating entity or party, (iii) the
acquisition of a new business or expansion of the Company's current
businesses, (iv) the obtaining of new capital to fund the future growth of the
Company, (v) the payment of a substantial distribution to shareholders with
the Company's available liquid assets, (vi) a liquidation of the Company and
(vii) a combination of one or more of the foregoing. In connection with the
Company's review of alternatives, representatives of the Company solicited
proposals from and had discussions with more than 25 parties interested in
pursuing possible transactions with the Company.
After reviewing the various alternatives, the Board determined to pursue a
transaction with Consumer Portfolio Services, Inc. ("CPS") and, on February 7,
1996, the Company entered into a Plan and Agreement of Merger ("Plan and
Agreement of Merger") providing for the merger of a wholly owned subsidiary of
CPS with and into the Company (the "Merger").
On June 5, 1996, pursuant to the Plan and Agreement of Merger, CPS Investing
Corp. ("CPS Sub"), a wholly owned subsidiary of CPS, was merged with and into
NAB. Under the terms of the Plan and Agreement of Merger and in exchange for
all of the outstanding shares of NAB $.01 par value common stock, the
shareholders of NAB received on a pro rata basis (i) an aggregate cash
distribution of $15.3 million ($3.64 per share), (ii) an undivided interest in
a liquidating trust ("Liquidating Trust"), and (iii) 62% of the outstanding
shares of common stock, $.10 par value (the "New Common Stock") of the new
combined company which had a net asset value of $7.5 million as of the merger
date. The Liquidating Trust was established for the benefit of converting the
trust assets to cash for the NAB shareholders. On June 5, 1996 in connection
with the Merger, NAB contributed approximately $3.0 million in cash and all of
the remaining non-cash assets of NAB with a net book value of $3.7 million to
the Liquidating Trust. No gain or loss was recognized by NAB in connection
with the merger.
<PAGE>
In exchange for $4 million, CPS received 38% or 1,934,706 shares of the New
Common Stock of NAB.
Simultaneously with the merger, the Company amended its Articles of
Incorporation and By-laws to remove the previous operating restrictions on NAB
and, in order to preserve the Company's large net operating loss ("NOL") for
tax purposes, to restrict the acquisition of 5% or more of the outstanding
shares of New Common Stock of the Company so as to prevent the occurrence of
an ownership change under Section 382 of the federal income tax laws. Section
382 of the Internal Revenue Code of 1986 (Section 382), as amended, provides
in general that if a corporation undergoes an ownership change, the amount of
taxable income that the corporation may offset after the date of such
ownership change with NOL's and certain built-in losses existing at the date
of such ownership change will be subject to an annual limitation. The
Company's NOL's could become subject to certain limitations on utilization in
the event the Company undergoes an ownership change within the meaning of
Section 382.
Immediately following the consummation of the merger of CPS Sub with and
into NAB, the Board of Directors of NAB was reconstituted to consist of
Charles E. Bradley, Sr., Michael W. Caton, Charles E. Bradley, Jr., Robert A.
Bettigole and Emil A. Nakfoor. On July 30, 1996, the Board of Directors was
expanded by one seat which James B. Gardner was elected to fill until the next
election of directors by the shareholders of the Company.
The intended purpose of NAB is to become a diversified financial services
holding company by establishing independent, yet complementary business units
focused on commercial and consumer financial services related to housing,
household goods, durable goods and automobiles.
ACQUISITION OF MORTGAGE PORTFOLIO SERVICES, INC.
On July 10, 1996 the Company acquired from CPS 8,000 shares of the common
stock (constituting 84% of the outstanding shares of such stock) of Mortgage
Portfolio Services, Inc. ("MPS") for a purchase price of $300,000. The Company
also acquired all of the outstanding shares of MPS preferred stock totaling
$2.25 million, through conversion of debt to equity, and contributed $249,000
to the additional paid-in capital of MPS.
THE BUSINESS
MPS, which was organized in October 1995 and began business operations in
April 1996, is a Dallas, Texas based mortgage lender that specializes in
origination, purchasing and selling non-conforming single family mortgages.
MPS's customers are typically home purchasers and owners who cannot access
traditional lending institutions for financing because of job stability,
credit problems or type of property.
Substantially, all loans are originated through MPS's wholesale operations.
The wholesale operations originated loans in 24 states with approximately 50%
originated in Texas. No other state accounts for more than 10% of the
origination volume. MPS has approximately 20 account executives in 7 states
and approximately 60 total employees.
Financial and Operating Data for the period from July 10, 1996 to December
31, 1996, is summarized as follows:
<TABLE>
<S> <C>
Assets at December 31, 1996................................... $14,544,000
Loan Originations............................................. $35,499,000
Number of Loans Originated.................................... 429
Percent Refinances............................................ 44%
Total Revenues................................................ $ 1,349,000
Net Loss:..................................................... $ 404,000
</TABLE>
2
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BUSINESS RISKS
MPS's originations have grown substantially since inception and the company
plans to continue its growth strategy. There can be no assurance that MPS will
be able to successfully expand and operate profitably.
As MPS continues to increase its origination capabilities it will be
required to expand its existing borrowing arrangements with financial
institutions or obtain new lines of credit. There can be no assurance that
additional financing can be obtained or that it can be obtained at favorable
terms.
In connection with financing MPS's mortgage loans, most financial
institutions will not finance 100% of the loan amount. MPS will be required to
contribute, in addition to the normal costs of operating the origination
function, one to four percent of the loan amount. MPS must generate sufficient
cash flow from sales of mortgage loans to fund the negative cash flow
associated with the origination of its loans.
The contractual arrangements associated with the sale of loans require, for
a specified period of time, indemnification for loans that prepay or default.
A significant increase in prepayments or defaults related to the loans sold
would have a significant negative impact on the liquidity and financial
condition of MPS.
ECONOMIC RISKS
The business of MPS could be negatively affected if there is a downturn in
the economy, in the geographic areas served by MPS which results in a decline
for consumer credit or in real estate values. If originations decline, sales
of mortgage loans, the main source of MPS's revenue will also decline.
Declining real estate values inhibit the borrower's ability to refinance and
obtain cash based on the value of his/her property.
Fluctuations in interest rates may adversely affect MPS's loan production.
Substantial increases in long term interest rates generally result in a
decline in mortgage originations. A large decline in interest rates may result
in unusually large prepayments which, under the terms of the contracts
governing MPS's sales of mortgage loans, could require MPS to reimburse the
purchasers of such loans for a portion of the servicing release premium paid
by them for such loans. Additionally, prices paid for the Company's loans will
be reduced if interest rates rise.
Approximately 69% of MPS's loan production is at a fixed rate of interest.
If short-term interest rates rise, MPS's borrowing cost would increase,
resulting in a decline in the spread (the difference between interest received
on loans and paid on borrowings) MPS earns. Additionally, prices paid for the
Company's loans will be reduced if interest rates rise.
COMPETITION
MPS faces competition from numerous other mortgage bankers, banks, savings
and loans and finance companies. Many of these competitors are larger and have
greater access to capital and other financial resources than MPS. The level of
gains realized from the sales of loans by MPS and its competitors may continue
to attract new competitors into the market.
LEGISLATIVE OR REGULATORY RISKS
MPS's business is subject to extensive regulation, supervision and licensing
by federal, state and local government authorities and is subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on a substantial portion of its operations. The Company's
consumer lending activities are subject to the Federal Truth-in-Lending Act
and Regulation Z (including the Home Ownership and Equity Protection Act of
1994), the Federal Equal Credit Opportunity Act and Regulation B, as amended
("ECOA"), the Fair Credit Reporting Act of 1970, as amended, the Federal Real
Estate Settlement Procedures Act ("RESPA") and Regulation X, the Fair Housing
Act, the Home Mortgage Disclosure Act and the Federal Debt Collection
Practices Act, as well as other federal and state statutes and regulations
affecting the Company's activities. The Company is also subject to the rules
and regulations of and examinations by the Department of
3
<PAGE>
Housing and Urban Development ("HUD") and state regulatory authorities with
respect to originating, processing, underwriting and selling loans. These
rules and regulations, among other things, impose licensing obligations on the
Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspections and appraisals of properties, require
credit reports on loan applicants, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage
loan amounts. Failure to comply with these requirements can lead to loss of
approved status, demands for indemnification or mortgage loan repurchases,
certain rights of rescission for mortgage loans, claims by mortgage borrowers
and administrative enforcement actions.
ACQUISITION OF CARS USA, INC.
On July 8, 1996 the Company acquired 80,000 common shares or 80% of CARS
USA, Inc. ("CARS") for a purchase price of $100,000. Additionally, the Company
acquired $400,000 in 6% cumulative preferred stock and extended a $1,000,000
subordinated promissory note. The subordinated note bears interest at 10%,
payable quarterly and requires the payment of principal beginning in 2002. At
the time of the acquisition, Charles E. Bradley, Jr., a director of NAB owned
10,000 shares or 50% of the outstanding shares of CARS. Mr. Bradley, Jr.
retained a 10% ownership in CARS subsequent to NAB's acquisition.
CARS primary business is retail automotive sales. On July 30, 1996 CARS
acquired its first dealership, Riverside Mitsubishi for $200,000. Through
December 31, 1996 CARS sold 154 new automobiles and 243 used automobiles,
totaling $2,757,000 and $2,097,000 respectively. Parts and Service revenue
totaled $313,000 for the period. CARS reported a $1,123,000 operating loss for
the period from July 8, 1996 to December 31, 1996.
Subsequent to December 31, 1996 the Company entered into a definitive
agreement, subject to certain third party consents, to sell its interest in
CARS for $1,500,000. The agreement calls for a down payment of $200,000 and a
note for $1,300,000 of which $500,000 in principal is due on the first
anniversary of the purchase and sale agreement and $800,000 is due on the
second anniversary of the purchase and sale agreement. The note bears interest
at 9% and interest is payable quarterly. The acquirer is a newly formed
company owned by Charles E. Bradley, Sr. and Charles E. Bradley, Jr. Mr.
Bradley, Sr. is the Chairman of the Board and Chief Executive Officer of the
Company. Mr. Bradley, Jr. is a director of the Company.
INDUSTRY SEGMENTS
Reference is made to Note (15) of the Notes to Consolidated Financial
Statements, set forth in Item 8. of this report, for financial information
about the Company's industry segments.
ITEM 2. PROPERTIES
The Company's executive offices, totaling 800 square feet and located in
Irvine, California, are sub-leased through March 1998.
MPS leases 9,200 square feet in Dallas, Texas. The lease expires in May
1999. MPS also sub-leases 2,400 square feet adjacent to the executive offices
in Irvine, California.
CARS leases approximately 38,000 square feet in Riverside, California for
its dealership. The lease term is ten years expiring in 2006, but may be
canceled with thirty days notice.
The Company feels that its facilities are adequate based on its current
levels of business. Alternative or additional space is available at comparable
rental rates in the markets within the markets the Company operates.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party.
4
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "NABC". The following table sets forth the quarterly high and low sale
prices for the Common Stock as reported by The Nasdaq Stock Market and
distributions to shareholders for the period set forth below.
<TABLE>
<CAPTION>
PRICE PER SHARE
--------------- PER SHARE TRANSFER TO
HIGH LOW DISTRIBUTION LIQUIDATING TRUST
------- ------- ------------ -----------------
<S> <C> <C> <C> <C>
Year ended December 31,
1995
First Quarter........... 3 3/4 2 5/8 $ -- $ --
Second Quarter.......... 5 1/2 3 1/2 $ -- $ --
Third Quarter........... 5 5/8 4 3/4 $ -- $ --
Fourth Quarter.......... 5 1/4 4 3/8 $ -- $ --
Year ended December 31,
1996
First Quarter........... 5 3/4 4 3/8 $ -- $ --
Second Quarter.......... 5 15/16 5/8 $3.64 $1.56
Third Quarter........... 2 5/16 1 15/16 $ -- $ --
Fourth Quarter.......... 3 7/8 2 1/16 $ -- $ --
</TABLE>
As of March 26, 1997, there were approximately 7,500 shareholders of record.
Historically, as the Company has liquidated its loan and real estate for
cash, periodic distributions to shareholders have been made. It is anticipated
that for the foreseeable future, all earnings will be retained to provide for
the future growth of the Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------
1996 1995(1) 1994(1) 1993(1) 1992(1)
--------- ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues from
continuing
operations........... $ 6,581 $ -- $ -- $ -- $ --
Operating revenues
from discontinued
operations........... 5,033 5,072 3,359 3,403 3,923
Net loss from
continuing
operations........... (1,919)
Net earnings (loss)
from discontinued
operations, net of
income taxes......... 3,467 (456) 780 (925) (1,507)
Net earnings (loss)... 1,548 (456) 780 (925) (1,507)
Loss from continuing
operations Per
Share(2)............. (0.38)
Net earnings (loss)
per share............ 0.29 (5) (0.11) 0.19 (0.22) (0.36)
BALANCE SHEET:
Residential Mortgage
Loans................ 12,848 -- -- -- --
Vehicle & Parts
Inventory............ 3,446 -- -- -- --
Costs in excess of net
assets acquired...... 1,095 -- -- -- --
Total Assets.......... 22,137 22,720 28,886 29,413 35,752
Total Liabilities..... 16,482 744 7,107 1,662 849
Shareholders' Equity
(Net Assets)......... 5,605 21,976 21,779 27,751 34,903
Distributions......... 21,883 -- 6,313 6,313 4,215
Book Value Per Share.. 1.10
Cash Distributions Per
Share(3)............. 3.64 -- 1.50 1.50 1.00
Transfer To
Liquidating Trust
Per Share(4)......... 1.56 -- -- -- --
</TABLE>
5
<PAGE>
- --------
(1) Amounts relate to discontinued operations.
(2) Based on 5,091,300, shares of Common Stock outstanding at December 31,
1996. Excludes Common Stock equivalents as amounts would be anti-dilutive.
(3) Paid on 4,208,835, 4,208,835, 4,214,835 and 4,210,335 shares of Common
Stock outstanding for the Company during 1996, 1994, 1993 and 1992
respectively.
(4) Paid on 4,208,835 shares of Common Stock outstanding on June 5, 1996.
(5) Based on 5,296,300 shares of Common Stock and Common Stock equivalents
outstanding on December 31, 1996. The number of shares outstanding have
been retroactively restated to reflect the increased number of Common
Shares outstanding after the Merger.
Reference is made to Item 1. Business for discussion of the merger between
the Company and CPS Sub and the resulting distribution of cash and other
assets to the shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company's primary operations are mortgage lending and retail automobile
sales. Prior to the Merger on June 5, 1996, the Company's primary operations
consisted of the acquisition, ownership, management and disposition of loans
and real estate for its own account and the account of others.
RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year ended December 31, 1995
For the year ended December 31, 1996, the Company reported net earnings of
$1,548,000, which was comprised of a net loss from continuing operations of
$1,919,000 and net earnings from discontinued operations of $3,467,000.
Operating income for the period from January 1, 1996 to June 5, 1996 (the
discontinued operations) was $3,467,000 due to several liquidating
transactions, including a $1,066,000 net gain on the sale of the Company's
partnerships and a $1,791,000 recovery on the settlement of an in-substance
foreclosure. The Company's continuing operations were negatively affected by
the start-up expenses and operating losses of the Company's subsidiaries CARS
and MPS which incurred losses for the period from their acquisition to
December 31, 1996 of $1,123,000 and $404,000 respectively.
Revenues from continuing operations totaled $6,581,000 for the year ended
December 31, 1996. Included in revenues were the sale of vehicles of
$5,167,000 and gains on sales of loans of $962,000 relating to the new
subsidiaries which were included in the financial statements of the Company
from their acquisition in July, 1996. Other operating revenue, including
interest, was $452,000 for the year ended December 31, 1996.
Operating expenses relating to continuing operations totaled $8,500,000 for
the year ended December 31, 1996, and consist primarily of costs and expenses
associated with the automobile dealership, ($6,290,000), and the mortgage
banking operation ($1,753,000). The costs and expenses were comprised
primarily of cost of vehicles and parts sold and compensation and benefits
expenses for the automobile dealership and compensation and benefits for the
mortgage banking operation.
Year ended December 31, 1995 compared to Year ended December 31, 1994
Results of operations for the Company for the year ended December 31, 1995,
reflect the continued transformation of the Company's operations from the
management and collection of the Bank assets on July 17, 1991, to the
management and collection of loans and related assets of new partnerships
created by the Company during 1992, 1993, and 1994.
6
<PAGE>
For the year ended December 31, 1995, the Company reported a net loss of
$456,000, or $.11 per share, compared to net income of $780,000 or $.19 per
share for the year ended December 31, 1994. The net loss for the period ended
December 31, 1995, was primarily reflective of (1) provision for losses
related to a write down of real estate in anticipation of an accelerated
disposition following its transfer by the Company to the liquidating trust;
and (2) an increase in general and administrative expenses due to increased
bonus expenses related to the Company increasing it's partnership interest in
one of it's partnerships and to accrued merger related expenses.
Total operating revenues for the year ended December 31, 1995, were
$5,072,000 compared to $3,359,000 for the year ended December 31, 1994. The
increase was due primarily to an increase in gain on sales of mortgage loans
and real estate and to a lesser extent increased management fees.
Liquidity and Capital Resources
As of December 31, 1996 the Company has approximately $3,315,000 in cash as
compared to $1,961,000 at December 31, 1995. Also, at December 31, 1995 the
Company had an investment portfolio of mortgage backed securities totaling
$14,997,000 which was sold and distributed to shareholders as part of the
merger on June 5, 1996.
The Company's primary requirements for liquidity is to fund MPS's mortgage
loans and CARS' inventory of vehicles. MPS currently has in place a line of
credit totaling $15,000,000 for which it can finance 97% of the mortgage loan
principal balance, and CARS has two lines of credit to fund acquisitions of
new and used vehicles at 100% of cost.
It is anticipated that MPS will require, and the Company believes it can
obtain additional financing to support the growth in MPS's loan production.
CARS incurred a $1,123,000 operating loss for the period of June 8, 1996 to
December 31, 1996. As discussed in Item 1. above the Company has entered into
a definitive agreement for the sale of CARS. It is not anticipated that,
subsequent to the sale of CARS, any additional capital will be utilized in the
retail automotive sales line of business.
The Company anticipates that any material capital expenditure requirements
relating to the operations can be funded with existing liquidity or additional
bank borrowings that can be obtained on terms no less favorable than it's
current bank borrowings.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NAB Asset Corporation:
We have audited the accompanying consolidated balance sheets of NAB Asset
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for each of the years in the three year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NAB Asset
Corporation and subsidiaries as of December 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the years in the three
year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Orange County, California
March 28, 1997
8
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
ASSETS 1996 1995
------ ------- -------
<S> <C> <C>
Cash and cash equivalents....................................... $ 3,315 $ 1,961
Investments in mortgage-backed securities, available for sale... -- 14,997
Receivables:
Residential mortgage loans held for sale...................... 12,648 --
Other receivables............................................. 1,092 130
Vehicle and parts inventory..................................... 3,446 --
Property and equipment, net..................................... 340 --
Loans classified as in-substance foreclosures................... -- 1,201
Undeveloped commercial real estate.............................. -- 3,183
Investment in limited partnerships.............................. -- 724
Costs in excess of net assets acquired, net..................... 1,095 --
Other assets.................................................... 201 524
------- -------
$22,137 $22,720
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Notes payable:
Mortgage warehouse line of credit............................. $11,819 $ --
Automobile flooring lines of credit........................... 3,349 --
Accrued merger related expenses................................. -- 500
Accounts payable and accrued expenses........................... 1,194 244
Deferred income................................................. 120 --
------- -------
Total liabilities........................................... 16,482 744
------- -------
Minority interest................................................. 50 --
Commitments and contingencies..................................... -- --
Shareholders' equity (note 1):
Common stock: $.01 par value; 20,000,000 authorized shares;
4,208,835 shares issued and outstanding at December 31, 1995... -- 42
Common stock: $.10 par value; 30,000,000 authorized shares;
5,091,300 issued and outstanding at December 31, 1996.......... 509 --
Additional paid-in capital...................................... 7,217 25,567
Accumulated deficit............................................. (2,121) (3,669)
Unrealized gains on securities available-for-sale............... -- 70
Unearned compensation........................................... -- (34)
------- -------
Total shareholders' equity.................................. 5,605 21,976
------- -------
$22,137 $22,720
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Sale of vehicles and parts................... $ 5,167 $ -- $ --
Gains on sales of loans...................... 962 -- --
Interest income.............................. 323
Other operating revenues..................... 129 -- --
--------- --------- ---------
Total revenues............................. 6,581 -- --
--------- --------- ---------
Costs and expenses:
Cost of vehicles and parts sold.............. 4,453 -- --
Compensation and benefits.................... 2,042 -- --
Interest expense............................. 199 -- --
General and administrative................... 1,806 -- --
--------- --------- ---------
Total costs and expenses................... 8,500 -- --
--------- --------- ---------
Net loss from continuing operations............ (1,919)
Net earnings (loss) from discontinued
operations, net of income taxes............... 3,467 (456) 780
--------- --------- ---------
Net earnings (loss)............................ $ 1,548 $ (456) $ 780
========= ========= =========
Net loss per share from continuing operations.. $ (0.38) $ -- $ --
========= ========= =========
Net earnings (loss) per share.................. $ 0.29 $(0.11) $0.19
========= ========= =========
Weighted average number of common shares
outstanding from continuing operations........ 5,091,300 -- --
========= ========= =========
Weighted average number of common and common
equivalent shares outstanding from continuing
and discontinued operations................... 5,296,300 4,208,835 4,208,835
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------
UNREALIZED
GAINS (LOSSES)
ADDITIONAL ON SECURITIES
PAID-IN ACCUMULATED AVAILABLE-FOR- UNEARNED
SHARES AMOUNT CAPITAL DEFICIT SALE COMPENSATION TOTAL
---------- ------ ---------- ----------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 4,208,835 $ 42 $ 31,880 $(3,993) $ -- $(178) $ 27,751
Distributions.......... (6,313) (6,313)
Amortization of
unearned compensation. -- -- -- -- -- 81 81
Securities valuation
allowance, net........ -- -- -- -- (520) -- (520)
Net income............. -- -- -- 780 -- -- 780
---------- ---- -------- ------- ----- ----- --------
Balance, December 31,
1994................... 4,208,835 42 25,567 (3,213) (520) (97) 21,779
---------- ---- -------- ------- ----- ----- --------
Amortization of
unearned compensation. -- -- -- -- -- 63 63
Securities valuation
allowance, net........ -- -- -- -- 590 -- 590
Net loss............... -- -- -- (456) -- -- (456)
---------- ---- -------- ------- ----- ----- --------
Balance, December 31,
1995................... 4,208,835 42 25,567 (3,669) 70 (34) 21,976
---------- ---- -------- ------- ----- ----- --------
Amortization of
unearned compensation. -- -- -- -- -- 34 34
Securities valuation
allowance, net........ -- -- -- -- (70) -- (70)
Transfer to NAB
liquidating trust..... -- -- (6,585) -- -- -- (6,585)
Distributions.......... -- -- (15,298) -- -- -- (15,298)
Surrender of Old Stock
in Merger............. (4,208,835) (42) 42 -- -- -- --
Issuance of New Stock
in Merger--62% to
Shareholders of Old
NAB................... 3,156,594 316 (316) -- -- -- --
Contribution of Capital
by CPS in Merger--38%
of Common Stock to
CPS................... 1,934,706 193 3,807 -- -- -- 4,000
Net income............. -- -- -- 1,548 -- -- 1,548
---------- ---- -------- ------- ----- ----- --------
Balance, December 31,
1996................... 5,091,300 $509 $ 7,217 $(2,121) $ -- $ -- $ 5,605
========== ==== ======== ======= ===== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ --------
(DOLLARS, IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations................ $ (1,919) $ -- $--
Adjustments to reconcile net loss to net cash
from operating activities:
Cash provided by discontinued operations....... 1,657 1,836 36
Provision for losses........................... 140 -- --
Depreciation and amortization.................. 147 -- --
Minority interest.............................. 50 -- --
Net changes in:
Purchases of vehicle and parts inventory...... (3,446) -- --
Residential mortgage loans originated,
purchased
and sold..................................... (11,287) -- --
Accounts receivable........................... (1,487) -- --
Deferred income............................... 120 -- --
Other assets.................................. (315) -- --
Accounts payable and accrued expenses......... 1,039 -- --
-------- ------ ----
Net cash from (used by) operating activities. (15,301) 1,836 36
-------- ------ ----
Cash flows from investing activities:
Loan to Mortgage Portfolio Services................ (2,499)
Purchases of fixed assets, net..................... (199) -- --
Acquisition of businesses, net of cash required.... 685 -- --
-------- ------ ----
Net cash from (used by) investing activities. (2,013) -- --
-------- ------ ----
Cash flows from financing activities:
Contribution of capital by CPS in merger........... 4,000 -- --
Net borrowings under warehouse line of credit...... 11,319 -- --
Net borrowings under flooring line of credit....... 3,349 -- --
-------- ------ ----
Net cash from (used by) financing activities. 18,668 -- --
-------- ------ ----
Net increase in cash and cash equivalents............ 1,354 1,836 36
Cash and cash equivalents at beginning of year....... 1,961 125 89
-------- ------ ----
Cash and cash equivalents at end of year............. $ 3,315 $1,961 $125
======== ====== ====
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Discontinued Operations
NAB Asset Corporation, a Texas Corporation (the "Company" or "NAB") is
primarily engaged in the mortgage lending and retail automotive sales
business. Prior to June 5, 1996 the Company's business consisted of the
acquisition, ownership, management and disposition of loans and real estate
for its own account and the account of others.
The Company was organized on March 31, 1991, by National Asset Bank (a bank
in liquidation) (the "Bank") as a wholly-owned subsidiary of the Bank for the
purpose of acquiring substantially all of the assets of the Bank through a
series of transactions and agreements intended to effect the final liquidation
of the Bank. The Company acquired substantially all of the assets of the Bank
in consideration of the issuance by the Company of shares of its common stock,
$.01 par value (the "Common Stock"), and the assumption of all the Bank's
liabilities. Immediately following such acquisition, the Bank distributed the
shares of Common Stock received to the holders of the Bank's common stock,
(the "Bank Common Stock"), on the basis of one share of Common Stock for each
ten shares of the Bank Common Stock held of record as of the close of business
on July 17, 1991. Because the Company was formed for the purpose of effecting
the acquisition of substantially all of the Bank's assets, the Company had
only limited operating activities prior to such acquisition.
On June 5, 1996, pursuant to the Plan and Agreement of Merger, CPS Investing
Corp. ("CPS Sub"), a wholly owned subsidiary of CPS, was merged with and into
NAB. Under the terms of the Plan and Agreement of Merger and in exchange for
all of the outstanding shares of NAB $.01 par value common stock, the
shareholders of NAB received on a pro rata basis (i) an aggregate cash
distribution of $15.3 million ($3.64 per share), (ii) an undivided interest in
a liquidating trust ("Liquidating Trust"), and (iii) 62% of the outstanding
shares of common stock, $.10 par value (the "New Common Stock") of the new
combined company which had a net asset value of $7.5 million as of the merger
date. The Liquidating Trust was established for the benefit of converting the
trust assets to cash for the NAB shareholders. On June 5, 1996 in connection
with the Merger, NAB contributed approximately $3.0 million in cash and all of
the remaining non-cash assets of NAB with a net book value of $3.7 million to
the Liquidating Trust. No gain or loss was recognized by NAB in connection
with the merger.
Operating results of the discontinued operation is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR ENDED
FOR THE PERIOD FROM JANUARY 1, 1996 DECEMBER 31,
FROM APRIL 24, 1996 TO APRIL 23, 1996 --------------------
TO JUNE 5, 1996 (MEASUREMENT DATE) 1995 1994
------------------- -------------------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................ $3,013 $1,995 $ 6,017 $ 3,765
Expenses................ 564 977 6,473 2,985
------ ------ --------- ---------
Net earnings (loss) from
discontinued
operations............. $2,449 $1,018 $ (456) $ 780
====== ====== ========= =========
</TABLE>
Revenue for the discontinued operations consisted of gain on sale of assets
and interest income. Expenses consisted primarily of compensation and
benefits.
The following is a description of the Company's significant accounting and
financial reporting policies:
13
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, with all significant inter-company
transactions being eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in Mortgage-Backed Securities
The investments in mortgage-backed securities, classified as available-for-
sale, are carried at fair value with the unrealized gains reported as a
separate component of shareholder's equity. The unrealized gains have not been
recorded net of tax due to the net operating losses available to offset future
taxable income.
Residential Mortgage Loans Held for Sale
Residential mortgage loans are stated at the lower of cost or market in the
aggregate as determined by outstanding commitments from investors or current
investor yield requirements.
Vehicle and Parts Inventory
Vehicle inventory consists of new and used vehicles held for sale and is
valued at the lower of cost or market. Used vehicle reconditioning costs are
capitalized as a component of inventory cost. The cost of vehicles sold is
determined on a specific identification basis. Parts inventory is carried at
cost.
Property and Equipment, Net
Property and Equipment are stated at cost. Major renewals and improvements
are capitalized and depreciated. Repairs and maintenance are expensed as
incurred. Depreciation is provided on a straight line basis over the estimated
useful lives of depreciable assets. Cost and accumulated depreciation
applicable to assets retired or sold are eliminated from the accounts and any
resulting gains or losses are recognized at such time.
Loans Classified as In-Substance Foreclosures
The Company's loans classified as in-substance foreclosures are accounted
for in the same manner as real estate or other repossessed assets. In these
cases, although legal foreclosures may not have occurred, the Company has
determined that the borrower has formally or effectively abandoned control of
the collateral or the Company's sole source of repayment will arise from the
operation or liquidation of the collateral. Furthermore, in the case of such
loans, the Company has determined that the borrower no longer has any equity
interest in the collateral securing the payment of the loan and is not
believed to have the ability to realize any equity interest in the collateral
in the future.
Allowance for Losses
A valuation allowance is provided for estimated losses on loans, loans
classified as in-substance foreclosures, real estate and other repossessed
assets to the extent that the cost of the assets exceeds the fair market value
of those assets. In estimating fair market value, consideration is given to,
among other things, the contractual terms, the borrower's financial condition
and fair market value appraisals of the collateral securing the payment
thereof.
14
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investments in Limited Partnerships
The Company accounts for its limited partnership investments in which
subsidiaries of the Company act as general partner, under the equity method of
accounting where the investment is recorded at cost and adjusted for earnings,
losses and partnership distributions during the period.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired which represents the excess of
purchase price over fair value of net assets acquired, is amortized on a
straight-line basis over five years. The Company reviews costs in excess of
net assets acquired for impairment when changes in events or circumstances may
affect the underlying basis of the asset.
Revenue Recognition
Mortgage Banking revenues consist primarily of gains or losses on sales of
loans and loan origination fees. Gains or losses on sales of loans are
recognized at the date of settlement and are based upon the difference between
the sales price and the carrying value of the related loans. A portion of the
sales price is recorded as deferred income and represents management's
estimate of amounts reimbursable to the purchaser of the loans in the event of
a loan prepayment prior to a period specified in the loan sales agreement,
generally one to two years.
Non-refundable fees and direct costs associated with the origination of
loans are deferred and included in the carrying value until the related loan
is sold.
Automobile dealership revenue consists primarily of new and used vehicle
sales. Revenue from the sale of vehicles is recognized upon delivery of the
vehicle to the customer, when the sales contract is signed and when the agreed
upon down payment has been received.
Interest is recognized as revenue when earned according to the terms of the
security instruments and when, in the opinion of management, it is
collectable.
Federal Income Taxes
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 attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax base. To the extent that current available evidence
about the future raises doubt about the realization of a deferred tax asset, a
valuation allowance must be established. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply 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.
Earnings (Loss) Per Share
Earnings (loss) per share is computed based on the weighted average number
of common shares and common share equivalents (in periods in which they have a
dilutive effect) outstanding during the period.
15
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statements of Cash Flows
For the purposes of reporting cash flows, cash and cash equivalents include
cash in banks, interest bearing demand deposits and U.S. Treasury bills with
an original maturity of 30 days or less.
STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURES
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Interest paid--
Corporate.............. $ --
======
Interest paid--Mortgage
Banking................ $ 104
======
Interest paid--
Automobile Dealership.. $ 95
======
Non-cash activities,
conversion of MPS loan
to Equity in MPS....... $2,499
======
TRANSFER TO LIQUIDATING TRUST
Loans................... $ 129
In-substance foreclosure
loans.................. 454
Real Estate............. 2,733
Other Assets............ 781
Other Liabilities....... (493)
------
Net non-cash transfer to
liquidating trust...... $3,604
======
</TABLE>
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. It
distinguishes between transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 is effective for transactions
occurring after December 31, 1996 except for certain transactions which
according to Statement of Financial Accounting Standards No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB 125", will be effective if
occurring after December 31, 1997. It is not anticipated that the financial
impact of these statements will have a material effect on the Company's
financial condition and results of operation.
Reclassification
Certain amounts for the prior periods have been reclassified to conform to
the current presentation.
(2) ACQUISITIONS
On July 10, 1996 the Company acquired from CPS 84% percent of the
outstanding voting common stock of Mortgage Portfolio Services, Inc. ("MPS")
for a purchase price of $300,000 in cash. The Company also acquired $2.25
million of MPS preferred stock through conversion of debt to equity and
contributed approximately $249,000 to the additional paid-in capital of MPS.
The MPS preferred stock acquired by the Company provides cumulative dividends
at a rate of 10% per annum and has liquidation preference over the MPS common
stock equal to the purchase price of the MPS preferred stock plus any accrued
and unpaid dividends.
16
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MPS is a mortgage banking company that specializes in the purchase,
origination and servicing of residential mortgage loans that do not meet
traditional secondary market guidelines due to credit or employment history of
the borrower, debt-to-income ratios, or the nature of the collateral.
A summary of the assets and liabilities acquired at fair value are as
follows (in thousands):
<TABLE>
<S> <C>
Mortgage Loans................................................... $ 1,362
Other Assets..................................................... 1,211
Warehouse Line of Credit......................................... (500)
Other Liabilities................................................ (2,547)
-------
Net Assets Acquired.............................................. (474)
Purchase Price Paid.............................................. 300
-------
Cost in excess of Net Assets Acquired............................ $ (774)
=======
</TABLE>
Costs in excess of net assets acquired totaling $774,000 was recorded at the
acquisition date. Accumulated amortization of the costs in excess of net
assets acquired totaled $81,000 at December 31, 1996.
On July 8, 1996 the Company acquired 80,000 common shares or 80% of CARS
USA, Inc. ("CARS") for a purchase price of $100,000. Additionally, the Company
acquired $400,000 in 6% cumulative preferred stock and extended a $1,000,000
subordinated promissory note. The subordinated note bears interest at 10%,
payable quarterly and requires the payment of principal beginning in 2002. At
the time of the acquisition, Charles E. Bradley, Jr., a director of NAB owned
10,000 shares or 50% of the outstanding shares of CARS. Mr. Bradley, Jr.
retained a 10% ownership in CARS subsequent to NAB's acquisition. On the date
of acquisition CARS had liabilities with a fair value $329,000 resulting in
costs in excess of net assets acquired totaling $429,000. Accumulated
amortization of the cost in excess of net assets acquired totaled $27,000 at
December 31, 1996.
Selected unaudited pro forma combined results of operations for the year
ended December 31, 1996, assuming the acquisition of MPS and CARS had occurred
on January 1, 1996 are presented as follows (in thousands):
<TABLE>
<S> <C>
Net loss from continuing operations................................ $2,039
======
Net loss per share from continuing operations...................... $ 0.40
======
</TABLE>
The increase in pro forma loss from continuing operations and pro forma net
loss per share from continuing operations gives effect to additional
amortization of cost in excess of net assets acquired of ($120,000) which
would have been incurred assuming MPS and CARS were acquired on January 1,
1996.
As described in Note 13, subsequent to December 31, 1996, the Company
entered into a definitive agreement to sell CARS.
(3) INVESTMENTS IN MORTGAGE-BACKED SECURITIES
At December 31, 1995 all investments in mortgage-backed securities are
classified as available-for-sale and are carried at their estimated market
value, with the net unrealized gain or loss on investments reported as a
separate component of shareholders' equity. The estimated market values
reflect gross unrealized gains of $70,000 as of December 31, 1995. The stated
maturities of the securities range from December 15, 2001 to June 15, 2024.
There were no sales of investments in mortgage-backed securities during the
years ended December 31, 1995 and 1994. All mortgage-backed securities were
sold in May 1996, at a realized loss of $125,000.
17
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) RESIDENTIAL MORTGAGE LOANS HELD FOR SALE
Residential mortgage loans originated by the Company are fixed-rate or
adjustable-rate, 15 to 30-year fully amortized loans, secured by first liens
on single-family residential properties. Loans held for sale as of
December 31, 1996 were comprised of the following:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMOUNT RATE
-------------- --------
(IN THOUSANDS)
<S> <C> <C>
Adjustable-rate.................................... $ 4,999 9.99%
Fixed-rate......................................... 7,398 11.47
-------
12,397
Deferred loan fees, net............................ 251
-------
$12,648
=======
</TABLE>
(5) LOANS CLASSIFIED AS IN-SUBSTANCE FORECLOSURES
Loans classified as in-substance foreclosures consisted primarily of
commercial energy related loans. As of December 31, 1995, the unpaid principal
balance was $2,346,000 with an allowance for losses of $1,145,000. Principal
repayments and settlements in cash totaling $2,513,000 resulting in gains of
$1,766,000 were recorded in the period from January 1, 1996 to June 5, 1996.
The remaining net balance of $454,000 at June 5, 1996 was transferred to the
liquidating trust.
(6) UNDEVELOPED COMMERCIAL REAL ESTATE
Undeveloped commercial real estate had a cost basis of $5,491,000 at
December 31, 1995, and a corresponding allowance for losses of $2,308,000.
Sales totaling $593,000 resulting in gains totaling $143,000 were recorded
during the period from January 1, 1996 to June 5, 1996. The remaining net
balance of $2,733,000 at June 5, 1996 was transferred to the liquidating
trust.
(7) VEHICLE AND PARTS INVENTORY
Vehicle and parts inventory is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
New Vehicles............................................. $2,443
Used Vehicles............................................ $1,044
Parts.................................................... $ 71
------
3,558
Allowance for losses..................................... $ (112)
------
$3,446
======
</TABLE>
(8) INVESTMENTS IN LIMITED PARTNERSHIPS
Prior to June 5, 1996 the Company acted as general partner for four limited
partnerships that had been formed for the purpose of acquiring, holding,
liquidating and otherwise realizing on loans and related assets. On June 5,
1996, prior to the merger and Liquidating Trust Transfer described in Note 1
the investments in limited
18
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
partnerships were sold to two former officers of NAB for $1,538,000 and
resulted in a net gain of $1,066,000. The two former officers assumed the
general partners responsibilities and the Company was released from all
obligations. As of December 31, 1995, the Company had a capital investment in
the Partnerships of approximately $724,000. Management fees from the
Partnerships totaled $690,000, $2,180,000 and $1,803,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
(9) NOTES PAYABLE
Notes Payable is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Mortgage Warehouse line of credit commitment of
$15,000,000, secured by residential mortgage loans,
interest at prime plus .5% or Libor plus 2.25%
at the Company's option, expiring August 31, 1997........ $11,819
Automobile flooring line of credit, total commitment of
$2,800,000, secured
by new vehicles, interest at 9.25%, with no stated
maturity date............................................ 2,705
Automobile flooring line of credit with CPS, total
commitment of $800,000,
secured by used vehicles, interest at 11%, expiring July
1999..................................................... 644
-------
$15,168
=======
</TABLE>
(10) STOCK OPTION PLANS
1996 Incentive Stock Option Plan and Non-Employee Director Stock Option Plan
In June, 1996 the Company adopted the 1996 Incentive Stock Plan and the Non-
Employee Director Stock Option Plan (the "Plans") subject to approval by NAB's
shareholders at the next meeting of shareholders. Under the terms of the Plans
650,000 shares of the Company's common stock are available for grant to
directors, officers and other employees of the Company. The Plans are
administered by a committee of directors who have the authority to determine
the size, terms and timing of the grants. Options are granted at no less than
fair market value and vest over a period determined by such committee. The
Plans expire in June, 2006. In 1996, options to purchase 205,000 shares were
granted at prices ranging from $1.70 to $2.02 with a weighted average price of
$1.76. None of the options has vested. No options were exercised or canceled
during 1996. All such option grants made in 1996 are subject to shareholder
approval.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This statement establishes financial accounting standards for stock-based
employee compensation plans. SFAS 123 permits the Company to choose either a
new fair value based method or the current APB Opinion 25 intrinsic value
based method of accounting for its stock-based compensation arrangements. SFAS
No. 123 requires pro forma disclosures of net earnings (loss) computed as if
the fair value based method had been applied in financial statements of
companies that continue to follow current practice in accounting for such
arrangements under Opinion 25. SFAS No. 123 applies to all stock-based
employee compensation plans in which an employer grants shares of its stock or
other equity instruments to employees, except for employee stock ownership
plans. SFAS No. 123 also applies to plans in which the employer incurs
liabilities to employees in amounts based on the price of the employer's
stock, i.e., stock option plans, stock purchase plans, restricted stock plans,
and stock appreciation rights. The statement also specifies the accounting for
transactions in which a company issues stock options or other equity
instruments for services provided by non-employees or to acquire goods or
services from outside suppliers or vendors.
19
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company utilizes the intrinsic value method of accounting for stock
options. Had the Company used the fair market value method compensation and
benefits expense would have increased $35,000, and the net loss from
continuing operations would have increased by $35,000. The per share effect
would not be material.
The derived fair value of the options granted in 1996 was $210,000 using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 6%, an expected life of three and one-half years and expected
volatility of 78%.
Previous Plans
Prior to the merger and Liquidating Trust Transfer, the Company had two
stock grant plans, the NAB Asset Corporation 1991 Employee Restricted Stock
Plan and the NAB Asset Corporation 1991 Restricted Stock Plan for Non-Employee
Directors (collectively the "Previous Grant Plans").
Under the terms of the Previous Grant Plans, a total of 160,000 shares of
Company common stock (the "Restricted Stock") were available for grant to
directors, officers and other key employees of the Company or its
subsidiaries. The Previous Grant Plans contained vesting schedules ranging
from one to five years.
During 1995, there were no grants or forfeitures of Restricted Stock under
the Previous Grant Plans. Through December 31, 1995, total grants of 50,500
and 16,500 shares of Restricted Stock were made under the Previous Grant
Plans. The Company's remaining unearned compensation associated with the
Previous Grant Plans totaled approximately $34,000 as of December 31, 1995.
All shares were vested prior to the consummation of the merger and liquidating
trust transfer.
(11) FEDERAL INCOME TAXES
The cumulative amount of temporary differences at December 31, 1995 was
approximately $10 million. The 1995 temporary difference related primarily to
differences between the tax basis of assets transferred to the Company from
the Bank ("Transferred Assets") and their respective book values. There were
no material temporary differences at December 31, 1996, other than the net
operating loss carryforward, as the Transferred Assets were disposed of in the
Merger. Net deferred tax assets totaled $65.4 million and $65.7 million at
December 31, 1996 and 1995, respectively with corresponding valuation
allowances of $65.4 million and $65.7 million, respectively. No deferred tax
assets have been recognized in the 1996 or 1995 Consolidated Financial
Statements due to the fact that the realization of deferred tax assets in the
future is not considered more likely than not.
The Company has not recorded a federal income tax expense or benefit for the
periods ended December 31, 1996, 1995 and 1994. At December 31, 1996, for
federal income tax purposes, the Company had regular tax and alternative
minimum tax net operating loss carryforwards of approximately $191 million
expiring as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
2001............................... $ 616
2002............................... $ 53,530
2003............................... $ 42,120
2004............................... $ 28,004
2005............................... $ 11,091
Thereafter......................... $ 55,682
--------
$191,043
========
</TABLE>
In addition, the Company has a $4.8 million State of California net
operating loss carryforward which expires in 2000.
20
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Section 382 of the Internal Revenue Code of 1986 (Section 382), as amended,
provides in general that if a corporation undergoes an ownership change, the
amount of taxable income that the corporation may offset after the date of
such ownership change with NOLs and certain built-in losses existing at the
date of such ownership change will be subject to an annual limitation. The
Company's NOL's could become subject to certain limitations on utilization in
the event the Company undergoes an ownership change within the meaning of
Section 382.
(12) COMMITMENTS AND CONTINGENCIES
MPS is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to originate and sell loans and involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated financial statements.
Commitments to originate mortgage loans are agreements to provide financing
at a fixed or variable interest rate subject to specific terms and a
customer's creditworthiness on a case-by-case basis. These commitments have
fixed expiration dates and other termination clauses and may require payment
of a fee. At December 31, 1996, MPS had commitments to originate mortgage
loans of approximately $3,700,000. This does not necessarily represent future
cash requirements, as some portion of the commitments will expire without
being drawn upon or will be declined for credit or other reasons. At December
31, 1996, MPS had no outstanding commitments to purchase loans.
MPS has entered into loan sale agreements with investors in the normal
course of business which includes standard representations and warranties
customary to the mortgage banking industry. Violations of these
representations and warranties may require MPS to repurchase loans previously
sold. As of December 31, 1996, MPS had no repurchase requests outstanding. In
the opinion of management, the potential exposure related to MPS's loan sale
agreements will not have a material adverse effect on the consolidated
financial position and operating results of the Company.
The Company conducts its business from leased facilities. Rent expense of
approximately $93,000, $120,000 and $104,000 have been recorded for the years
ending December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, minimum rental commitments under all noncancelable
leases with terms exceeding one year were as follows:
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER 31
----------- (IN THOUSANDS)
<S> <C>
1997............................. $251
1998............................. 187
1999............................. 91
2000............................. 13
2001............................. 2
----
$544
====
</TABLE>
(13) SUBSEQUENT EVENTS
In January, 1997, the Company, through a newly created 84% owned subsidiary,
NAFCO, Inc., acquired a portfolio of loans totaling $1,966,000 of which the
debtors are rent-to-own and rental purchase retail operations. NAFCO, Inc. is
a finance company that specializes in providing financing and consulting
services to small independently owned rent-to-own retailers throughout the
United States.
21
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to December 31, 1996 the Company entered into a definitive
agreement, subject to certain third party consents, to sell its interest in
CARS for $1,500,000. The agreement calls for a down payment of $200,000 and a
note for $1,300,000 of which $500,000 in principal is due on the first
anniversary of the purchase and sale agreement and $800,000 is due on the
second anniversary of the purchase and sale agreement. The note bears interest
at 9% and interest is payable quarterly. The acquirer is a newly formed
company owned by Charles E. Bradley, Sr. and Charles E. Bradley, Jr. Mr.
Bradley, Sr. is the Chairman of the Board and Chief Executive Officer of the
Company. Mr. Bradley, Jr. is a director of the Company.
(14) RELATED PARTY TRANSACTIONS
Included in accounts payable and accrued expenses at December 31, 1996, is
$275,000 due to CPS for investment banking and management services assistance
related to the acquisitions and operations of CARS and MPS.
As described in Note 2 in July, 1996, the Company acquired a majority
interest in CARS. Mr. Charles E. Bradley, Jr., a NAB director, owns a 10%
equity interest in CARS. As described in Note (13), the Company has entered
into an agreement to sell CARS to a company owned by Mr. Bradley, Sr., and Mr.
Bradley, Jr., both NAB directors.
Included in notes payable is an $800,000 used car flooring line of credit
with CPS. The borrowings bear interest at 11%. Interest paid under the line
totaled $15,000 in 1996.
Included in other assets is an unsecured note receivable for $80,000 from an
officer of the Company. The note is due on July 1, 1999, bears no interest and
may be prepaid at any time. On January 22, 1997, a $25,000 payment was made,
reducing the unpaid balance to $55,000.
During the year ended December 31, 1996, CARS purchased used vehicles from
CPS totaling $725,000.
In 1991, Emil Nakfoor, a director of the Company, was retained by the
Company as a consultant. Mr. Nakfoor received a net amount of $42,000 for his
service in 1994 and 1995. In 1996, Mr. Nakfoor received $19,000 for his
services up to the merger between NAB and CPS Sub on June 6, 1996.
(15) BUSINESS SEGMENTS
The Company operates in two business segments: Financial Services and Retail
Automotive Sales. Prior to June 5, 1996 the Company's primary segments were
(i) ownership of real estate and collection of loans and (ii) providing
management services with respect to loans and real estate owned by third
parties. These segments will no longer contribute to the operations of the
Company.
For financial statement purposes the prior segments will be combined into
Real Estate Services. There were no intersegment revenues.
22
<PAGE>
NAB ASSET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1996
--------------------------------------------
REAL ESTATE
RETAIL SERVICES
FINANCIAL AUTOMOTIVE (DISCONTINUED
SERVICES SALES CORPORATE OPERATIONS)
--------- ---------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................... $ 1,349 $ 5,167 $ 65 $ 5,033
Cost of Sales & Expenses........... (1,732) (6,243) (525) (1,566)
Intersegment Interest.............. (21) (47) 68 --
------- ------- ------ -------
Operating Earnings (Loss).......... $(404) $(1,123) $ (392) $ 3,467
======= ======= ====== =======
Identifiable Assets................ $14,544 $ 4,609 $2,984 $ --
======= ======= ====== =======
Capital Expenditures............... $138 $42 $19 $ --
======= ======= ====== =======
Depreciation & Amortization........ $91 $30 $26 $ 75
======= ======= ====== =======
</TABLE>
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," requires that the Company disclose estimated fair
value for its financial instruments. The following methods an assumptions were
used in estimating the Company's fair value disclosures for financial
instruments.
Cash, accounts receivable, contracts in transit, interest receivable,
accounts payable and accrued liabilities: The carrying amounts approximate
fair value because of the short maturity of these instruments.
Residential Mortgage Loans: The fair value of Residential Mortgage Loans is
determined in the aggregate based on outstanding commitments from investors or
current investor yield requirements. The carrying value and fair value of
Residential Mortgage Loans at December 31, 1996 were approximately $12,648,000
and $13,300,000, respectively.
Notes Payable: The fair value of the Company's notes payable are equal to
the carrying value as they are short-term in nature and generally have a
floating rate.
Loan Commitments: The fair value of commitments is determined in the
aggregate based on current investor yield requirements. The excess of fair
value over the notional amount of loan commitments at December 31, 1996 was
approximately $200,000.
23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, information on executive
compensation is incorporated by reference from the Registrant's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, information on executive
compensation is incorporated by reference from the Registrant's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, information on security
ownership of certain beneficial owners and management is incorporated by
reference from the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A promulgated by the Securities and Exchange
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, information on certain
relationships and related transactions is incorporated be reference from the
Registrant's definitive Proxy Statement to filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors Report........................................... 8
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... 9
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 .................................... 10
Consolidated Statements of Changes in Shareholders' Equity for the
years ended
December 31, 1996, 1995 and 1994..................................... 11
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994..................................... 12
Notes to Consolidated Financial Statememts............................ 13
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
None.
24
<PAGE>
3. EXHIBITS
<TABLE>
<C> <S>
2.1 Plan and Agreement of Merger dated February 7, 1996, by and among
Consumer Portfolio Services, Inc., CPS Investing Corp., and NAB Asset
Corporation (Incorporated by reference to Exhibit 2.1 to Form 8-K dated
February 28, 1996).
3.1 Restated Articles of Incorporation (Incorporated by reference to Exhibit
A to Appendix A to the Company's Proxy Statement dated April 23, 1996).
3.2 Restated By-laws (Incorporated by reference to Exhibit B to Appendix A
to the Company's Proxy Statement dated April 23, 1996).
10.1 Partnership Sale Agreement dated as of February 7, 1996, by and among
NAB Asset Corporation, JNK-1, Inc., LB 2, Inc., CLMN, Inc., MAH I, Inc.,
Michael A. Hrebenar and Richard A. Durham (Incorporated be reference to
Exhibit 2.2 to Form 8-K dated February 28, 1996).
10.2* NAB Asset Corporation 1996 Incentive Stock Option Plan (filed herewith).
10.3* NAB Asset Corporation 1996 Non-Employee Director Stock Option Plan
(filed herewith).
10.4 Subscription and Capital Contribution Agreement dated July 10, 1996,
between NAB Asset Corporation and Mortgage Portfolio Services, Inc.
(Incorporated by reference to Exhibit 10.1 to
Form 8-K dated July 10, 1996.
10.5 Stock Sale Agreement dated July 10, 1996, between NAB Asset Corporation
and Consumer Portfolio Services, Inc. (Incorporated by reference to
Exhibit 10.2 to Form 8-K dated July 10, 1996).
10.6 Subscription Agreement dated July 8, 1996 among CARS USA, Inc., NAB
Asset Corporation, Charles E. Bradley, Jr., Nicholas Carroll and Sandra
C. Watt. (Incorporated by reference to Exhibit 10.3 to Form 8-K dated
July 10, 1996.
10.7 Warehouse Lending Agreement between Mortgage Portfolio Services and
Guaranty Federal Bank, F.S.B. (filed herewith).
10.8 Employment Agreement dated December 1, 1996 between NAB Asset and
Michael W. Caton (filed herewith).
10.9 Employment Agreement dated December 1, 1996 between James E. Hinton and
Mortgage Portfolio Services, Inc. (filed herewith).
10.10 Stock Purchase Agreement dated March 27, 1997 between NAB Asset
Corporation and CARS Holdings, Inc. (filed herewith).
21.1 Subsidiaries of the registrant.
23 Consent of KPMG Peat Marwick LLP.
</TABLE>
- --------
* Management Incentive Plan or Compensatory Arrangement
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 1996.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Nab Asset Corporation
By: /s/ Charles E. Bradley, Sr.
__________________________________
Charles E. Bradley, Sr.
Chairman of the Board/Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles E. Bradley, Sr. Chairman of the Board
- ---------------------------- Chief Executive Officer March 28, 1997
Charles E. Bradley, Sr. (Principal Executive Officer)
/s/ Michael W. Caton President March 28, 1997
- ---------------------------- Chief Operating Officer and
Michael W. Caton Director
/s/ Alan Ferree Senior Vice President March 28, 1997
- ---------------------------- Chief Financial Officer
Alan Ferree (Principal Financial Officer)
/s/ Timothy G. Hanson Controller March 28, 1997
- ---------------------------- (Principal Accounting
Timothy G. Hanson Officer)
/s/ Robert A. Bettigole
- ---------------------------- Director March 28, 1997
Robert A. Bettigole
/s/ Charles E. Bradley, Jr. March 28, 1997
- ---------------------------- Director
Charles E. Bradley, Jr.
/s/ James B. Gardner
- ---------------------------- Director March 28, 1997
James B. Gardner
/s/ Emil A. Nakfoor
- ---------------------------- Director March 28, 1997
Emil A. Nakfoor
</TABLE>
26
<PAGE>
EXHIBIT 10.2
NAB ASSET CORPORATION
1996 INCENTIVE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
This NAB Asset Corporation 1996 Incentive Stock Plan is intended to provide
a means through which the Company and its Subsidiaries may attract able persons
to enter into the employ of the Company or its Subsidiaries, and to promote the
interests of the Company by providing the employees and consultants of the
Company or any Subsidiary corporation, who are largely responsible for the
management, growth and protection of the business of the Company, with a
proprietary interest in the Company, thereby strengthening their concern for the
welfare of the Company and their desire to remain in its employ.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Board of Directors" shall mean the Board of Directors of NAB Asset
Corporation.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination
of the Participant's employment by the Company by reason of (I) the
conviction of the Participant by a court of competent jurisdiction as
to which no further appeal can be taken of a crime involving moral
turpitude; (ii) the proven commission by the Participant of an act of
fraud upon the Company; (iii) the willful and proven misappropriation
of any funds or property of the Company by the Participant; (iv) the
willful, continued and unreasonable engagement by the Participant to
perform duties assigned to him and agreed to by him; (v) the knowing
engagement by the Participant in any direct, material conflict of
interest with the Company without compliance with the Company's
conflict of interest policy, if any, then in effect; (vi) the knowing
engagement by the Participant, without the written approval of the
Board of Directors of the Company, in any activity which competes with
the business of the Company or which would result in a material injury
to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the
Company's Policies and Procedures Manual, if any, then in effect.
(c) "Cash Bonus" shall mean an award of a bonus payable in cash
pursuant to Section 10 hereof.
(d) "Change in Control" shall mean:
(i) a "change in control" of the Company, as that term is
contemplated in the federal securities laws; or
(ii) the occurrence of any of the following events:
(1) any Person becomes, after the effective date of this Plan, the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the
Company's then outstanding securities; provided, that the Board of
Directors (as constituted immediately prior to such person becoming
such a beneficial owner) may determine, in its sole discretion, that
a Change in Control has not occurred; and provided further, that the
acquisition of additional voting securities, after the effective
date of this Plan, by any Person who is, as of the
1
<PAGE>
effective date of this Plan, the beneficial owner, directly or
indirectly, of [30%] or more of the combined voting power of the
Company's then outstanding securities shall not constitute a "Change
in Control" of the Company for purposes of this Section 2(d).
(2) a majority of individuals who are nominated by the Board of
Directors for election to the Board of Directors on any date, fail
to be elected to the Board of Directors as a direct or indirect
result of any proxy fight or contested election for positions on the
Board of Directors; or
(3) The Board of Directors determines in its sole and absolute
discretion that there has been a change in control of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any Section of the Code shall
be deemed to include any amendments or successor provisions to any
Section and any treasury regulations thereunder.
(f) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall
appoint from time to time to administer the Plan.
(g) "Common Stock" shall mean the Company's common stock, par value $.10
per share.
(h) "Company" shall mean NAB Asset Corporation, a Texas corporation, and
each of its Subsidiaries, and its successors.
(i) "Consultant" shall mean any person who is engaged by the Company or
any Subsidiary to render consulting services and is compensated for
such services.
(j) "Employee" shall mean any person who is an employee of the Company or
any Subsidiary within the meaning of Section 3401( c) of the Code and
the applicable interpretive authority thereunder.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(l) the "Fair Market Value" of a share of Common Stock on any date shall
be (1) the closing sales price on the immediately preceding business
day of a share of Common Stock as reported on the principal securities
exchange on which shares of Common Stock are then listed or admitted to
trading or (2) if not so reported, the average of the closing bid and
asked prices for a share of Common Stock on the immediately preceding
business day as quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or (3) if not quoted on
NASDAQ, the average of the closing bid and asked prices for a share of
Common Stock as quoted by the National Quotation Bureau's "Pink
Sheets") or the National Association of Securities Dealers' OTC
Bulletin Board System. If the price of a share of Common Stock shall
not be so reported, the Fair Market Value of a share of Common Stock
shall be determined by the Committee in its absolute discretion.
(m) "Incentive Award" shall mean an Option, a share of Restricted Stock, a
share of Phantom Stock a Stock Bonus or Cash Bonus granted pursuant to
the terms of the Plan.
(n) "Incentive Stock Option" shall mean an Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and which
is identified as an Incentive Stock Option in the agreement by which it
is evidenced.
2
<PAGE>
(o) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued by
the Company pursuant to the terms of Section 7(d) hereof.
(p) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is identified as a Non-Qualified Stock
Option in the agreement by which it is evidenced.
(q) "Option" shall mean an option to purchase shares of Common Stock of
the Company granted pursuant to Section 6 hereof. Each Option shall be
identified as either an Incentive Stock Option or a Non-Qualified Stock
Option in the agreement by which it is evidenced.
(r) "Parent" shall mean a "parent corporation" of the Company, whether
now or hereafter existing, as defined in Section 424(e) of the Code.
(s) "Participant" shall mean an Employee or Consultant who is eligible to
participate in the Plan and to whom an Incentive Award is granted
pursuant to the Plan, and, upon his death, his successors, heirs,
executors and administrators, as the case may be, to the extent
permitted hereby.
(t) "Person" shall mean a "person," as such term is used in Section 13(d)
and 14(d) of the Exchange Act, and the rules and regulations in effect
from time to time thereunder.
(u) a share of "Phantom Stock" shall represent the right to receive in
cash the Fair Market Value of a share of Common Stock of the Company,
which right is granted pursuant to Section 8 hereof and subject to the
terms and conditions contained therein.
(v) "Plan" shall mean the NAB Asset Corporation 1996 Incentive Stock Plan,
as it may be amended from time to time.
(w) a share of "Restricted Stock" shall mean a share of Common Stock which
is granted pursuant to the terms of Section 7 hereof and which is
subject to the restrictions set forth in Section 7 (c) hereof for so
long as such restrictions continue to apply to such share.
(x) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(y) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Common Stock pursuant to Section 9 hereof.
(z) "Subsidiary" or "Subsidiaries" shall mean any and all corporations in
which at the pertinent time the Company owns, directly or indirectly,
stock vested with more than 50% of the total combined voting power of
all classes of stock of such corporations within the meaning of Section
424(f) of the Code.
(aa)"Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.
3. STOCK SUBJECT TO THE PLAN
Under the Plan, the Committee may grant to Participants: (a) Options; (b)
shares of Restricted Stock; (c ) shares of Phantom Stock; (d) Stock Bonuses; and
(e) Cash Bonuses.
3
<PAGE>
The Committee may grant Options, shares of Restricted Stock, Performance
Awards, shares of Phantom Stock and Stock Bonuses under the Plan with respect to
a number of shares of Common Stock that in the aggregate at any time does not
exceed 500,000 shares of Common Stock, subject to adjustment pursuant to Section
11 hereof. The grant of a Cash Bonus shall not reduce the number of shares of
Common Stock with respect to which Options, shares of Restricted Stock, shares
of Phantom Stock or Stock Bonuses may be granted pursuant to the Plan.
Notwithstanding, any provision in the Plan to the contrary, the maximum number
of shares of Common Stock that may be subject to Incentive Awards granted to any
one individual during any calendar year shall be 120,000 shares of Common Stock,
-------
subject to adjustment under Section 11 hereof. The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated in connection with the exercise of Options to constitute "qualified
performance-based compensation" for purposes of Section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced.
If any outstanding Option expires, terminates or is canceled for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option shall again be available for grant under the Plan. If any shares of
Restricted Stock or Phantom Stock, or any shares of Common Stock granted as a
Stock Bonus are forfeited or canceled for any reason, such shares shall again be
available for grant under the Plan.
Shares of Common Stock issued under the Plan may be either newly issued or
treasury shares, at the discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be both (a) a
"disinterested person" within the meaning of Rule 16b-3(2) (i) promulgated under
Section 16 of the Exchange Act and (ii) an "outside director" within the meaning
of Section 162(m) of the Code and applicable interpretive authority thereunder.
The Committee shall from time to time designate the key Employees and
Consultants of the Company who shall be granted Incentive Awards and the amount
and type of such Incentive Awards.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its sole discretion (a) accelerate the date on which
any option granted under the Plan becomes exercisable, (b) extend the date on
which any Option granted under the Plan ceases to be exercisable, (c )
accelerate the Vesting Date or Issue Date, or waive any condition imposed
pursuant to Section 7(b) hereof, with respect to any share of Restricted Stock
granted under the Plan and (d) accelerate the Vesting Date or waive any
condition imposed pursuant to Section 8 hereof, with respect to any share of
Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion, grant Incentive
Awards to Participants on the condition that such Participant surrender to the
Committee for cancellation such other Incentive Awards (including, without
limitation, Incentive Awards with higher exercise prices) as the Committee
specifies. Notwithstanding Section 3 hereof, Incentive Awards granted on the
condition of surrender of outstanding Incentive Awards shall not count against
the limits set forth in such Section 3 until such time as such Incentive Awards
are surrendered.
4
<PAGE>
Except as provided in Section 6(e)(4) hereof, whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee in its absolute
discretion.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorney's fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be (a) those Employees who are largely responsible for the
management, growth and protection of the business of the Company or any
Subsidiary (including officers of the Company, whether or not they are directors
of the Company) or (b) any Consultants, as the Committee, in its absolute
discretion, shall select from time to time; provided, however, Incentive Stock
Options may only be granted to Employees.
6. OPTIONS
The Committee may grant Options pursuant to the Plan, which Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:
(a) Identification of Options
-------------------------
All Options granted under the Plan shall be clearly identified in
the agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
(b) Exercise Price
--------------
The exercise price of any Option granted under the Plan shall be such
price as the Committee shall determine on the date on which such Option is
granted; provided, that such price shall be not less than 100% of the Fair
Market Value of a share of Common Stock on the date on which such Option is
granted, subject to (1) the restrictions provided in Section 6(d) hereof and (2)
the adjustments provided in Section 11 hereof.
(c ) Term and Exercise of Options
----------------------------
(1) Each Option shall be exercisable on such date or dates, during
such period and for such number of shares of Common Stock as shall
be determined by the Committee on the day on which such Option is
granted and set forth in the agreement evidencing the Option;
provided, however, that (A) subject to the restrictions provided in
Section 6(d) hereof, no Option shall be exercisable after the
expiration of ten years from the date such Option was granted and
(B) no Option shall be exercisable until six months after the date
of grant; and, provided, further, that each Option shall be subject
to earlier termination, expiration or cancellation as provided in
the Plan.
(2) Each Option shall be exercisable in whole or in part with
respect to whole shares of Common Stock. The partial exercise of an
Option shall not cause the expiration,
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termination or cancellation of the remaining portion thereof. Upon
the partial exercise of an Option, the agreement evidencing such
Option shall be returned to the Participant exercising such Option
together with the delivery of the certificates described in Section
6(c)(5) hereof.
(3) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
fewer than five business days in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the
agreement evidencing the Option, shall specify the number of shares
of Common Stock with respect to which the Option is being exercised
and the effective date of the proposed exercise, and shall be signed
by the Participant. Participant may withdraw such notice at any
time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case
such agreement shall be returned to the Participant. Payment for
shares of Common Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise either (a) in
cash, by certified check, bank cashier's check or wire transfer, (b)
subject to the approval of the Committee, in shares of Common Stock
owned by the Participant and valued at their Fair Market Value on
the effective date of such exercise, (c ) subject to the approval of
the Committee, in the form of a "cashless exercise" (as described
below) or (d) subject to the approval of the Committee, in any
combination of the foregoing. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of
the Company, duly endorsed in blank or accompanied by stock powers
duly executed in blank, together with any other documents and
evidence as the Secretary of the Company shall require from time to
time.
The cashless exercise of an Option shall be pursuant to procedures
whereby the Participant by written notice, directs (i) an immediate
market sale or margin loan respecting all or a part of the shares of
Common Stock to which he is entitled upon exercise pursuant to an
extension of credit by the Company to the Participant of the
exercise price, (ii) the delivery of the shares of Common Stock
directly from the Company to a brokerage firm and (iii) delivery of
the exercise price from the sale or the margin loan proceeds from
the brokerage firm directly to the Company.
(4) Any Option granted under the Plan may be exercised by a broker-
dealer acting on behalf of a Participant if (i) the broker-dealer
has received from the Participant or the Company a duly endorsed
agreement evidencing such Option and instructions signed by the
Participant requesting the Company to deliver the shares of Common
Stock subject to such Option to the broker-dealer on behalf of the
Participant and specifying the account into which such shares should
be deposited, (ii) adequate provision has been made with respect to
the payment of any withholding taxes due upon such exercise and
(iii) the broker-dealer and the Participant have otherwise complied
with Section 220.3(e)(4) of Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant
and delivered to the Participant as soon as practicable following
the effective date on which the Option is exercised; provided,
however, that such delivery shall be effected for all purposes when
a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the
Participant.
(6) During the lifetime of a Participant each Option granted to him
shall be exercisable only by him or a broker-dealer acting on behalf
of such Participant
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pursuant to Section 6(c)(4) hereof. No Option shall be assignable or
transferable otherwise than by will or by laws of descent and
distribution.
(d) Limitations on Grant of Incentive Stock Options
-----------------------------------------------
(1) The aggregate Fair Market Value of shares of Common Stock with
respect to which "incentive stock options" (within the meaning of Section 422
without regard to Section 422(d) of the Code) are exercisable for the first time
by a Participant during any calendar year under the Plan (and any other stock
option plan of the Company, or of its Parent or any Subsidiary) shall not exceed
$100,000. Such Fair Market Value shall be determined as of the date on which
each such Incentive Stock Option is granted. If such aggregate Fair Market
Value of shares of Common Stock underlying such Incentive Stock Options exceeds
$100,000, then Incentive Stock Options granted hereunder to such Participant
shall, to the extent and in the order required by regulations promulgated under
the Code (or any other authority having the force of such regulations),
automatically be deemed to be Non-Qualified Stock Options, but all other terms
and provisions of such Incentive Stock Options shall remain unchanged. In the
absence of such regulations promulgated under the Code (and authority), or if
such regulations (or authority) require or permit a designation of the options
which shall cease to constitute Incentive Stock Options, Incentive Stock Options
shall, to the extent of such excess and in the order in which they were granted,
automatically be deemed to be Non-Qualified Stock Options, but all other terms
and provisions of such Incentive Stock Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an individual if, at
the time of the proposed grant, such individual owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Company or of its Parent or any Subsidiary, unless (i) the exercise price of
such Incentive Stock Option is at least 110% of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted and (ii) such
Incentive Stock Option is not exercisable after the expiration of five years
from the date such Incentive Stock Option is granted.
(e) Effect of Termination of Employment
-----------------------------------
(1) If the employment of a Participant with the Company shall
terminate for any reason other than Cause, "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) or the death of the
Participant (i) Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain exercisable until
the expiration of one month after such termination, on which date they shall
expire, and (ii) Options granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall expire at the close
of business on the date of such termination; provided, however, that no Option
shall be exercisable after the expiration of its term.
(2) If the employment of a Participant with the Company shall
terminate as a result of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) or the death of the Participant (i)
Options granted to such Participant, to the extent that they were exercisable at
the time of such termination, shall remain exercisable until the expiration of
one year after such termination, on which date they shall expire, and (ii)
Options granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the close of
business on the date of such termination; provided, however, that no Option
shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment
for Cause, all outstanding Options granted to such Participant shall expire at
the commencement of business on the date of such termination.
(4) A Participant's employment with the Company shall be deemed
terminated if the Participant's leave of absence (including military or such
leave or other bona fide leave of absence)
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extends for more than 90 days and the Participant's continued employment with
the Company is not guaranteed by contract or statute.
(f) Acceleration of Exercise Date Upon Change in Control
----------------------------------------------------
Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation
pursuant to the terms of the Plan.
7. RESTRICTED STOCK
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of
shares of Restricted Stock shall comply with and be subject to the following
terms and conditions:
(a) Issue Date and Vesting Date
---------------------------
At the time of the grant of shares of Restricted Stock, the Committee shall
establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with
respect to such shares. The Committee may divide such shares into classes and
assign a different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 7(c) and 7(f) hereof, upon the occurrence of the Issue
Date with respect to a share of Restricted Stock, a share of Restricted Stock
shall be issued in accordance with the provisions of Section 7(d) hereof.
Provided that all conditions to the vesting of a share of Restricted Stock
imposed pursuant to Section 7(b) hereof are satisfied, and except as provided in
Sections 7(c) and 7(f) hereof, upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 7 (c) hereof shall cease to apply to such share.
(b) Conditions to Vesting
---------------------
At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions, not consistent with the provisions
hereof, to the vesting of such shares as it in its absolute discretion deems
appropriate. By way of example and not by way of limitation the Committee may
require, as a condition to the vesting of any class or classes of shares of
Restricted Stock, that (i) the Participant or the Company achieve certain
performance criteria, such criteria to be specified by the Committee at the time
of the grant of such shares and (ii) prohibiting an election by the Participant
under Section 83(b) of the Code.
(c) Restrictions on Transfer Prior to Vesting
-----------------------------------------
Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon any
attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) Issuance of Certificates
------------------------
(1) Except as provided in Sections 7(c) or 7(f) hereof, reasonably
promptly after the Issue Date with respect to shares of Restricted Stock, the
Company shall cause to be issued a stock certificate, registered in the name of
the Participant to whom such shares were granted, evidencing such shares;
provided, that the Company shall not cause to be issued such a stock
certificates unless it has received a stock power duly endorsed in blank with
respect to such shares. Each such stock certificate shall bear the following
legend.
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The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against
transfer) contained in the NAB Asset Corporation 1996 Incentive
Stock Plan and an Agreement entered into between the registered
owner of such shares and NAB Asset Corporation. A copy of the
Plan and Agreement is on file in the office of the Secretary of
NAB Asset Corporation
Such legend shall not be removed from the certificate evidencing such shares
until such shares vest pursuant to the terms hereof.
(2) Each certificate issued pursuant to Section 7(d)(1) hereof,
together with the stock powers relating to the shares of Restricted Stock
evidenced by such certificate, shall be held by the Company. The Company shall
issue to the Participant a receipt evidencing the certificates held by it which
are registered in the name of the Participant.
(e) Consequences Upon Vesting
-------------------------
Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 7(c ) hereof shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests pursuant to
the terms hereof, the Company shall cause to be issued and delivered to
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 7(d)(1) hereof, together with any
other property of the Participant held by the Company pursuant to Section 11(a)
hereof; provided, however, that such delivery shall be effected for all purposes
when the Company shall have deposited such certificate and other property in the
United States mail, addressed to the Participant.
(f) Effect of Termination of Employment
-----------------------------------
(1) If the employment of a Participant with the Company shall terminate
for any reason other than Cause prior to the vesting of shares of
Restricted Stock granted to such Participant, a portion of such shares,
to the extent not forfeited or canceled on or prior to such termination
pursuant to any provision hereof, shall vest on the date of such
termination. The portion referred to in the preceding sentence shall be
determined by the Committee at the time of the grant of such shares of
Restricted Stock and may be based on the achievement of any conditions
imposed by the Committee with respect to such shares pursuant to Section
7(b) hereof. Such portion may equal zero.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Restricted Stock granted to such Participant which
have not vested as of the commencement of business on the date of such
termination shall immediately be forfeited.
(g) Effect of Change of Control
---------------------------
Upon the occurrence of a Change in Control, all shares of Restricted
Stock which have not theretofore vested (including those with respect to which
the Issue Date has not yet occurred) shall immediately vest.
8. PHANTOM STOCK
The Committee may grant shares of Phantom Stock pursuant to the Plan. Each
grant of shares of Phantom Stock shall be evidenced by an agreement in such form
as the Committee shall from time to time
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<PAGE>
approve. Each grant of shares of Phantom Stock shall comply with and be subject
to the following terms and conditions.
(a) Vesting Date
------------
At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a different Vesting
Date of each class. Provided that all conditions to the vesting of a share of
Phantom Stock imposed pursuant to Section 8(c) hereof are satisfied, and except
as provided in Section 8(d) hereof, upon the occurrence of the Vesting Date with
respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting
--------------------
Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 90 days of the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (1) the Fair Market
Value of a share of Common Stock of the Company on the date on which such share
of Phantom Stock vests and (2) the aggregate amount of cash dividends paid with
respect to a share of Common Stock of the Company during the period commencing
on the date on which the share of Phantom Stock was granted and terminating on
the date on which such share vests.
(c) Conditions to Vesting
---------------------
At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Phantom Stock, that the Participant or the Company achieve certain performance
criteria, such criteria to be specified by the Committee at the time of the
grant of such shares.
(d) Effect of Termination of Employment
-----------------------------------
(1) If the Employment of a Participant with the Company shall terminate
for any reason other than Cause prior to the vesting of shares of Phantom
Stock granted to such Participant, a portion of such shares, to the extent
not forfeited or canceled on or prior to such termination pursuant to any
provision hereof, shall vest on the date of such termination. The portion
referred to in the preceding sentence shall be determined by the Committee
at the time of the grant of such shares of Phantom Stock and may be based
on the achievement of any conditions imposed by the Committee with respect
to such shares pursuant to Section 8(c ) hereof. Such portion may equal
zero.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Phantom Stock granted to such Participant which have
not vested as of the date of such termination shall immediately be
forfeited.
(e) Effect of Change in Control
---------------------------
Upon the occurrence of a Change in Control, all shares of Phantom Stock
which have not theretofore vested shall immediately vest.
9. STOCK BONUSES
The Committee may, in its absolute discretion, grant Stock Bonuses in
such amounts as it shall determine from time to time. A Stock Bonus shall be
paid at such time and subject to such conditions as the Committee shall
determine at the time of the grant of such Stock Bonus. Certificates for shares
of
10
<PAGE>
Common Stock granted as a Stock Bonus shall be issued in the name of the
Participant to whom such grant was made and delivered to such Participant as
soon as practicable after the date on which such Stock Bonus is required to be
paid.
10. CASH BONUSES
The Committee may, in its absolute discretion, grant in connection with
any grant of Restricted Stock or shares of Common Stock granted as a Stock Bonus
or at any time thereafter, a cash bonus, payable promptly after the date on
which the Participant is required to recognize income for federal income tax
purposes in connection with such Restricted Stock or Stock Bonus, in such
amounts as the Committee shall determine from time to time; provided, however,
that in no event shall the amount of a Cash Bonus exceed the Fair Market Value
of the related shares of Restricted Stock or shares of Common Stock issued
pursuant to the grant of a Stock Bonus on such date. A Cash Bonus shall be
subject to such conditions as the Committee shall determine at the time of the
grant of such Cash Bonus.
11. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) Outstanding Restricted Stock and Phantom Stock
----------------------------------------------
Unless the Committee in its absolute discretion otherwise determines, if
a Participant receives any securities or other property (including dividends
paid in cash) with respect to an unvested share of Restricted Stock, as a result
of any dividend, stock split recapitalization, merger, consolidation,
combination, exchange of shares or otherwise, such securities or other property
will not vest until such share of Restricted Stock vests, and shall be held by
the Company pursuant to Section 7(d)(2) hereof as if such securities or other
property were unvested shares of Restricted Stock.
The Committee may, in its absolute discretion, adjust any grant of shares
of Restricted Stock, the Issue Date with respect to which has not occurred as of
the date of the occurrence of any of the following events, any shares of Common
Stock upon the grant of any grant of shares of Phantom Stock, to reflect any
dividend, stock split, recapitalization, merger, consolidation, combination,
exchange of shares or similar corporate change as the Committee may deem
appropriate to prevent the enlargement or dilution of rights of Participants
under the grant.
(b) Stock Subject to Plan, Outstanding Options, Increase or Decrease in
-------------------------------------------------------------------
Issued Shares Without Consideration.
------------------------------------
Subject to any required action by the stockholders of the Company,
in the event of any increase or decrease in the number of issued shares of
Common Stock resulting from a subdivision or consolidation of shares of Common
Stock or the payment of a stock dividend (but only on the shares of Common
Stock), or any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company, the Committee shall
proportionally adjust (i) the number of shares of Common Stock for which
Incentive Awards may be granted under the Plan and (ii) the number of shares and
the exercise price per share of Common Stock subject to each outstanding Option.
(c) Outstanding Options, Certain Mergers
------------------------------------
Subject to any required action by the stockholders of the Company,
if the Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall entitle the Participant to
acquire upon exercise the securities which a holder of the number of shares of
Common Stock subject to such Option would have received in such merger or
consolidation.
11
<PAGE>
(d) Outstanding Options, Certain Other Transactions
-----------------------------------------------
In the event of a dissolution or liquidation of the Company,
a sale of all or substantially all of the Company's assets, a merger or
consolidation involving the Company in which the Company is not the surviving
corporation or a merger or consolidation involving the Company in which the
Company is the surviving corporation but the holders of shares of Common Stock
receive securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of
such event, each Option outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option was granted an
amount in cash, for each share of Common Stock subject to such Option
equal to the excess of (A) the value, as determined by the Committee in
its absolute discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event over (B) the
exercise price of such Option; or
(ii) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for an
Option on some or all of the property for which such Option is exchanged
and, incident thereto, make an equitable adjustment as determined by the
Committee in its absolute discretion in the exercise price of the Option,
or the number of shares or amount of property subject to the Option or,
if appropriate, provide for a cash payment to the Participant to whom
such Option was granted in partial consideration for the exchange of the
Option.
(e) Outstanding Options, Other Changes
----------------------------------
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections 11(b),
(c) or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of each
such Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(f) No Other Rights
---------------
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
effect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option.
12. RIGHTS AS A STOCKHOLDER
No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section 11
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
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<PAGE>
13. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
14. SECURITIES MATTERS
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any shares of Common Stock to be issued
hereunder or to effect similar compliance under any state laws. Notwithstanding
anything herein to the contrary, the Company shall not be obligated to cause to
be issued or delivered any certificates evidencing shares of Common Stock
pursuant to the Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority and the requirements of
any securities exchange on which shares of Common Stock are traded. The
Committee may require, as a condition of the issuance and delivery of
certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of shares
of Common Stock pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Company shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
hereunder. During the period that the effectiveness of the exercise of an
Option has been deferred, the Participant may, by written notice, withdraw such
exercise and obtain the refund of any amount paid with respect thereto.
(c) It is intended that the Plan and any grant of an Incentive Award made
to a person subject to Section 16 of the Exchange Act meet all of the
requirements of Rule 16b-3 promulgated thereunder. If any provision of the Plan
or any such Incentive Award would disqualify the Plan or such Incentive Award
under, or would otherwise not comply with, Rule 16b-3, such provision or
Incentive Award shall be construed or deemed amended to conform to Rule 16b-3 to
the extent permitted by applicable law and deemed advisable by the Board of
Directors.
15. QUALIFIED PERFORMANCE-BASED COMPENSATION
It is intended that the Plan comply fully with and meet all requirements of
Section 162(m) of the Code so that Options granted hereunder with an exercise
price not less than Fair Market Value of a share of Common Stock on the date of
grant shall constitute "qualified performance based compensation" within the
meaning of such Section and the interpretive authority thereunder. If any
provision of the Plan would disqualify the Plan or would not otherwise permit
the Plan to comply with Section 162(m) as so intended,
13
<PAGE>
such provision shall be construed or deemed amended to conform to the
requirements or provisions of Section 162(m) to the extent permitted by
applicable law and deemed advisable by the Board of Directors; provided that no
such construction or amendment shall have an adverse effect on the economic
value to a Participant of any Incentive Award previously granted hereunder.
16. WITHHOLDING TAXES
Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with respect to a share
of Restricted Stock or the payment of a Stock Bonus, the Company shall have the
right to require the Participant to remit to the Company in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise, occurrence or payment prior to the delivery
of any certificate or certificates for such shares. In addition, upon the grant
of a Cash Bonus or the making of a payment with respect to a share of Phantom
Stock, the Company shall have the right to withhold from any cash payment
required to be made pursuant thereto an amount sufficient to satisfy the
federal, state and local withholding tax requirements, if any, attributable to
such exercise or grant.
17. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever, provided, however, that without
approval of the stockholders no revision or amendment shall (i) except as
provided in Section 11 hereof, increase the number of shares of Common Stock
that may be issued under the Plan, (iii) except as provided for in Section 11
hereof, increase the maximum number of shares of Common Stock that may be
subject to an Incentive Award granted to any one individual for any calendar
year, (iii) materially increase the benefits accruing to individuals holding
Incentive Awards granted pursuant to the Plan, (iv) materially modify the
requirements as to eligibility for participation in the Plan, (v) extend the
term of the Plan or (vi) decrease any authority granted to the Committee under
the Plan in contravention of Rule 16b-3 under the Exchange Act.
18. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
19. TRANSFERS UPON DEATH
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award.
20. EXPENSES AND RECEIPTS
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
21. FAILURE TO COMPLY
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<PAGE>
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Incentive
Award, unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in part as the
Committee, in its absolute discretion, may determine.
22. EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors on JUNE 6, 1996, subject to
approval by the stockholders of the Company in accordance with applicable law,
the requirements of Sections 422 and 162(m) of the Code and the requirements of
Rule 16b-3 under Section 16(b) of the Exchange Act. No Incentive Award may be
granted under the Plan after JUNE 6, 2006. Incentive Awards may be granted
under the Plan at any time prior to the receipt of such stockholder approval;
provided, however, that each grant shall be subject to such approval. Without
limitation on the foregoing, no Option may be exercised prior to receipt of such
approval, no share certificate shall be issued pursuant to a grant of Restricted
Stock or Stock Bonus prior to the receipt of such approval and no Cash Bonus or
payment with respect to a share of Phantom Stock shall be paid prior to the
receipt of such approval. If the Plan is not so approved prior to DECEMBER 31,
1997, then the Plan and all Incentive Awards then outstanding hereunder shall
forthwith automatically terminate and be of no force and effect.
15
<PAGE>
EXHIBIT 10.3
NAB ASSET CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. This NAB Asset Corporation 1996 Non-Employee Director
-------------------
Stock Option Plan (the "Plan") is adopted for the benefit of the directors of
the NAB Asset Corporation (the "Company") who, at the time of their service,
are not employees of the Company or any of its subsidiaries (the "Non-
Employee Directors"), and is intended to advance the interests of the Company
by providing the Non-Employee Directors with additional incentive to serve
the Company by increasing their proprietary interest in the success of the
Company.
2. ADMINISTRATION OF THE PLAN.
---------------------------
(a) The plan shall be administered by a committee (the "Compensation
Committee") to be appointed by the Board of Directors of the Company
(the "Board"), which Compensation Committee shall consist of not less
than two members of the Board. For the purposes of this Plan, a
majority of the members of the Compensation Committee shall constitute
a quorum for the transaction of business, and vote of a majority of
those members present at any meeting shall decide any question brought
before that meeting. No member of the Compensation Committee shall be
liable for any act or omission of any other member of the Compensation
Committee or for any act or omission on his own part, including
(without limitation) the exercise of any power or discretion given to
him under this Plan, except those resulting from his own gross
negligence or willful misconduct.
(b) The compensation Committee shall have full authority to administer the
Plan, including authority to interpret and construe any provision of
the Plan and the terms of any option ("Option") or cash fee award
("Cash Fee Award") granted under it and to adopt such rules and
regulation for administering the Plan as it may deem necessary.
Decisions of the Compensation Committee shall be final and binding on
all parties. Notwithstanding the above, the selection of Non-Employee
Directors to whom Options are to be granted, the number of shares
subject to any Option, the exercise price of any Option and the ten-
year maximum term of any Option shall be as hereinafter provided, and
the Compensation Committee shall have no discretion as to such matters.
3. STOCK RESERVED FOR THE PLAN. The total number of shares of the Company's
---------------------------
common stock, par value $.10 per share (the "Common Stock") with respect to
which Options may be granted under the Plan, shall not exceed the aggregate
of 150,000 shares; provided, that the class and aggregate number of shares
which may be subject to the Options granted hereunder shall be subject to
adjustment in accordance with the provisions of Section 15 of this Plan.
Such shares may be treasury shares or authorized but unissued shares. The
Company shall reserve for issuance pursuant to this Plan such number of
shares of Common Stock as may from time to time be subject to Options granted
hereunder. If any Option expires or is canceled prior to its exercise in
full, the shares theretofore subject to such Option may again be made subject
to an Option under the Plan. All Options granted under the Plan will
constitute non-qualified options ("NQO").
4. GRANT OF OPTIONS
----------------
(a) Non-Employee Directors on the Effective Date of this Plan; Initial
Grant. Subject to the provisions of Section 18 hereof, there shall be
granted to each person who is a Non-employee Director on the effective
date of this Plan (an "Existing Director") a one-time NQO to purchase
15,000 shares of Common Stock at a per share exercise price equal to
the Fair Market Value (defined below) of a share of Common Stock on
such date.
1
<PAGE>
(b) Non-Employee Directors Elected after the Effective Date of this Plan:
Initial Grant. Subject to the provisions of Section 18 hereof, for so
long as this Plan is in effect and shares are available for the grant
of NQO's hereunder, each person who is elected as a Non-Employee
Director of the Company after the effective date of this Plan and who
is (A) not an Existing Director, (B) not appointed or elected to the
Board in connection with or as a result of the completion of a
financing or acquisition transaction in which the appointment or
election of such person, or the execution of an agreement obligating
the parties thereto to vote in favor of the appointment or election of
such person, is a condition to the obligation or any party to the
transaction to compete the transaction and ( C) not otherwise an
employee of the Company or any of the Company's subsidiaries (as
defined in Section 424f of the Internal Revenue Code of 1986, as
amended (the "Code") (a "New Director") (Existing Directors and New
Directors are hereinafter sometimes referred to herein as "Eligible
Directors") shall be granted a one-time NQO to purchase 15,000 shares
of Common Stock at a per share exercise price equal to the Fair Market
Value (defined below) of a share of Common Stock on such date (subject
to the adjustments provided in Section 15 hereof). This Section 4(b)
shall only apply to a Non-Employee Director the first time he or she is
elected a director of the Company. Persons elected to be a director
for a second or any subsequent term shall be granted NQOs in accordance
with Section 4(c) below.
(c) Annual Option Grant to Non-Employee Directors: Subsequent Grant.
Subject to the provisions of Section 18 hereof, for so long as this
Plan is in effect and there are shares available for the grant of NQOs
hereunder (beginning with those Eligible Directors reelected at the
Company's 1997 annual meeting of stockholders), each Eligible Director
who shall be reelected a Non-Employee Director for his or her second or
any subsequent term after the effective date of this Plan, shall be
granted an NQO to purchase 1,000 shares of Common Stock at a per share
exercise price equal to the Fair Market Value (defined below) of a
share of Common Stock on such date (subject to the adjustments provided
in Section 15 hereof). This Section 4 (c ) shall only apply to an
Eligible Director on his or her second or any subsequent election to
the Company's Board of Directors.
(d) For the purposes of this Section 4, the "Fair Market Value" as of any
particular date shall mean (i) the closing sales price on the
immediately preceding business day of a share of Common Stock as
reported on the principal securities exchange on which shares of Common
Stock are then listed or admitted to trading or (ii) if not so
reported, the average of the closing bid and asked prices for a share
of Common Stock on the immediately preceding business day as quoted on
the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or (iii) if not quoted on NASDAQ, the average of the
closing bid and asked prices for a share of Common Stock as quoted by
the National Quotation Bureau's "Pink Sheets" or the National
Association of Securities Dealers' OTC Bulletin Board System. If the
price of a share of Common Stock shall not be so reported, the Fair
Market Value of a share of Common Stock shall be determined by the
Compensation Committee in its absolute discretion.
5. CASH FEE AWARDS. At the direction of the Board, the Company may pay cash
---------------
fees to Eligible Directors from time to time for serving on the Board and for
attendance at meetings of the Board or committees thereof (the "Cash Fee
Awards"). Each Eligible Director may elect on the date of each annual
meeting of stockholders, in a writing delivered to the Company's principal
executive offices to have his Case Fee Awards paid to him in shares of
Common Stock, such number of shares of Common Stock to be determined by
dividing the amount of each Cash Fee Award by the Fair Market Value (as
defined in Section 4(d) of a share of Common Stock on the last day of the
calendar month in which the Cash Fee Award is awarded. Such election by an
Eligible Director to have his Cash Awards paid to him in shares of Common
Stock shall remain valid until the date of the next annual meeting of
2
<PAGE>
stockholders, and if the Eligible Director does not make another written
election of conversion of Cash Fee Awards at that time, his Cash Fee Awards
for the next year shall be paid in cash.
6. OPTION AGREEMENT. Each NQO granted under the Plan shall be evidenced by an
----------------
agreement, in a form approved by the Compensation Committee, which shall be
subject to the terms and conditions of the Plan. Any agreement may contain
such other terms, provisions and conditions as may be determined by the
Compensation Committee and that are not inconsistent with the Plan.
7. VESTING AND TERM OF OPTIONS. Each NQO granted under this Plan shall vest in
---------------------------
full on the date of grant; provided however, that no NQO shall be exercisable
until the expiration of six (6) months after the date of grant, and provided,
further, that such NQO shall be subject to termination as provided in Section
9 hereof. Each option agreement shall provide that the NQO shall expire ten
years from the date of grant, unless sooner terminated pursuant to Section 9
hereof.
8. EXERCISE OF OPTIONS. NQOs shall be exercisable at any time after the
-------------------
expiration of six (6) months from the date of grant, subject to termination
as provided in Section 9 hereof. NQOs shall be exercised by written notice
to the Company setting forth the number of shares with respect to which the
NQO is being exercised and specifying the address to which the certificates
representing such shares are to be mailed. Such notice shall be accompanied
by cash or certified check, bank draft, or postal or express money order
payable to the order of the Company, for an amount equal to the product
obtained by multiplying the exercise price of the NQO by the number of shares
of Common Stock with respect to which the NQO is then being exercised. As
promptly as practicable after receipt of such written notification and
payment, the Company shall deliver to the Eligible Director a certificate or
certificates representing the number of shares of Common Stock with respect
to which such NQO has been so exercised, issued in the Eligible Director's
name; provided, however, that such delivery shall be deemed effected for all
purposes when the Company's transfer agent shall have deposited such
certificates in the United States mail, addressed to the Eligible Director,
at the address specified pursuant to this Section 8.
Any NQO granted under the Plan may be exercised by a broker-dealer acting on
behalf of an Eligible Director if (i) the broker-dealer has received from the
Eligible Director or the Company a duly endorsed agreement evidencing such NQO
and instructions signed by the Eligible Director requesting the Company to
deliver the shares of Common Stock subject to such NQO to the broker-dealer on
behalf of the Eligible Director and specifying the account into which such
shares should be deposited and (ii) the broker-dealer and the Eligible Director
have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part
220.
9. TERMINATION OF OPTIONS. Except as may be otherwise expressly provided in
-----------------------
this Plan or otherwise determined by the Compensation Committee, each NQO, to
the extent it shall not have been exercised previously, shall terminate on
the earliest of the following:
(A) On the last day of the three-month period commencing on the date on
which the Eligible Director ceases to be a member of the Board for any
reason other than the death of the Eligible Director, during which
period the Eligible Director shall be entitled to exercise all NQOs
held by the Eligible Director on the date on which the Eligible
Director ceased to be a member of the Board that could have been
exercised on such date;
(B) On the last day of the six-month period commencing on the date of the
Eligible Director's death while serving as a member of the Board,
during which period the executor or administrator of the Eligible
Director's estate or the person or persons to whom the Eligible
Director's NQO shall have been transferred by will or the laws of
descent or distribution, shall be entitled to exercise all NQOs in
respect of the number of shares that the Eligible
3
<PAGE>
Director would have been entitled to purchase had the Eligible Director
exercised such NQOs on the date of his death;
(C) Ten years after the date of grant of such NQO; or
(D) The point in time when no shares of Common Stock reserved for issuance
pursuant to NQOs granted under the Plan are available.
10. ASSIGNABILITY OF OPTIONS. During the term of an NQO, the NQO shall not be
------------------------
assignable or otherwise transferable except by will or by the laws of
descent and distribution. Each NQO shall be exercised during the Eligible
Director's lifetime only by the Eligible Director.
11. NO RIGHTS AS STOCKHOLDER. No Eligible Director shall have any rights as a
------------------------
stockholder with respect to shares covered by an NQO until the date of
issuance of a stock certificate or certificates representing such shares.
Except as provided in Section 15 hereof, no adjustment for dividends or
otherwise shall be made if the record date therefor is prior to the date of
issuance of certificates representing shares of Common Stock purchased
pursuant to exercise of this NQO.
12. EXTRAORDINARY CORPORATE TRANSACTIONS. If the Company effects a merger,
------------------------------------
consolidation, acquisition, separation, reorganization, liquidation or
similar transaction, the Company may substitute new options for the NQOs
outstanding under the Plan or a corporation other than the Company,
including (without limitation) a parent or subsidiary of the Company, may
assume the Company's duties as to NQOs outstanding under the Plan.
Notwithstanding the foregoing or the provisions of Section 14 hereof, in the
event such corporation or parent or subsidiary of the Company dues not
substitute new and substantially equivalent option rights for, or assume,
the NQOs then outstanding under the Plan, all such extraordinary corporate
transaction, and in full consideration of such cancellation, the Eligible
Director to whom the NQO was granted shall be paid an amount in cash equal
to the excess of (i) the value, ad determined by the Compensation Committee
in its absolute discretion, of the property (including cash) received by the
holder or a share of Common Stock as a result of such event less (ii) the
exercise price of the NQO.
Except as otherwise expressly provided in this Plan, the issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property, or for labor or services either on direct
sale or on the exercise or rights or warrants to subscribe therefor, or on
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to the number or price of shares of Common Stock then
subject to outstanding NQOs.
13. INVESTMENT REPRESENTATIONS. If the shares issuable on exercise of an NQO
--------------------------
are not registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Company may imprint on the certificate representing
such shares the following legend or any other legend that counsel for the
Company considers necessary or advisable to comply with the Securities Act.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE ANY MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON
REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS
NOT REQUIRED FOR SUCH SALE OR TRANSFER.
The Company may, but shall in no event be obligated to, register any securities
covered under this Plan pursuant to the Securities Act and, if any shares are so
registered, the Company may remove any legend on
4
<PAGE>
certificates representing such shares. The Company shall not be obligated to
take any other affirmative action to cause the exercise of an NQO or the
issuance of shares pursuant thereto to comply with any law or regulation of any
governmental authority.
14. AMENDMENT OR TERMINATION. The Board may amend, modify, revise or terminate
------------------------
this Plan at any time and from time to time; provided, however, that without
the further approval of the holders of a majority of the Company's
outstanding securities present and in person or by proxy and entitled to
vote at an annual or special meeting of the stockholders, or if the
provisions of the Company's charter or bylaws or applicable state law
prescribes a greater degree of stockholder approval for this action, without
the degree of stockholder approval so required, the Board may not (a)
materially increase the benefits accruing to Eligible Directors under this
Plan; (b) except as provided in Section 15 hereof, materially increase the
number of shares of Common Stock that may be issued under this Plan; or (c)
materially modify the requirements as to eligibility for participation in
this Plan. In addition, this Plan may not be amended more than once every
six months with respect to the Plan provisions referred to in Rule 16b-3
(c)(2)(ii)(A) under the Securities Exchange Act of 1934, as amended, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All NQOs granted
under this Plan shall be subject to the terms and provisions of this Plan
and any amendment, modification or revision of this Plan shall be deemed to
amend, modify or revise all NQOs outstanding under this Plan at the time of
such amendment, modification or revision. If this Plan is terminated by
action of the Board, all outstanding NQOs may be terminated.
15. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of outstanding
------------------------------------------
NQOs shall not effect in any way the right or power of the Company or its
stockholders to make or authorize the dissolution or liquidation of the
Company, any sale or transfer of all or any part of the Company's assets or
business, any reorganization or other corporate act or proceeding, whether
of a similar character or otherwise, any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, any merger or consolidation of the Company, or
any issuance of bonds, debentures, preferred or prior preference stock
senior to or affecting the Common Stock or the rights thereof; provided,
however, that if (a) the outstanding shares of Common Stock of the Company
shall be subdivided into a greater number of shares or (b) the outstanding
shares of Common Stock shall be combined a smaller number of shares thereof,
then (x) the number of shares of Common Stock available for the grant of
NQOs under the Plan shall be proportionally adjusted to equal the product
obtained by multiplying such number of available shares remaining by a
fraction, the numerator of which is the number of outstanding shares of
Common Stock after giving effect to such combination or subdivision and the
denominator of which is that number of outstanding shares of Common Stock
prior to such combination or subdivision, (y) the exercise price of any NQO
then outstanding under the Plan shall be proportionately adjusted to equal
the product obtained by multiplying such exercise price by a fraction, the
numerator of which is the number of outstanding shares of Common Stock prior
to such combination or subdivision and the denominator of which is that
number of outstanding shares of Common Stock after giving effect to such
combination or subdivision, and (z) the number of shares of Common Stock
issuable on the exercise of any NQO then outstanding under the Plan or
thereafter granted under the Plan shall be proportionately adjusted to equal
the product obtained by multiplying such number of shares of Common Stock by
a fraction, the numerator of which is the number of outstanding shares of
Common Stock after giving effect to such combination or subdivision and the
denominator of which is that number of outstanding shares of Common Stock
prior to such combination or subdivision.
16. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
------------------------------------------
exercise of NQOs thereunder, and the obligation of the Company to sell and
deliver shares acquirable on exercise of such NQOs, shall be subject to all
applicable federal and state laws, rules and regulations and to such
approvals by any governmental or regulatory agency or national securities
exchange as may be required. The Company shall not be required to sell or
issue any shares on exercise of any NQO if the issuance of such shares shall
constitute a violation by the Eligible Director or the Company of any
5
<PAGE>
provisions of any law or regulation of any governmental authority. Each NQO
granted under this Plan shall be subject to the requirement that, if at any
time the Board of the Compensation Committee shall determine that (1) the
listing, registration or qualification of the shares subject thereto on any
securities exchange or under any state or federal law of the United States
or of any other country or governmental subdivision thereof, (2) the consent
or approval of any governmental regulatory body, or (3) the making of
investment or other representations, are necessary or desirable in
connection with the issue or purchase of shares subject thereto, no such NQO
may be exercised in whole or in part unless such listing, registration,
qualification, consent, approval or representation shall have been effected
or obtained, free of any conditions not acceptable to the Compensation
Committee. Any determination in this connection by the Compensation
Committee shall be final, binding and conclusive.
17. INDEMNIFICATION OF COMPENSATION COMMITTEE AND BOARD OF DIRECTORS. The
----------------------------------------------------------------
Company shall, to the fullest extent permitted by law, indemnify, defend and
hold harmless any person who at any time is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) in any
way relating to or arising out of this Plan or any NQOs granted hereunder by
reason of the fact that such person is or was at any time a director of the
Company or a member of the Compensation Committee against judgments, fines,
penalties, settlements and reasonable expenses (including attorney's fees)
actually incurred by such person in connection with such action, suit or
proceeding. This right of indemnification shall inure to the benefit of the
heirs, executors and administrators of each person and is in addition to all
other rights to which such person may be entitled by virtue of the bylaws of
the Company or as a matter of law, contract or otherwise.
18. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective, subject to
--------------------------
stockholder approval, on June 6, 1996. This Plan, and all NQOs granted
under this Plan prior to stockholder approval, shall be void and of no
further force and effect unless this Plan shall have been approved by the
requisite vote of the stockholders entitled to vote at a meeting of the
stockholders of the Company called for such purpose, prior to December 31,
1997. No NQO or cash fee awards shall be granted pursuant to this Plan on
or after June 6, 2006.
6
<PAGE>
EXHIBIT 10.7
================================================================================
CREDIT AGREEMENT
among
MORTGAGE PORTFOLIO SERVICES, INC.
and
NAB ASSET CORPORATION
and
GUARANTY FEDERAL BANK, F.S.B.
August 7, 1996
$10,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I GENERAL TERMS................................................ 1
Section 1.01 Certain Definitions.................................. 1
Section 1.02 Other Definitional Provisions........................ 11
Section 1.03 Exhibits and Schedules............................... 11
Section 1.04 Calculations and Determinations...................... 11
ARTICLE II AMOUNT OF TERMS OF CREDITS.................................. 12
Section 2.01 Commitment and Advances.............................. 12
Section 2.02 Promissory Note...................................... 12
Section 2.03 Notice and Manner of Obtaining Borrowings............ 12
Section 2.04 Fees................................................. 13
Section 2.05 Mandatory Repayments................................. 14
Section 2.06 Business Days........................................ 14
Section 2.07 Payment Procedure.................................... 14
Section 2.08 Capital Reimbursement................................ 14
Section 2.09 Increased Cost of Eurodollar Portions................ 14
Section 2.10 Availability......................................... 15
Section 2.11 Funding Losses....................................... 15
Section 2.12 Reimbursable Taxes................................... 16
Section 2.13 Notice of Certain Events; Change of Applicable
Lending Office....................................... 16
ARTICLE III COLLATERAL................................................. 17
Section 3.01 Collateral........................................... 17
Section 3.02 Borrowing Request; Delivery of Mortgage
Collateral to Lender................................. 17
Section 3.03 Power of Attorney.................................... 17
Section 3.04 Redemption of Mortgage Collateral.................... 18
Section 3.05 Release of Mortgage Collateral....................... 19
ARTICLE IV CONDITIONS PRECEDENT........................................ 19
Section 4.01 Initial Borrowing.................................... 19
Section 4.02 Initial Capital Contribution......................... 20
Section 4.03 All Borrowings....................................... 20
ARTICLE V BORROWER REPRESENTATIONS AND WARRANTIES...................... 21
Section 5.01 Organization and Good Standing....................... 21
Section 5.02 Authorization and Power.............................. 21
Section 5.03 No Conflicts or Consents............................. 21
Section 5.04 Enforceable Obligations.............................. 22
Section 5.05 Priority of Liens.................................... 22
Section 5.06 No Liens............................................. 22
Section 5.07 Financial Condition of Borrower and Guarantor........ 22
Section 5.08 Full Disclosure...................................... 22
Section 5.09 No Default........................................... 22
Section 5.10 No Litigation........................................ 22
Section 5.11 Taxes................................................ 23
i
<PAGE>
Section 5.12 Principal Office, etc................................ 23
Section 5.13 Compliance with ERISA................................ 23
Section 5.14 Subsidiaries......................................... 23
Section 5.15 Indebtedness......................................... 23
Section 5.16 Permits, Patents, Trademarks, etc.................... 23
Section 5.17 Status Under Certain Federal Statutes................ 23
Section 5.18 Securities Act....................................... 23
Section 5.19 Pollution Control.................................... 24
Section 5.20 No Approvals Required................................ 24
Section 5.21 Survival of Representations.......................... 24
Section 5.22 Individual Mortgage Loans............................ 24
ARTICLE VI AFFIRMATIVE COVENANTS....................................... 26
Section 6.01 Financial Statements and Reports..................... 26
Section 6.02 Taxes and Other Liens................................ 27
Section 6.03 Maintenance.......................................... 28
Section 6.04 Further Assurances................................... 28
Section 6.05 Reimbursement of Expenses............................ 28
Section 6.06 Insurance............................................ 28
Section 6.07 Accounts and Records; Servicing Records.............. 29
Section 6.08 Right of Inspection.................................. 29
Section 6.09 Notice of Certain Events............................. 29
Section 6.10 Performance of Certain Obligations and Information
Regarding Investors.................................. 29
Section 6.11 Use of Proceeds; Margin Stock........................ 30
Section 6.12 Notice of Default.................................... 30
Section 6.13 Compliance with Loan Documents....................... 30
Section 6.14 Operations and Properties............................ 30
ARTICLE VII NEGATIVE COVENANTS......................................... 30
Section 7.01 No Merger............................................ 30
Section 7.02 Limitation on Indebtedness........................... 30
Section 7.03 Fiscal Year, Method of Accounting.................... 31
Section 7.04 Business............................................. 31
Section 7.05 Liquidations, Mergers, Consolidations and
Dispositions of Substantial Assets................... 31
Section 7.06 Loans, Advances, and Investments..................... 31
Section 7.07 Use of Proceeds...................................... 31
Section 7.08 Actions with Respect to Mortgage Collateral.......... 32
Section 7.09 Net Worth............................................ 32
Section 7.10 Total Liabilities to Net Worth Ratio................. 32
Section 7.11 Restrictions on Dividends............................ 32
Section 7.12 Transactions with Affiliates......................... 32
Section 7.13 Liens................................................ 32
Section 7.14 ERISA................................................ 32
Section 7.15 Change of Principal Office........................... 33
ARTICLE VIII EVENTS OF DEFAULT......................................... 33
Section 8.01 Nature of Event...................................... 33
Section 8.02 Default Remedies..................................... 35
ii
<PAGE>
ARTICLE IX CONCERNING LENDER........................................... 35
Section 9.01 Indemnification...................................... 35
Section 9.02 Limitation of Liability.............................. 36
ARTICLE X MISCELLANEOUS................................................ 36
Section 10.01 Notices.............................................. 36
Section 10.02 Amendments, Etc...................................... 37
Section 10.03 Invalidity........................................... 37
Section 10.04 Survival of Agreements............................... 37
Section 10.05 Renewal, Extension or Rearrangement.................. 37
Section 10.06 Waivers.............................................. 37
Section 10.07 Cumulative Rights.................................... 37
Section 10.08 Construction......................................... 37
Section 10.09 Limitation on Interest............................... 38
Section 10.10 Bank Accounts; Offset................................ 38
Section 10.11 Assignments and Participations....................... 39
Section 10.12 Exhibits............................................. 39
Section 10.13 Titles of Articles, Sections and Subsections......... 39
Section 10.14 Counterparts......................................... 39
Section 10.15 ENTIRE AGREEMENT..................................... 39
Section 10.16 Termination; Limited Survival........................ 39
Section 10.17 Joint and Several Liability.......................... 40
EXHIBITS
Exhibit A - Form of Promissory Note
Exhibit B - Form of Borrowing Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Security Agreement
Exhibit E - Form of Collateral Release Request
Exhibit F - List of Approved Investors
Exhibit G - Form of Rate Election
Exhibit H - List of Subsidiaries
Exhibit I - Form of Guaranty
Exhibit J - List of Acceptable Manufactured Housing States
iii
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is made and entered into as of August 7, 1996, among
Mortgage Portfolio Services, Inc., a Delaware corporation ("Borrower"), NAB
--------
Asset Corporation, a Texas corporation ("Guarantor"), and Guaranty Federal Bank,
---------
F.S.B. ("Lender").
------
The parties hereto hereby agree as follows:
ARTICLE I
---------
GENERAL TERMS
-------------
Section 1.01 Certain Definitions. As used in this Agreement, the following
-------------------
terms have the following meanings:
"Acceptable Manufactured Housing State" shall mean any state: (i) listed on
-------------------------------------
a schedule of 'Acceptable Manufactured Housing States' mutually agreed to by
Borrower and Lender, from time to time, with the initial such schedule in the
form of that attached hereto as Exhibit "J", and (2) as to which Lender shall
have received an opinion of counsel to Borrower in such state satisfactory in
form and substance to Lender.
"Adjusted Eurodollar Rate" means, with respect to each particular Adjusted
------------------------
Eurodollar Rate Portion and the associated Eurodollar Rate and Reserve
Percentage, the rate per annum calculated by Lender (rounded upwards, if
necessary, to the next higher 0.01%) determined on a daily basis pursuant to
the following formula:
Adjusted Eurodollar Rate =
Eurodollar Rate + A
---------------
100.0% - Reserve Percentage
where A means two and one-quarter percent (2.25%) per annum. If the Reserve
Percentage changes during the Interest Period for an Adjusted Eurodollar Rate
Portion, Lender may, at its option, either change the Adjusted Eurodollar Rate
for such Adjusted Eurodollar Rate Portion or leave it unchanged for the duration
of such Interest Period. The Adjusted Eurodollar Rate shall in no event,
however, exceed the Maximum Rate.
"Advance" shall mean a disbursement by Lender of any sum or sums lent by
-------
Lender to Borrower hereunder.
"Affiliate" means, as to any Person, each other Person that directly or
---------
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.
"Agreement" shall mean this Credit Agreement, as the same may from time to
---------
time be amended, modified or supplemented.
"Balance Funded Amount" means with respect to the Base Rate Portion on any
---------------------
Base Rate Payment Date under the Note, the average of the Qualifying Balances
for each day during the period from and including the immediately preceding Base
Rate Payment Date (but not including) to the Base
<PAGE>
Rate Payment Date in question. As used in this paragraph, "Qualifying Balances"
-------------------
shall mean for any day the lesser of (x) the amount of the Base Rate Portion on
such day, and (y) the sum of the collected balances in all identified non-
interest bearing accounts of Borrower maintained with Lender less (i) amounts
necessary to satisfy reserve and deposit insurance requirements and (ii) amounts
required to compensate Lender for services rendered in accordance with Lender's
system of charges for services to similar accounts.
"Balance Funded Rate" means two and one-fourth percent (2.25%) per annum.
-------------------
"Base Rate" shall mean the base commercial rate of interest as announced
---------
from time to time by Lender (which may not be the lowest, best or most favorable
rate of interest which Lender may charge on loans to its customers) plus one-
half of one percent (.5%).
"Base Rate Payment Date" has the meaning given it in the Note.
----------------------
"Base Rate Portion" means that portion of the unpaid principal balance of
-----------------
the Loan which is not made up of Eurodollar Portions or Balanced Funded Amount.
"Borrower" shall have the meaning assigned to such term in the preamble
--------
hereof.
"Borrowing" shall mean a borrowing consisting of an Advance by Lender
---------
pursuant to a Borrowing Request.
"Borrowing Base" means at any date, the Collateral Value calculated as of
--------------
such date.
"Borrowing Date" with respect to a particular Borrowing shall mean the
--------------
Business Day, identified by Borrower in the related Borrowing Request, as the
date on which Borrower requests that Lender make an Advance in respect of such
Borrowing.
"Borrowing Request" shall mean a request, in the form of Exhibit "B", for
-----------------
a Borrowing pursuant to Article II.
"Business Day" means a day, other than a Saturday or Sunday, on which
------------
commercial banks are open for business with the public in Dallas, Texas. Any
Business Day in any way relating to Adjusted Eurodollar Rate Portions (such as
the day on which an Interest Period begins or ends) must also be a day on which,
in the judgment of Lender, significant transactions in dollars are carried out
in the interbank eurocurrency market.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within 90 days from the date of acquisition, of Lender or any other domestic
commercial bank having capital and surplus in excess of $200,000,000, which has,
or the holding company of which has, a commercial paper rating of at least A-1
or the equivalent thereof by Standard & Poors Corporation or P-1 or the
equivalent thereof by Moody's Investors Service, Inc.
"Change of Control" means (i) the acquisition by any Person, or group of
-----------------
Persons acting together, of a direct interest in more than twenty percent (20%)
of the voting power of the voting stock of Borrower, by way of merger or
consolidation or otherwise; (ii) any change in the senior management (including
the addition or termination, voluntary or involuntary, of any executive vice
2
<PAGE>
president) of Borrower as it exists on the date hereof; or (iii) James Hinton
ceases to be and act as President and CEO of Borrower.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Collateral" shall have the meaning given to it in the Security Agreement.
----------
"Collateral Release Request" shall mean a request, in the form of Exhibit
--------------------------
"E", that Lender release its Lien in and upon certain Mortgage Collateral
pursuant to Section 3.05.
"Collateral Value" shall mean with respect to each item of Mortgage
----------------
Collateral (a) which has not been owned by Borrower for a period in excess of
sixty (60) days, an amount equal to ninety-seven percent (97%) of the least of
the following, or (b) if such Mortgage Collateral has been owned by Borrower for
a period in excess of sixty (60) days, an amount equal to ninety-five percent
95%) of the least of the following: (i) the outstanding principal balance of the
Mortgage Note constituting such Mortgage Collateral; (ii) the actual out-of-
pocket cost to Borrower of such Mortgage Collateral minus the amount of
principal paid under such item of Mortgage Collateral and delivered to Lender
for application to the prepayment of the Loan; (iii) the amount at which an
Investor has committed to purchase the Mortgage Collateral pursuant to a Take-
Out Commitment not to exceed 100% of the original principal balance of the
Mortgage Note; or (iv) the Market Value of the Mortgage Note constituting such
Mortgage Collateral; provided, however, that (a) any Mortgage Note (i) which has
--------- -------
been owned by Borrower for a period in excess of the Warehouse Period or (ii)
which has been in default for a period in excess of thirty (30) days, shall be
excluded from the computation of Collateral Value, (b) the aggregate Collateral
Value for Mortgage Notes owned by Borrower in excess of sixty (60) days shall
not exceed fifty percent (50%) of the Commitment, (c) with respect to any
Mortgage Note to be delivered to Lender in connection with a Special Borrowing,
seven (7) days have elapsed since the funding of such Mortgage Note and (d) the
aggregate Collateral Value for Mortgage Notes for Eligible Manufactured Housing
Mortgage Loans owned by Borrower shall not exceed two percent (2%) of the
Commitment.
"Commitment" shall mean the obligation of Lender to make Advances to
----------
Borrower pursuant to Section 2.01 hereof in an aggregate amount not to exceed
------------
$10,000,000 at any time outstanding.
"Consolidated" refers to the consolidation of any Person, in accordance
------------
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
-----------
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar laws from time to time in effect affecting the rights of creditors
generally and general principles of equity.
"Default" shall mean any of the events specified in Section 8.01 hereof,
------- ------------
whether or not any requirement for notice or lapse or time or any other
condition has been satisfied.
"Dividends", in respect of any corporation, shall mean: (i) cash
----------
distributions or any other distributions on, or in respect of, any class of
equity security of such corporation, except for distributions made solely in
shares of securities of the same class; and (ii) any and all funds, cash or
other payments made in respect of the redemption, repurchase or acquisition of
such securities;
3
<PAGE>
provided, however, that "Dividends" shall not include Borrower's payments to
Guarantor for Borrower's Share of taxes owed by the Affiliated Group of
Corporations (as defined in section 1504 of the Code) of which Borrower is a
member. As used herein "Borrower's Share" means the amount of federal income
taxes which Borrower would have been obligated to pay if Borrower was not a
member of an Affiliated Group of Corporations.
"Drawdown Termination Date" shall mean the earlier of April 30, 1997, or
-------------------------
the day on which the Note first becomes due and payable in full.
"Eligible Manufactured Housing Mortgage Loan" shall mean a Mortgage Loan
-------------------------------------------
with respect to which each of the following statements is accurate and complete
(and the Borrower by including said Mortgage Loan in any computation of the
Collateral Value of the Borrowing Base shall be deemed to so represent to Lender
at and as of the date of such computation):
(i) Said Mortgage Loan is secured by a first priority deed of
trust (or mortgage) on the related Property;
(ii) The face amount of the promissory note underlying said
Mortgage Loan does not exceed the maximum principal amount allowed by
FNMA and the proceeds of said Mortgage Loan are utilized by such
obligor to facilitate the permanent attachment of a new Manufactured
Home on the related Property;
(iii) The Property securing said Mortgage Loan is located in an
Acceptable Manufactured Housing State;
(iv) Upon completion and attachment of the related Manufactured
Home to the related Property, said Mortgage Loan will meet all
underwriting and other criteria for purchase by FNMA under the Take-
Out Commitment relating to said Mortgage Loan;
(v) The Manufactured Home financed with the proceeds of said
Mortgage Loan is a new Manufactured Home which has not previously been
financed; and
(vi) All actions required to create a valid and enforceable first
priority perfected security interest in and lien upon said Mortgage
Loan, the related Manufactured Home, the related Property and all
documents and instruments relating to said Mortgage Loan, in favor of
the Collateral Agent for the benefit of the Lenders shall have been
taken.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, together with the regulations from time to time
promulgated with respect thereto.
"ERISA Affiliate" shall mean all members of the group of corporations and
---------------
trades or businesses (whether or not incorporated) which, together with
Borrower, are treated as a single employer under Section 414 of the Code.
"ERISA Plan" shall mean any pension benefit plan subject to Title IV of
----------
ERISA or Section 412 of the Code maintained or contributed to by Borrower or any
ERISA Affiliate with respect to which Borrower has a fixed or contingent
liability.
"Eurodollar Portion" means any portion of the unpaid principal balance of
------------------
the Loan which Borrower designates as such in a Rate Election.
4
<PAGE>
"Eurodollar Rate" means, with respect to each particular Eurodollar Portion
---------------
and the related Interest Period, the rate of interest per annum determined by
Lender in accordance with its customary general practices to be representative
of the rates at which deposits of dollars are offered to Lender at approximately
9:00 a.m. Dallas, Texas time two Business Days prior to the first day of such
Interest Period (by prime banks in the interbank eurocurrency market which have
been selected by Lender in accordance with its customary general practices) for
delivery on the first day of such Interest Period in an amount equal or
comparable to the amount of such Eurodollar Portion and for a period of time
equal or comparable to the length of such Interest Period. The Eurodollar Rate
determined by Lender with respect to a particular Eurodollar Portion shall be
fixed at such rate for the duration of the associated Interest Period. If Lender
is unable so to determine the Eurodollar Rate for any Eurodollar Portion, or if
the associated Adjusted Eurodollar Rate would exceed the Maximum Rate, Borrower
shall be deemed not to have elected such Eurodollar Portion.
"Event of Default" shall mean any of the events specified in Section 8.01
---------------- ------------
hereof, provided that any requirement in connection with such event for the
giving of notice or the lapse of time, or the happening of any further
condition, event or act has been satisfied.
"Financing Lease" shall mean (i) any lease of Property if the then present
---------------
value of the minimum rental commitment thereunder should, in accordance with
GAAP, be capitalized on a balance sheet of the lessee, and (ii) any other lease
obligations which are capitalized on a balance sheet of the lessee.
"Fiscal Quarter" means each period of three calendar months ending
--------------
March 31, June 30, September 30 and December 31 of each year.
"Fiscal Year" means each period of twelve calendar months ending
-----------
December 31 of each year.
"FNMA" shall mean the Federal National Mortgage Association, or any
----
successor thereto.
"Funding Account" shall mean the non-interest bearing demand checking
---------------
account established by Borrower with Lender to be used for (i) the initial
deposit of proceeds of Advances; and (ii) the funding or purchase of Mortgage
Notes by Borrower; provided that the Funding Account shall be pledged to Lender
and that Borrower shall not be entitled to withdraw funds from the Funding
Account and provided further that Lender will transfer funds as directed by
Borrower.
"GAAP" means those generally accepted accounting principles and practices
----
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and Guarantor
and its Consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the financing statements described in Section 5.07. If
any change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or with respect to Borrower and its Consolidated subsidiaries may be
prepared in accordance with such change, but all calculations and determinations
to be made hereunder may be made in accordance with such change only after
notice of such change is given to Lender and Lender agrees to such change
insofar as it affects the accounting of Borrower, Guarantor or of Guarantor and
its Consolidated subsidiaries.
5
<PAGE>
"Governmental Authority" shall mean any nation or government, any agency,
----------------------
department, state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Governmental Requirement" shall mean any law, statute, code, ordinance,
------------------------
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing which relate to
environmental standards or controls, energy regulations and occupational, safety
and health standards or controls) of any arbitrator, court or other Governmental
Authority, which exercises jurisdiction over any Related Person or any of its
Property.
"Guaranty" shall mean the Guaranty dated as of even date herewith, executed
--------
by Guarantor in the form attached hereto as Exhibit "I", as the same may from
time to time be further supplemented, amended or restated.
"Guaranty Obligation" of any Person shall mean any contract, agreement or
-------------------
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness, lease, dividends or other obligations (the
"Primary Obligations") of any other Person (the "Primary Obligor") in any
-------------------- ----------------
manner, whether directly or indirectly, contingently or absolutely, in whole or
in part, including without limitation agreements:
(i) to purchase such Primary Obligation or any property
constituting direct or indirect security therefor;
(ii) to advance or supply funds (A) for the purchase or payment
of any such Primary Obligation, or (B) to maintain working capital or
other balance sheet conditions of the Primary Obligor or otherwise to
maintain the net worth or solvency of the Primary Obligor;
(iii) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such Primary Obligation of
the ability of the Primary Obligor to make payment of such Primary
Obligation; or
(iv) otherwise to assure or hold harmless the owner of any such
Primary Obligation against loss in respect thereof;
provided that "Guaranty Obligation" shall not include endorsements that are made
- -------- ---- -------------------
in the ordinary course of business of negotiable instruments or documents for
deposit or collection. The amount of any Guaranty Obligation shall be deemed to
be the maximum amount for which the guarantor may be liable pursuant to the
agreement that governs such Guaranty Obligation, unless such maximum amount is
not stated or determinable, in which case the amount of such obligation shall be
the maximum reasonably anticipated liability thereon, as determined by such
guarantor in good faith.
"Indebtedness" of any Person at a particular date shall mean the sum
------------
(without duplication) at such date of (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services or
which is evidenced by a note, bond, debenture, or similar instrument, (ii) all
obligations of such Person under any Financing Lease, (iii) all obligations of
such Person in respect of letters of credit, acceptances, or similar obligations
issued or created for the account of such Person, (iv) all Guaranty Obligations
of such Person, and (v) all liabilities secured by any Lien on any property
owned by such Person, whether or not such Person has assumed or otherwise
6
<PAGE>
become liable for the payment thereof, and (vi) any liability of such Person or
any Affiliate thereof in respect of unfunded vested benefits under an ERISA
Plan.
"Interest Period" means, with respect to each particular Eurodollar
---------------
Portion, a period of 1, 2 or 3 months, as specified in the Rate Election
applicable thereto, beginning on and including the date specified in such Rate
Election (which must be a Business Day), and ending on but not including the
same day of the month as the day on which it began (e.g., a period beginning on
the third day of one month shall end on but not include the third day of another
month), provided that each Interest Period which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day). No Interest Period may be elected which would extend
past the date on which the Note is due and payable in full.
"Investor" shall mean any Person listed on Exhibit "F" and any other Person
--------
approved in writing by Lender who agrees to purchase Mortgage Collateral
pursuant to a Take-Out Commitment.
"Lender" shall have the meaning assigned to such terms in the preamble
------
hereof.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the uniform commercial code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Loan" shall mean at any time the aggregate principal amount of all
----
Advances made and outstanding hereunder.
"Loan Document" shall mean any, and "Loan Documents" shall mean all, of
------------- --------------
this Agreement, the Note, the Security Instruments and any and all other
agreements or instruments now or hereafter executed and delivered by Borrower or
any other Person in connection with, or as security for the payment or
performance of any or all of the Obligations, as any of such may be renewed,
amended or supplemented from time to time.
"Manufactured Home" shall mean a structure, transportable in one or more
-----------------
sections, which is built on a permanent basis and designed to be used as a
dwelling with a permanent foundation when affixed to real property and connected
to the required utilities, including, without limitation, plumbing and
electrical systems.
"Market Value" at any time shall be determined by Lender, in its sole
------------
discretion, based upon information then available to Lender regarding quotes to
dealers for the purchase of mortgage notes similar to the Mortgage Notes that
have been delivered to Lender pursuant to this Agreement.
"Material Adverse Effect" shall mean any material adverse effect on (i) the
-----------------------
validity or enforceability of this Agreement, the Note or any other Loan
Document, (ii) the business, operations, total Property or financial condition
of any Related Person, (iii) the collateral under any Security Instrument, or
(iv) the ability of any Related Person to fulfill its obligations under this
Agreement, the Note, or any other Loan Document to which it is a party.
7
<PAGE>
"Maximum Rate" has the meaning given it in the Note.
------------
"Mortgage" shall mean a mortgage or deed of trust, on standard forms in
--------
form and substance satisfactory to Lender, securing a Mortgage Note and granting
a perfected first or second priority lien on residential real property
consisting of land and a single-family dwelling thereon which is completed and
ready for occupancy.
"Mortgage Assignment" shall mean an instrument duly executed and in
-------------------
recordable form assigning a Mortgage, in blank and like all intervening
instruments that have been executed with respect to such Mortgage and which is
in form acceptable to Lender and satisfies all Requirements of Law.
"Mortgage Collateral" shall mean all Mortgage Notes (i) for which Borrower
-------------------
holds a Take-Out Commitment, (ii) which are made payable to the order of
Borrower or have been endorsed (without restriction or limitation) payable to
the order of Borrower, (iii) in which Lender has been granted and continues to
hold a perfected first priority security interest, (iv) which are in form and
substance acceptable to Lender in its reasonable discretion, (v) which are
secured by Mortgages, and (vi) which, together with such Mortgages, conform in
all respects with all the requirements for purchase of such Mortgage Notes under
the Take-Out Commitments and are valid and enforceable in accordance with their
respective terms.
"Mortgage Loan" shall mean a first or second lien single-family mortgage
-------------
loan which is evidenced by a Mortgage Note and secured by a Mortgage, together
with the rights and obligations of a holder thereof and payments thereon and
proceeds therefrom.
"Mortgage Note" shall mean the Note or other evidence of indebtedness
-------------
evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgagor" shall mean the obligor on a Mortgage Note.
---------
"Net Income" of any Person shall mean, for the period ending on a
----------
particular date, the net income (after taxes) of such Person which would appear
on statements of income and cash flows of such Person for such period prepared
in accordance with GAAP.
"Net Worth" of any Person shall mean, as of any date, the total
---------
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock) which would appear on a
balance sheet of such Person prepared as of such date in accordance with
GAAP.
"Note" shall mean the promissory note delivered by Borrower to Lender
----
pursuant to Section 2.02 in the form attached hereto as Exhibit "A", and all
------------
renewals, modifications and extensions thereof.
"Obligations" shall mean all present and future Indebtedness, obligations,
-----------
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to this Agreement or any other Loan
Document, and all interest accrued thereon, and reasonable attorneys' fees and
other costs incurred in the drafting, negotiation, enforcement or collection
thereof, regardless of whether such indebtedness, obligations, and liabilities
are direct, indirect, fixed contingent, joint, several or joint and several.
8
<PAGE>
"Operating Account" shall mean the non-interest bearing demand checking
-----------------
account established by Borrower with Lender to be used for Borrower's
operations.
"PBGC" means the Pension Benefit Guaranty Corporation or any Governmental
----
Authority succeeding to any of its functions.
"Person" shall mean any individual, corporation, partnership, joint
------
venture, association, joint stock company, trust, unincorporated organization,
Governmental Authority, or any other form of entity.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Rate Election" has the meaning given it in Section 2.03(c).
-------------
"Regulation D" shall mean Regulation D issued by the Board of Governors of
------------
the Federal Reserve System as in effect from time to time.
"Regulation U" shall mean Regulation U issued by the Board of Governors of
------------
the Federal Reserve System as in effect from time to time.
"Regulation X" shall mean Regulation X issued by the Board of Governors of
------------
the Federal Reserve System as in effect from time to time.
"Related Persons" shall mean Borrower, Guarantor and each of Borrower's
---------------
subsidiaries.
"Reportable Event" shall mean (i) a reportable event described in Sections
----------------
4043(b)(5) or (6) of ERISA or the regulations promulgated thereunder, or (2) any
other reportable event described in Section 4043(b) of ERISA or the regulations
promulgated thereunder other than a reportable event not subject to the
provision for 30-day notice to the PBGC pursuant to a waiver by the PBGC under
Section 4043(a) of ERISA.
"Requirement of Law" as to any Person shall mean the charter and by-laws or
------------------
other organizational or governing documents of such Person, and any law,
statute, code, ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other determination,
direction or requirement (including, without limitation, any of the foregoing
which relate to environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any arbitrator, court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.
"Reserve Percentage" means, on any day with respect to each particular
------------------
Eurodollar Portion, the maximum reserve requirement, as determined by Lender
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply to Lender under Regulation D with respect to
"Eurocurrency liabilities" (as such term is defined in Regulation D) equal in
amount to such Eurodollar Portion, were Lender to have any such "Eurocurrency
liabilities". If such reserve requirement shall change after the date hereof,
the Reserve Percentage shall be automatically increased or decreased, as the
case may be, from time to time as of the effective time of each such change in
such reserve requirement.
9
<PAGE>
"Security Agreement" shall mean the Security Agreement dated as of even
------------------
date herewith, between Borrower and Lender in the form attached hereto as
Exhibit "D", as the same may from time to time be further supplemented, amended
or restated.
"Security Instrument" shall mean (i) the Security Agreement and (ii) such
-------------------
other executed documents as are or may be necessary to grant to Lender a
perfected first prior and continuing security interest in and to all the
collateral described in Article III hereof, and any and all other agreements or
instruments now or hereafter executed and delivered by Borrower in connection
with, or as security for the payment or performance of, all or any of the
Obligations, including Borrower's obligations under the Note and this Agreement,
as such agreements may be amended, modified or supplemented from time to time.
"Servicing Agreements" shall mean all agreements between Borrower and
--------------------
Persons other than Borrower pursuant to which Borrower undertakes to service
Mortgage Loans.
"Servicing Records" shall mean all contracts and other documents, books,
-----------------
records and other information (including without limitation, computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained with respect to the Servicing Rights.
"Servicing Rights" shall mean all of Borrower's right, title and interest
----------------
in and under the Servicing Agreements, including, without limitation, the rights
of Borrower to income and reimbursement thereunder.
"Settlement Account" shall mean the non-interest bearing demand checking
------------------
account established by Borrower with Lender to be used for (i) the deposit of
proceeds from the sale of Mortgage Collateral; (ii) the payment of the
Obligations; provided that (i) the Settlement Account shall be pledged to
Lender, (ii) Borrower shall not be entitled to withdraw funds from the
Settlement Account, (iii) as long as no Event of Default has occurred and is
continuing, to the extent that the deposit of proceeds from the sale of Mortgage
Collateral exceeds the Collateral Value of such Mortgage Collateral and any
payments then due and owing under Section 2.07 of this Agreement, Lender shall
transfer such excess amount to the Operating Account, and (iv) if at any time
the aggregate amount of funds in the Settlement Account is insufficient to pay
any and all payments due and owing under Section 2.07 (such amount being
referred to as the "Deficiency"), Lender shall transfer an amount equal to the
Deficiency from the Operating Account to the Settlement Account.
"Submission List" shall mean a list in the form of Schedule I to the form
---------------
of Borrowing Request.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"Take-Out Commitment" shall mean a written master commitment of an Investor
-------------------
to purchase Mortgage Collateral on terms satisfactory to Lender, in its sole
discretion.
"Termination Event" shall mean (1) the occurrence with respect to any ERISA
-----------------
Plan of a Reportable Event, (2) the withdrawal of the Borrower or any ERISA
Affiliate from a plan during a plan year in which it was a "substantial
employer", as defined in Section 4001(a)(2) of ERISA, (3) the distribution to
affected parties of a notice of intent to terminate any ERISA Plan or the
treatment
10
<PAGE>
of any ERISA Plan amendment as a termination under Section 4041 of ERISA,
(4) the institution of proceedings to terminate any ERISA Plan by the PBGC under
Section 4042 of ERISA, or (5) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
"Total Liabilities" of any Person shall mean, as of any date, all amounts
-----------------
which would be included as liabilities on a balance sheet of such Person as of
such date prepared in accordance with GAAP; provided however, that as to the
Subordinated Debt only, the Total Liabilities of Borrower shall include fifty
percent (50%) of the aggregate principal amount outstanding as of such date of
the Subordinated Debt rather than the entire Subordinated Debt.
"UCC" shall mean the Texas Uniform Commercial Code, as the same may
---
hereafter be amended.
"Warehouse Period" means a period of one hundred twenty (120) days.
----------------
Section 1.02 Other Definitional Provisions.
-----------------------------
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the above-defined meanings when used in this Note or any
other Loan Document, certificate, report or other document made or delivered
pursuant hereto.
(b) Each term defined in the singular form in Section 1.01 shall mean the
plural thereof when the plural form of such term is used in this Agreement, the
Note or any other Loan Document, certificate, report or other document made or
delivered pursuant hereto, and each term defined in the plural form in Section
1.01 shall mean the singular thereof when the singular form of such term is used
herein or therein.
(c) The words "hereof," "herein," "hereunder" and similar terms when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, subsection, schedule and
exhibit references herein are references to sections, subsections, schedules and
exhibits to this Agreement unless otherwise specified.
(d) Unless the context otherwise requires or unless otherwise provided
herein the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments and restatements of such agreement,
instrument or document, provided that nothing contained in this section shall be
construed to authorize any such renewal, extension, modification, amendment or
restatement.
(e) As used herein, in the Note or in any other Loan Document,
certificate, report or other document made or delivered pursuant hereto,
accounting terms relating to any Person and not specifically defined in this
Agreement or therein shall have the respective meanings given to them under
GAAP.
Section 1.03 Exhibits and Schedules. All Exhibits and Schedules attached to
----------------------
this Agreement are a part hereof for all purposes.
Section 1.04 Calculations and Determinations. All calculations under the
-------------------------------
Loan Documents of interest and of fees shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 360 days.
Each determination by Lender of amounts to be paid
11
<PAGE>
under Sections 2.08 through 2.12 or any other matters which are to be determined
hereunder by Lender (such as any Eurodollar Rate, Adjusted Eurodollar Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Lender otherwise consents all financial statements and reports
furnished to Lender hereunder shall be prepared and all financial computations
and determinations pursuant hereto shall be made in accordance with GAAP.
ARTICLE II
------- --
AMOUNT OF TERMS OF CREDITS
------ -- ----------------
Section 2.01 Commitment and Advances. Subject to the terms and conditions
-----------------------
contained in this Agreement, Lender agrees to make Advances to Borrower on a
revolving credit basis from time to time on any Business Day from the date of
this Agreement through the Drawdown Termination Date. Each Borrowing under this
Section 2.01 shall be in an aggregate amount of not less than $100,000. The
aggregate principal amount of all Advances at any time outstanding shall not
exceed the lesser of (i) the aggregate Collateral Value of all Mortgage
Collateral or (ii) the amount of the Commitment.
Section 2.02 Promissory Note. The Advances made by Lender pursuant to this
---------------
Article II shall be evidenced by the Note. The Note shall be payable and bear
interest as set forth therein.
Section 2.03 Notice and Manner of Obtaining Borrowings.
-----------------------------------------
(a) Borrowings Generally. Borrower shall give Lender notice of each
--------------------
request for a Borrowing pursuant to a Borrowing Request in accordance with the
provisions of Section 4.03 hereof. After Lender's receipt of such request and
upon fulfillment of the applicable conditions set forth in Article IV, Lender
will make the Advance requested by crediting the Funding Account with a like
amount of immediately available funds.
(b) Special Borrowings. Borrower may from time to time request that
------------------
certain Borrowings be funded prior to the delivery to Lender of the
corresponding items of Mortgage Collateral described in Section 3.02
(individually a "Special Borrowing"; collectively "Special Borrowings"). Lender
agrees to make Advances in respect of Special Borrowings in accordance with
Section 2.03(a) subject to the terms and conditions of this Agreement,
including, without limitation, the following terms and conditions:
(i) No Special Borrowing shall be made if, after the making of
such Special Borrowing, the aggregate principal amount of all Special
Borrowings outstanding, with respect to which the items of Mortgage
Collateral described in Section 3.02 have not yet been delivered to
Lender, would exceed twenty percent (20%) of the Commitment;
(ii) Borrower shall grant to Lender, from the Borrowing Date of
each Special Borrowing, a perfected, first priority security interest
in the Mortgage Notes identified in the Borrowing Request delivered to
Lender in connection with such Special Borrowing;
(iii) Borrower shall deliver to Lender, not later than seven (7)
Business Days after the Borrowing Date of each Special Borrowing, the
Mortgage Notes, and the items corresponding to such Mortgage Notes as
described in Section 3.02, with respect to such Special Borrowing; and
12
<PAGE>
(iv) The Borrowing Request delivered by Borrower to Lender
pursuant to which Borrower requests a Special Borrowing, shall
describe the Mortgage Note or Mortgage Notes to be delivered to Lender
in connection therewith by date, original principal amount, maker,
payee, interest rate and maturity and Borrower shall deliver to Lender
with such Borrowing Request any other documents relating to the
Special Borrowing requested thereby as Lender may reasonably request.
(c) Rate Elections. Borrower may from time to time designate all or any
--------------
portion of the Loan (including any yet to be made Advances which are to be made
prior to or at the beginning of the designated Interest Period but excluding any
portion of the Loan which is required to be repaid prior to the end of the
designated Interest Period) as a Eurodollar Portion; provided that without the
consent of Lender Borrower may make no such election during the continuance of a
Default and that Borrower may make such an election with respect to an already
existing Eurodollar Portion only if such election will take effect at or after
the termination of the Interest Period applicable to such already existing
Eurodollar Portion. Each election by Borrower of a Eurodollar Portion shall:
(i) Be made in writing in the form and substance of the "Rate
Election" attached hereto as Exhibit "G", duly completed;
(ii) Specify the amount of the Loan which Borrower desires to
designate as a Eurodollar Portion, the first day of the Interest
Period which is to apply thereto, and the length of such Interest
Period; and
(iii) Be received by Lender not later than 10:00 a.m., Dallas,
Texas time, on the third Business Day preceding the first day of the
specified Interest Period.
Each election which meets the requirements of this section (herein called a
"Rate Election") shall be irrevocable. Borrower may make no Rate Election which
does not specify an Interest Period complying with the definition of "Interest
Period" in Section 1.01 and the amount of the Eurodollar Portion elected in any
Rate Election must be an integral multiple of $50,000. Upon the termination of
each Interest Period the portion of the Loan theretofore constituting the
related Eurodollar Portion shall, unless the subject of a new Rate Election then
taking effect, automatically become a part of the Base Rate Portion and become
subject to all provisions of the Loan Documents governing the Base Rate Portion.
Borrower shall have no more than seven (7) Eurodollar Portions in effect at any
time.
Section 2.04 Fees. In consideration of Lender's commitment to make
----
Advances, Borrower will pay to Lender of the following fees:
(a) A commitment fee determined on a daily basis by applying a rate of one-
fourth of one percent (0.25%) per annum on the Commitment on each day from the
date of the initial Advance until the Drawdown Termination Date. This commitment
fee shall be due and payable quarterly in advance beginning on the date of the
initial Advance and thereafter on the last day of each Fiscal Quarter;
(b) During each Fiscal Quarter in which the average amount of the Loan does
not exceed forty percent (40%) of the amount of the Commitment, a non-use fee
determined on a quarterly basis by applying a rate of one-eighth of one percent
(0.125%) per annum on an amount equal to the Commitment minus the average daily
amount of the Loan during such Fiscal Quarter, from the date of the initial
Advance until the Drawdown Termination Date. The unused portion of the
Commitment shall be determined for each such day by deducting from the amount of
the Commitment at the end of
13
<PAGE>
such day the amount of the Loan at the end of such day. This non-use fee shall
be due and payable quarterly in arrears on (i) the last day of each Fiscal
Quarter for which such fee is due, beginning September 30, 1996, and (ii) the
Drawdown Termination Date; and
(c) A collateral handling fee in the amount of $10.00 for each Mortgage
Note delivered to Lender pursuant to Section 3.02. This collateral handling fee
shall be payable on the first Base Rate Payment Date following the date of
delivery of such Mortgage Note to Lender.
Section 2.05 Mandatory Repayments.
--------------------
(a) If at any time the Loan exceeds the aggregate Collateral Value of all
Mortgage Collateral, Borrower shall repay the amount of such excess within three
(3) Business Days after written notice thereof from Lender.
(b) All payments of principal on the Mortgage Notes that are part of the
Mortgage Collateral shall be delivered to Lender and applied to the prepayment
of the Loan.
Section 2.06 Business Days. If the date for any payment hereunder falls on
-------------
a day which is not a Business Day, then for all purposes of the Note and this
Agreement the same shall be deemed to have fallen on the next following Business
Day, and such extension of time shall in such case be included in the
computation of payments of fees and interest.
Section 2.07 Payment Procedure. All payments of interest on the Note, all
-----------------
payments of principal, including any principal payment made with proceeds of
Mortgage Collateral, and fees hereunder shall be made directly to Lender in
federal or other immediately available funds before 1:00 pm (Dallas, Texas time)
on the respective dates when due via wire transfer to the Settlement Account.
All payments received by Lender shall be applied first to all costs, expenses,
-----
fees and reasonable attorneys' fees incurred by, and custodian or other fees due
to, Lender arising out of or in connection with this Agreement, the Note or the
other Loan Documents, including without limitation, all costs, expenses, fees
and reasonable attorneys' fees arising out of or in connection with the
negotiation, preparation and enforcement of such documents; second, to the
------
payment of interest then due and payable under the Note; and last to the
----
principal of the Note. Lender shall promptly notify Borrower of the application
of any payment to anything other than the principal of or interest on the Note.
Section 2.08 Capital Reimbursement. If either (a) the introduction or
---------------------
implementation of or the compliance with or any change in or in the
interpretation of any law, rule or regulation, or (b) the introduction or
implementation of or the compliance with any request, directive or guideline
from any central bank or other governmental authority (whether or not having the
force of law) affects or would affect the amount of capital required or expected
to be maintained by Lender or any corporation controlling Lender, then, upon
demand by Lender, Borrower will pay to Lender, from time to time as specified by
Lender, such additional amount or amounts which Lender shall determine to be
appropriate to compensate Lender or any corporation controlling Lender in light
of such circumstances, to the extent that Lender reasonably determines that the
amount of any such capital would be increased or the rate of return on any such
capital would be reduced by or in whole or in part based on the face amount of
Lender's Loan or commitments under this Agreement.
Section 2.09 Increased Cost of Eurodollar Portions. If any applicable
-------------------------------------
domestic or foreign law, treaty, rule or regulation (whether now in effect or
hereinafter enacted or promulgated, including
14
<PAGE>
Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of law):
(a) shall change the basis of taxation of payments to Lender of any
principal, interest, or other amounts attributable to any Eurodollar Portion or
otherwise due under this Agreement in respect of any Eurodollar Portion (other
than taxes imposed on the overall net income of Lender or any lending office of
Lender by any jurisdiction in which Lender or any such lending office is
located); or
(b) shall change, impose, modify, apply or deem applicable any reserve,
special deposit or similar requirements in respect of any Eurodollar Portion
(excluding those for which Lender is fully compensated pursuant to adjustments
made in the definition of Adjusted Eurodollar Rate) or against assets of,
deposits with or for the account of, or credit extended by, Lender; or
(c) shall impose on Lender or the interbank eurocurrency deposit market any
other condition affecting any Eurodollar Portion, the result of which is to
increase the cost to Lender of funding or maintaining any Eurodollar Portion or
to reduce the amount of any sum receivable by Lender in respect of any
Eurodollar Portion by an amount deemed by Lender to be material, then Lender
shall promptly notify Borrower in writing of the happening of such event and of
the amount required to compensate Lender for such event (on an after-tax basis,
taking into account any taxes on such compensation), whereupon (i) Borrower
shall pay such amount to Lender and (ii) Borrower may elect, by giving to Lender
not less than three Business Days' notice, to convert all (but not less than
all) of any such Eurodollar Portion into a part of the Base Rate Portion.
Section 2.10 Availability. If (a) any change in applicable laws, treaties,
------------
rules or regulations or in the interpretation or administration thereof of or in
any jurisdiction whatsoever, domestic or foreign, shall make it unlawful or
impracticable for Lender to fund or maintain Eurodollar Portions, or shall
materially restrict the authority of Lender to purchase or take offshore
deposits of dollars (i.e., "eurodollars"), or (b) Lender determines that
matching deposits appropriate to fund or maintain any Eurodollar Portion are not
available to it, or (c) Lender determines that the formula for calculating the
Adjusted Eurodollar Rate does not fairly reflect the cost to Lender of making or
maintaining loans based on such rate, then Borrower's right to elect Eurodollar
Portions shall be suspended to the extent and for the duration of such
illegality, impracticability or restriction and all Eurodollar Portions (or
portions thereof) which are then outstanding or are then the subject of any Rate
Election and which cannot lawfully or practicably be maintained or funded shall
immediately become or remain part of the Base Rate Portion. Borrower agrees to
indemnify Lender and hold it harmless against all costs, expenses, claims,
penalties, liabilities and damages which may result from any such change in law,
treaty, rule, regulation, interpretation or administration. Such indemnification
shall be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
Section 2.11 Funding Losses. In addition to its other obligations
--------------
hereunder, Borrower will indemnify Lender against, and reimburse Lender on
demand for any loss, expense or charge incurred or sustained by Lender
(including any loss, expense or charge incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Lender to fund or maintain
Eurodollar Portions or Advances), as a result of (a) any payment or prepayment
(whether by Borrower's action or inaction authorized or required hereunder or
otherwise) of all or a portion of a Eurodollar Portion on a day other than the
day on which the applicable Interest Period ends, (b) any payment or prepayment,
whether required hereunder or otherwise, of the Loan made after the delivery,
but before the effective date, of a Rate Election, if such payment or prepayment
prevents such Rate Election
15
<PAGE>
from becoming fully effective, (c) the failure of any Advance to be made or of
any Rate Election to become effective due to any condition precedent not being
satisfied or due to any other action or inaction of Borrower, or (d) any
conversion (whether authorized or required hereunder or otherwise) of all or any
portion of any Eurodollar Portion into the Base Rate Portion or into a different
Eurodollar Portion on a day other than the day on which the applicable Interest
Period ends. Such indemnification shall be on an after-tax basis, taking into
account any taxes imposed on the amounts paid as indemnity.
Section 2.12 Reimbursable Taxes. Borrower covenants and agrees that:
------------------
(a) Borrower will indemnify Lender against and reimburse Lender for all
present and future income, stamp and other taxes, levies, costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of this
Agreement or any Eurodollar Portions (whether or not legally or correctly
imposed, assessed, levied or collected), excluding, however, any taxes imposed
on or measured by the overall net income of Lender or any lending office of
Lender by any jurisdiction in which Lender or any such lending office is located
(all such non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section). Such indemnification shall be on
an after-tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.
(b) All payments on account of the principal of, and interest on, the Loan
and the Note, and all other amounts payable by Borrower to Lender hereunder,
shall be made in full without set-off or counterclaim and shall be made free and
clear of and without deductions or withholdings of any nature by reason of any
Reimbursable Taxes, all of which will be for the account of Borrower. In the
event of Borrower being compelled by law or other regulations to make any such
deduction or withholding from any payment to Lender, Borrower shall pay on the
due date of such payment, by way of additional interest, such additional amounts
as are needed to cause the amount receivable by Lender after such deduction or
withholding to equal the amount which would have been receivable in the absence
of such deduction or withholding. If Borrower should make any deduction or
withholding as aforesaid, Borrower shall within 60 days thereafter forward to
Lender an official receipt or other official document evidencing payment of such
deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with respect
to any Eurodollar Portion Borrower may elect, by giving to Lender not less than
three Business Days' notice, to convert all (but not less than all) of any such
Eurodollar Portion into a part of the Base Rate Portion, but such election shall
not diminish Borrower's obligation to pay all Reimbursable Taxes.
Section 2.13 Notice of Certain Events: Change of Applicable Lending Office.
-------------------------------------------------------------
Lender agrees to provide written notice to Borrower of the occurrence of any
event (a "Triggering Event") described in Sections 2.08, 2.09, 2.10, 2.11 or
2.12, which would give rise to any costs, expenses, claims, penalties,
liabilities, damages or Reimbursable Taxes, within sixty (60) days of the date
Lender first learns of the occurrence of such Triggering Event (the "Trigger
Date"). If Lender fails to provide written notice to Borrower of a Triggering
Event in accordance with the immediately preceding sentence, Borrower shall be
liable for only those costs, expenses, claims; penalties, liabilities, damages
or Reimbursable Taxes which arose during the period beginning 120 days prior to
the Trigger Date and ending on the Trigger Date.
16
<PAGE>
ARTICLE III
------- ---
COLLATERAL
----------
Section 3.01 Collateral. To secure the payment of the Obligations and the
----------
performance by Borrower of its obligations hereunder and under the other Loan
Documents, Borrower (a) shall grant (and does hereby grant) to Lender a first
prior security interest in and to the Collateral, including but not limited to
the Mortgage Collateral and all Take-Out Commitments relating thereto, and
(b) shall execute all documents and instruments, and perform all other acts
reasonably deemed necessary by Lender, to perfect the security interest of
Lender in and to such Collateral.
Section 3.02 Borrowing Request: Delivery of Mortgage Collateral to Lender.
------------------------------------------------------------
Each Borrowing Request shall be delivered to Lender together with a Submission
List and the following items with respect to any Mortgage Notes thereby offered
as security:
(a) the original of each Mortgage Note, endorsed in blank (with restriction
or limitation);
(b) a certified copy of the Mortgage which secures each Mortgage Note;
(c) an original executed Mortgage Assignment in blank for each Mortgage
Note and the Mortgage securing such Mortgage Note, in recordable form, and
otherwise in form satisfactory to Lender; and
(d) a copy of or the original executed Take-Out Commitment relating to such
Mortgage Note, acceptable to Lender (unless previously delivered to Lender).
Borrower shall hold in trust for Lender, with respect to each Mortgage Note, a
mortgagee policy of title insurance (or binding unexpired commitment to issue
such insurance if the policy has not yet been delivered to Borrower) insuring
Borrower's perfected, first or second priority Lien created by the Mortgage
securing such Mortgage Note, the original insurance policies referred to in
Section 6.06 hereof which relate to such Mortgage Note, and all other original
documents (including any undelivered Take-out Commitment), executed in
connection with such Mortgage Note and not delivered to Lender, and shall
specifically identify such items in the Borrowing Request and upon the request
of Lender shall immediately deliver to Lender such items. Lender in its
reasonable discretion may reject as unsatisfactory any items so delivered.
Section 3.03 Power of Attorney. Borrower hereby irrevocably appoints Lender
-----------------
its attorney in fact, with full power of substitution, for and on behalf and in
the name of Borrower, which power of attorney shall become effective upon the
occurrence and remain effective during the continuance of an Event of Default,
to (i) endorse and deliver to any Person any check, instrument or other paper
coming into Lender's possession and representing payment made in respect of any
Mortgage Note delivered to and held by Lender hereunder as Mortgage Collateral
or in respect of any other collateral or Take-Out Commitment; (ii) prepare,
complete, execute, deliver and record any assignment to Lender or to any other
Person of any Mortgage relating to any Mortgage Note delivered to and held by
Lender hereunder as Mortgage Collateral; (iii) endorse and deliver any Mortgage
Note delivered to and held by Lender hereunder as Mortgage Collateral and do
every other thing necessary or desirable to effect transfer of all or any part
of the Mortgage Collateral to Lender or to any other Person; (iv) take all
necessary and appropriate action with respect to all Obligations and the
Mortgage Collateral to be delivered to Lender or held by Borrower in trust for
Lender; (v) commence, prosecute, settle, discontinue, defend, or otherwise
dispose of any claim relating to any Take-Out Commitment or any
17
<PAGE>
part of the Mortgage Collateral; and (vi) sign Borrower's name wherever
appropriate to effect the enforcement of Lender's rights and remedies set forth
in this Agreement relating to the Obligations and/or the Mortgage Collateral.
This section shall be liberally, not restrictively, construed so as to give the
greatest latitude to Lender's power, as Borrower's attorney-in-fact, to collect,
sell, and deliver any of the Mortgage Collateral and all other documents
relating thereto. The powers and authorities herein conferred on Lender may be
exercised by Lender through any Person who, at the time of the execution of a
particular instrument, is an authorized officer of Lender. The power of attorney
conferred by this Section 3.03 is granted for a valuable consideration and is
coupled with an interest and irrevocable so long as the Obligations, or any part
thereof, shall remain unpaid or the Commitment is outstanding. All Persons
dealing with Lender, or any officer thereof acting pursuant hereto shall be
fully protected in treating the powers and authorities conferred by this
Section 3.03 as existing and continuing in full force and effect until advised
by Lender that the Obligations have been fully and finally paid and satisfied
and the Commitment has been terminated.
Section 3.04 Redemption of Mortgage Collateral.
---------------------------------
(a) Generally. So long as no Default or Event of Default shall be in
---------
existence, Borrower may obtain the release of the security interest in favor of
Lender in all or any part of the Mortgage Collateral at any time, and from time
to time, by paying to Lender, as a repayment hereunder, the Collateral Value of
the Mortgage Collateral to be so released (such Collateral Value being
determined as of the date of such release).
(b) Redemption Pursuant to Sale. Mortgage Collateral may be sold pursuant
---------------------------
to a Take-Out Commitment so long as no Default or Event of Default shall be in
existence.
(c) Continuation of Lien. The security interest in favor of Lender in all
--------------------
Mortgage Collateral transmitted pursuant to Subsection 3.04(b) shall continue in
effect until such time as Lender shall have received payment in full of an
amount equal to the Collateral Value of such Mortgage Collateral (such
Collateral Value being determined as of the date of such redemption) .
(d) Application of Proceeds: No Duty. Subject to the next sentence of this
--------------------------------
Subsection 3.04(d), Lender shall not be under any duty at any time to credit
Borrower for any amounts due from any Investor in respect of any purchase of any
Mortgage Collateral contemplated under Subsection 3.04(b) above, until Lender
has actually received immediately available funds. Any funds so received will be
treated as payments under and processed and applied in accordance with Section
2.07. Lender shall not be under any duty at any time to collect any amounts or
otherwise enforce any obligations due from an Investor in respect of any such
purchase.
(e) Mandatory Redemption of Mortgage Collateral . In the event that the
-------------------------------------------
Collateral Value of the Mortgage Collateral designated by Lender, as determined
on the date in question, is less than the Collateral Value of such Mortgage
Collateral as determined on the date that such Mortgage Collateral was first
delivered to Lender or Lender reasonably shall deem impaired its ability to
satisfy the Obligations by recourse to such Mortgage Collateral, Borrower shall,
within two (2) Business Days after the reasonable written request of Lender at
any time during the term hereof either:
(i) pay to Lender in immediately available funds the Collateral
Value of any Mortgage Collateral designated by Lender (such Collateral
Value being determined as of the date of such redemption), or
18
<PAGE>
(ii) deliver to Lender other Mortgage Collateral in substitution
for such designated Mortgage Collateral, the Collateral Value of which
substituted Mortgage Collateral (determined at the time of
substitution) is equal to or greater than the Collateral Value of the
Mortgage Collateral being replaced (determined as of the date such
Mortgage Collateral was first delivered to Lender hereunder).
Section 3.05 Release of Mortgage Collateral. So long as no Default or
------------------------------
Event of Default shall be in existence, Borrower may obtain the release of the
security interest in favor of Lender in Mortgage Notes constituting all or any
part of the Mortgage Collateral at any time, and from time to time, provided
--------
that the aggregate Collateral Value of the Mortgage Collateral (after giving
effect to the contemplated release) is greater than or equal to the Loan. Upon
receipt of a properly executed Collateral Release Request and provided that the
other conditions hereof are satisfied, Lender shall (i) hold as custodian for
Borrower the Mortgage Notes with respect to which Borrower has requested that
Lender release its Lien (together with any other documents in the possession of
Lender which relate thereto that do not also relate to any Mortgage Notes then
held by Lender as Mortgage Collateral) and (ii) deliver same to such Person and
for such purpose, including Lender for delivery as Mortgage Collateral
hereunder, as Borrower may direct in writing within a reasonable time after
receipt of such written delivery instructions; provided, that (a) Lender shall
--------
not be required to hold any Mortgage Note or any document related thereto for
the benefit of any Person other than Borrower under the provisions of this
Section 3.05, (b) the only duty that Lender shall have with respect to any
Mortgage Note or any document related thereto held by Lender pursuant to this
Section 3.05 shall be to exercise the same diligence in the care thereof which
Lender exercises in the care of its own property, (c) Lender shall be fully
protected in relying on any delivery instructions from Borrower in which
Borrower purports to be entitled to direct delivery of the items identified
therein, and (d) Borrower shall reimburse Lender for all expenses incurred in
connection with the delivery of any item held by it under this Section 3.05.
Without in any way limiting the proviso set forth in the preceding sentence,
Lender shall have no duty to collect any amount which may be due on or in
respect of any Mortgage Note held by it pursuant to this Section 3.05, to notify
Borrower of any amount which may be due in connection therewith, nor to take any
other action with respect thereto except to deliver such Mortgage Note and such
other documents in Lender's possession to such Person as Borrower may direct.
ARTICLE IV
----------
CONDITIONS PRECEDENT
--------------------
The obligation of Lender to make Advances hereunder is subject to
fulfillment of the conditions precedent stated in this Article IV.
Section 4.01 Initial Borrowing. The obligation of Lender to make its
-----------------
initial Advance hereunder shall be subject to, in addition to the conditions
precedent specified in Sections 4.02 and 4.03 hereof, delivery to Lender of the
following (each of the following documents being duly executed and delivered and
in form and substance satisfactory to Lender, and, with the exception of the
Note, each in a sufficient number of originals that Lender and its counsel may
both have an executed original of each document):
(a) an executed counterpart of this Agreement and of all instruments,
certificates and opinions referred to in this Article IV not theretofore
delivered (except the Borrowing Request which is to be delivered at the time
provided in Subsection 4.03(a) hereof);
19
<PAGE>
(b) the Note;
(c) the Security Agreement;
(d) the Guaranty;
(e) a certificate of the Secretary or Assistant Secretary of each of
Borrower and Guarantor setting forth (i) resolutions of its board of directors
authorizing the execution, delivery, and performance of the Loan Documents to
which it is a party and identifying the officers authorized to sign such
instruments, and (ii) specimen signatures of the officers so authorized;
(f) a copy, certified as true by the Secretary or Assistant Secretary of
each of Borrower and Guarantor, of the articles or certificate of incorporation
and the bylaws of each of Borrower and Guarantor respectively, together with any
and all amendments thereto;
(g) a favorable written opinion from Borrower and Guarantor's legal counsel
as to such matters incident to the transactions herein contemplated as Lender
may reasonably request;
(h) a certificate of the existence and good standing for each of Borrower
and Guarantor in its State of incorporation dated no earlier than July 1, 1996;
and
(i) such other documents as Lender may reasonably request at any time at or
prior to the Borrowing Date of the initial Borrowing hereunder.
Section 4.02 Initial Capital Contribution. The obligation of Lender to make
----------------------------
its initial Advance hereunder shall be subject to the making by Guarantor of a
capital contribution to Borrower in cash in the amount of $2,450,000.
Section 4.03 All Borrowings. The obligation of Lender to make any Advance
--------------
to fund any Borrowing pursuant to this Agreement is subject to the following
further conditions precedent:
(a) prior to 11:00 a.m. (Dallas, Texas time) on the Borrowing Date,
Borrower shall deliver to Lender Borrowing Request executed by Borrower and
accompanied by the items required by Section 3.02 hereof;
------------
(b) all Property in which Borrower has granted a Lien to Lender shall have
been physically delivered to the possession of Lender or a bailee acceptable to
Lender to the extent that such possession is necessary or appropriate for the
purpose of perfecting the Lien of Lender in such collateral;
(c) the representations and warranties of each Related Person contained in
this Agreement or any Security Instrument (other than those representations and
warranties which are by their terms limited to the date of the agreement in
which they are initially made) shall be true and correct in all material
respects on and as of the date of such Advance;
(d) no Default or Event of Default shall have occurred and be continuing
and no change or event which constitutes a Material Adverse Effect shall have
occurred as of the date of such Advance;
20
<PAGE>
(e) the Funding Account, the Settlement Account and the Operating Account
shall be established and in existence;
(f) the making of such Advance shall not be prohibited by any Governmental
Requirement; and
(g) the delivery to Lender of such other documents and opinions of counsel,
including such documents as may be necessary or desirable to perfect or maintain
the priority of any Lien granted or intended to be granted hereunder or
otherwise and including favorable written opinions of counsel with respect
thereto, as Lender may reasonably request.
Delivery to Lender of a Borrowing Request shall be deemed to constitute a
representation and warranty by Borrower on the date thereof and on the Borrowing
Date, if any, set forth therein as to the facts specified in Subsections (c) and
(d) of this Section 4.03.
ARTICLE V
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BORROWER REPRESENTATIONS AND WARRANTIES
-------- ------------------- ----------
Each of Borrower and Guarantor represents and warrants as follows:
Section 5.01 Organization and Good Standing. Each Related Person (a) is a
------------------------------
corporation duly incorporated and existing in good standing under the laws of
the jurisdiction of its incorporation, (b) is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which its failure to be
so qualified could have a Material Adverse Effect, (c) has the corporate power
and authority to own its properties and assets and to transact the business in
which it is engaged and is or will be qualified in those states wherein it
proposes to transact business in the future and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, have a Material Adverse Effect.
Section 5.02 Authorization and Power. Each Related Person has the corporate
-----------------------
power and requisite authority to execute, deliver and perform the Loan Documents
to which it is a party; each Related Person is duly authorized to and has taken
all corporate action necessary to authorize it to, execute, deliver and perform
the Loan Documents to which it is a party and is and will continue to be duly
authorized to perform such Loan Documents.
Section 5.03 No Conflicts or Consents. Neither the execution and delivery
------------------------
by any Related Person of the Loan Documents to which it is a party, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, will (a) materially contravene or conflict with any Requirement of Law
to which any Related Person is subject, or any indenture, mortgage, deed of
trust, or other agreement or instrument to which any Related Person is a party
or by which any Related Person may be bound, or to which the Property of any
Related Person may be subject, or (b) result in the creation or imposition of
any Lien, other than the Lien of the Security Agreement, on the Property of any
Related Person. All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, from any
Governmental Authority that are necessary in connection with the transactions
contemplated by the Loan Documents have been obtained.
21
<PAGE>
Section 5.04 Enforceable Obligations. This Agreement, the Note and the
-----------------------
other Loan Documents to which any Related Person is a party are the legal, valid
and binding obligations of such Related Person, enforceable in accordance with
their respective terms, except as limited by Debtor Laws.
Section 5.05 Priority of Liens. Upon delivery to Lender of each Borrowing
-----------------
Request, Lender shall have valid, enforceable, perfected, first priority Liens
and security interests in each Mortgage Note identified therein, except to the
extent that the requirements for perfection have not been completed with respect
to Special Borrowings under Section 2.03(b) hereof.
Section 5.06 No Liens. Borrower has good and indefeasible title to the
--------
Mortgage Collateral free and clear of all Liens and other adverse claims of any
nature, other than Liens in the Mortgage Collateral in favor of Lender.
Section 5.07 Financial Condition of Borrower and Guarantor. Each of
---------------------- ----------------------
Borrower and Guarantor has delivered to Lender copies of their annual audited
balance sheet as of April 2, 1996, in the case of Borrower, and as of December
31, 1995 in the case of Guarantor, and the related statements of income,
stockholders' equity and cash flows for the period ended such date; such
financial statements fairly present the financial condition of each of Borrower
and Guarantor, respectively as of such date and the results of operations of
Borrower for the period ended on such date and have been prepared in accordance
with GAAP, subject to normal year-end adjustments; as of the date thereof, there
were no obligations, liabilities or Indebtedness (including material contingent
and indirect liabilities and obligations or unusual forward or long-term
commitments) of Borrower which are not reflected in such financial statements
and no change which constitutes a Material Adverse Effect has occurred in the
financial condition or business of (i) Borrower since June 30, 1996 and (ii)
Guarantor since June 6, 1996. Borrower has also delivered to Lender management
reports for the months ended June 30, 1996; such reports fairly and accurately
present Borrower's commitment position, pipeline position, servicing and
production as of the end of such months and for the fiscal year to date for the
periods ending on such dates. Guarantor has also delivered to Lender its
unaudited quarterly balance sheet for the period ending June 5, 1996; such
report fairly and accurately presents Guarantor's financial condition for the
fiscal period ending on such date.
Section 5.08 Full Disclosure. There is no material fact that Borrower or
---------------
Guarantor has not disclosed to Lender which could adversely affect the
properties, business, prospects or condition (financial or otherwise) of the
Related Persons, or could adversely affect the Mortgage Collateral or the
Servicing Rights. To the best knowledge of each of Borrower and Guarantor,
neither the financial statements referred to in Section 5.07 hereof, nor any
Borrowing Request, officer's certificate or statement delivered by any Related
Person to Lender in connection with this Agreement, contains any untrue
statement of material fact.
Section 5.09 No Default. No Related Person is in default under any loan
----------
agreement, mortgage, security agreement or other material agreement or
obligation to which it is a party or by which any of its Property is bound.
Section 5.10 No Litigation. There are no material actions, suits or legal,
-------------
equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower or Guarantor threatened, against any Related Person the
adverse determination of which could constitute a Material Adverse Effect.
22
<PAGE>
Section 5.11 Taxes. All tax returns required to be filed by each Related
-----
Person in any jurisdiction have been filed and all taxes, assessments, fees and
other governmental charges upon each Related Person or upon any of its
properties, income or franchises have been paid prior to the time that such
taxes could give rise to a Lien thereon, unless protested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been established on the books of such Related Person. No Related
Person has any knowledge of any proposed tax assessment against any Related
Person.
Section 5.12 Principal Office, etc. The principal office, chief executive
---------------------
office and principal place of business of each Related Person is at the address
set forth in Section 10.01.
Section 5.13 Compliance with ERISA. No Related Person nor any ERISA
---------------------
Affiliate of any Related Person currently maintains, contributes to, is required
to contribute to or has any liability, whether absolute or contingent, with
respect to an ERISA Plan. With respect to all other employee benefit plans
maintained or contributed to by each Related Person, each Related Person is in
material compliance with ERISA.
Section 5.14 Subsidiaries. No Related Person presently has any Subsidiary
------------
or owns any stock in any other corporation or association except those listed in
Exhibit "H". As of the date hereof, each Related Person owns, directly or
indirectly, the equity interest in each of its Subsidiaries which is indicated
in Exhibit "H".
Section 5.15 Indebtedness. Borrower has no indebtedness outstanding other
------------
than the Indebtedness permitted by Section 7.02.
Section 5.16 Permits, Patents, Trademarks, etc.
---------------------------------
(a) Each Related Person has all permits and licenses necessary for the
operation of its business.
(b) Each Related Person owns or possesses (or is licensed or otherwise
has the necessary right to use) all patents, trademarks, service marks, trade
names and copyrights, technology, know-how and processes, and all rights with
respect to the foregoing, which are necessary for the operation of its business,
without any known material conflict with the rights of others. The consummation
of the transactions contemplated hereby will not alter or impair in any material
respect any of such rights of each Related Person.
Section 5.17 Status Under Certain Federal Statutes. No Related Person is
-------------------------------------
(a) a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility", as such term is defined in the Federal
Power Act, as amended, (c) an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1949, as amended or (d) a "rail carrier", or a "person controlled by or
affiliated with a rail carrier", within the meaning of Title 49, U.S.C., and no
Related Person is a "carrier" to which 49 U.S.C. (S)11301(b)(1) is applicable.
Section 5.18 Securities Act. No Related Person has issued any unregistered
--------------
securities in violation of the registration requirements of the Securities Act
of 1933, as amended, or of any other Requirement of Law, and is not violating
any rule, regulation, or requirement under the Securities
23
<PAGE>
Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended.
No Related Person is required to qualify an indenture under the Trust Indenture
Act of 1939, as amended, in connection with its execution and delivery of the
Notes.
Section 5.19 Pollution Control. Each Related Person is in compliance with,
-----------------
and to the best of each Related Person's knowledge after due inquiry, each
Related Person has, at all times since its incorporation, been in compliance
with, all Requirements of Law relating to pollution control (a) in the United
States and the State of Texas and (b) in each other jurisdiction where it is
presently doing business.
Section 5.20 No Approvals Required. Other than consents and approvals
---------------------
previously obtained and actions previously taken, neither the execution and
delivery of this Agreement, the Note and the other Loan Documents to which any
Related Person is a party, nor the consummation of any of the transactions
contemplated hereby or thereby requires the consent or approval of, the giving
of notice to, or the registration, recording or filing by any Related Person of
any document with, or the taking of any other action in respect of, any
Governmental Authority which has jurisdiction over each Related Person or any of
its Property, except for (a) the filing of the Mortgages, Uniform Commercial
Code financing statements and other similar filings to perfect the interest of
Lender in the Collateral, and (b) such other consents, approvals, notices,
registrations, filings or action as may be required in the ordinary course of
business of the Related Persons in connection with the performance of the
obligations of the Related Persons hereunder.
Section 5.21 Survival of Representations. All representations and
---------------------------
warranties by each of Borrower and Guarantor herein shall survive delivery of
the Note and the making of the Advances, and any investigation at any time made
by or on behalf of Lender shall not diminish the right of Lender to rely
thereon.
Section 5.22 Individual Mortgage Loans. Borrower hereby represents with
-------------------------
respect to each Mortgage Note and Mortgage Loan that is part of the Collateral:
(a) The terms of each Mortgage Note and Mortgage have not been impaired,
waived, altered or modified in any respect, except by written instruments
delivered to Lender and no provision of any Mortgage or Mortgage Note has been
"whited out" or erased unless such modification has been initialed by each of
the parties to the related Mortgage Loan. No instrument of waiver, alteration or
modification has been executed, and no obligor on a Mortgage Note has been
released, in whole or in part, except in connection with an assumption
agreement, a copy of which assumption agreement has been delivered to Lender;
(b) No Mortgage Note or Mortgage is subject to any set-off, counterclaim
or defense, including the defense of usury, nor will the operation of any of the
terms of any Mortgage Note or Mortgage, or the exercise of any right thereunder,
render such Mortgage Note or Mortgage unenforceable, in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense, including
the defense of usury, and to the best knowledge of Borrower no such right of
rescission, set-off, counterclaim or defense has been asserted in any proceeding
or was asserted in any state or federal bankruptcy or insolvency proceeding at
the time the Mortgage Loan was originated;
(c) Any and all Requirements of Law applicable to each Mortgage Loan have
been complied with including, without limitation, all consumer laws, usury,
truth-in-lending, consumer credit protection, equal credit opportunity or
disclosure laws applicable to each Mortgage Loan;
24
<PAGE>
(d) No Mortgage has been satisfied, cancelled, subordinated or rescinded,
in whole or in part. Borrower has not waived the performance by the Mortgagor of
any action, if the Mortgagor's failure to perform such action would cause the
Mortgage Loan to be in default. No Mortgaged Property has been released from the
lien of the related Mortgage, in whole or in part, nor has any instrument been
executed that would effect any such release, cancellation, subordination or
rescission, other than the subordination of the lien of a Mortgage securing a
Mortgage Loan;
(e) Each Mortgage is a valid, subsisting and enforceable lien on the
Mortgaged Property, including the land and all buildings on the Mortgaged
Property;
(f) Each Mortgage Note and the related Mortgage is genuine and each is the
legal, valid and binding obligation of the obligor thereof, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights in general and by general principles of equity;
(g) All parties to each Mortgage Note and the related Mortgage had legal
capacity at the time to enter into the related Mortgage Loan and to execute and
deliver such Mortgage Note and Mortgage, and such Mortgage Note and Mortgage
have been duly and properly executed by such parties;
(h) Borrower has good and marketable title to each Mortgage Note and
Mortgage, was the sole owner thereof and had full right to pledge the Mortgage
Loan to Lender free and clear of any other encumbrance, equity, lien, pledge,
charge, claim or security interest except any such lien which has been disclosed
to Lender in writing and which is permitted hereunder;
(i) To the best knowledge of Borrower, there is no default, breach,
violation or event of acceleration existing under any Mortgage or the related
Mortgage Note and there is no event which, with the passage of time or with
notice and/or the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration and no such default, breach,
violation or event of acceleration has been waived;
(j) To the best of the knowledge of Borrower, the physical condition of the
Mortgaged Property has not deteriorated since the date of origination of the
related secured Mortgage Loan (normal wear and tear excepted) and there is no
proceeding pending for the total or partial condemnation of any Mortgaged
Property;
(k) Each Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security provided thereby, including, (i) in the case of a Mortgage designated
as a deed of trust, by trustee's sale, and (ii) otherwise, by judicial
foreclosure;
(m) Each Mortgage Loan is a first or second lien single-family loan, and
has been underwritten by the originator thereof in accordance with such
originator's then current underwriting guidelines;
(n) Each Mortgage Note is payable in monthly installments of principal and
interest, with interest payable in arrears, and requires a monthly payment which
is sufficient to amortize the original principal balance over the original term
and to pay interest at the related Mortgage Interest Rate; and no Mortgage Note
provides for any extension of the original term;
25
<PAGE>
(o) Except for Eligible Manufactured Housing Mortgage Loans, no Mortgage
Loan is a loan in respect of the purchase of a Manufactured Home or mobile home
or the land on which a Manufactured Home or mobile home will be placed;
(q) The origination practices used by the originator of the Mortgage Loans
and the collection practices used by the Borrower with respect to each Mortgage
Loan have been in all material respects legal, proper, prudent and customary in
the loan origination and servicing business;
(r) Each Mortgage Loan was originated in compliance with all applicable
laws and no fraud or misrepresentation was committed by any Person in connection
therewith; and
(s) Any Mortgage Loan originated in the State of Texas, was originated
pursuant to Chapter 6 of the Texas Consumer Credit Code.
ARTICLE VI
------- --
AFFIRMATIVE COVENANTS
----------- ---------
Each Related Person shall at all times comply with the covenants contained
in this Article VI, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding.
Section 6.01 Financial Statements and Reports.
--------------------------------
(a) Borrower shall furnish to Lender the following, all in form and detail
reasonably satisfactory to Lender:
(i) Promptly after becoming available, and in any event within
ninety (90) days after the close of each fiscal year of Borrower, the
balance sheet of Borrower as of the end of such year, and the related
statements of income, stockholders' equity and cash flows of Borrower
for such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, accompanied by
the related report of independent certified public accountants, KPMG
Peat Marwick or other independent certified public accountants of
national standing acceptable to Lender which report shall be to the
effect that such statements have been prepared in accordance with GAAP
applied on a basis consistent with prior periods except for such
changes in such principles with which the independent public
accountants shall have concurred;
(ii) Promptly after becoming available, and in any event within
thirty (30) days after the end of each month, including the twelfth
month in the fiscal year of Borrower, a balance sheet of Borrower as
of the end of such month and the related statements of income,
stockholders' equity and cash flows of Borrower for such month and the
period from the first day of the then current fiscal year of Borrower
through the end of such month, certified by the chief financial
officer or other executive officer of Borrower to have been prepared
in accordance with GAAP applied on a basis consistent with prior
periods, subject to normal year-end adjustments;
(iii) Promptly upon receipt thereof, a copy of each other report
submitted to Borrower by independent accountants in connection with
any annual, interim or special audit of the books of Borrower;
26
<PAGE>
(iv) Promptly and in any event within thirty (30) days after the
request of Lender at any time and from time to time, a certificate,
executed by the president or chief financial officer of Borrower,
setting forth all of Borrower's warehouse borrowings;
(v) Promptly and in any event within thirty (30) days after the
end of each calendar month in each fiscal year of Borrower (except the
last), and within fifteen (15) days after the completion of each year-
end audit by Borrower's independent public accountants, a completed
Officer's Certificate in the form of Exhibit "C" hereto, executed by
the president, chief financial officer or other executive officer of
Borrower.
(vi) Promptly and in any event within thirty (30) days after
the end of each month, a management report regarding (A) Borrower's
pipeline and commitment position, including amount and rate of
committed Mortgage Loans and (B) Borrower's production statistics,
including type of product and origination source (retail or
correspondent) in each case in form and detail as reasonably required
by Lender, prepared as of the end of such month and for the fiscal
year to date; and
(vii) Such other information concerning the business, properties
or financial condition of any Related Person as Lender may reasonably
request.
(b) Guarantor shall furnish to Lender the following, all in form and detail
reasonably satisfactory to Lender:
(i) Promptly after becoming available, and in any event within
ninety (90) days after the close of each fiscal year of Guarantor, the
balance sheet of Guarantor as of the end of such year, and the related
statements of income, stockholders' equity and cash flows of Guarantor
for such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, accompanied by
the related report of independent certified public accountants, KPMG
Peat Marwick or other independent certified public accountants of
national standing acceptable to Lender which report shall be to the
effect that such statements have been prepared in accordance with GAAP
applied on a basis consistent with prior periods except for such
changes in such principles with which the independent public
accountants shall have concurred;
(ii) Promptly after becoming available, and in any event within
forty-five (45) days after the end of each fiscal quarter, including
the last fiscal quarter in the fiscal year of Guarantor, a copy
Guarantor's 10-Q as of the end of such fiscal quarter filed by
Guarantor with the Securities and Exchange Commission or any similar
governmental authority, including a balance sheet of Guarantor as of
the end of such fiscal quarter and the related statements of income,
stockholders' equity and cash flows of Guarantor for such fiscal
quarter and the period from the first day of the then current fiscal
year of Guarantor through the end of such fiscal quarter.
Section 6.02 Taxes and Other Liens. Each Related Person shall pay and
---------------------
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its Property as well as all
claims of any kind (including claims for labor, materials , supplies and rent)
which, if unpaid, might become a Lien upon any or all of its Property; provided,
however, each Related Person shall not be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate
27
<PAGE>
proceedings diligently conducted by or on behalf of such Related Person and if
such Related Person shall have set up reserves therefor adequate under GAAP.
Section 6.03 Maintenance. Each Related Person shall (i) maintain its
-----------
corporate existence, rights and franchises; (ii) observe and comply in all
material respects with all Governmental Requirements, and (iii) maintain its
Properties (and any Properties leased by or consigned to it or held under title
retention or conditional sales contracts) in good and workable condition at all
times and make all repairs, replacements, additions, betterments and
improvements to its Properties as are needful and proper so that the business
carried on in connection therewith may be conducted properly and efficiently at
all times .
Section 6.04 Further Assurances. Borrower shall, within three (3) Business
------------------
Days (or in the case of Mortgage Notes, such longer period as provided under
Section 3.05 of this Agreement) after the request of Lender, cure any defects in
the execution and delivery of the Note, this Agreement or any other Loan
Document and each Related Person shall, at its expense, promptly execute and
deliver to Lender upon request all such other and further documents, agreements
and instruments in compliance with or accomplishment of the covenants and
agreements of each Related Person in this Agreement and in the other Loan
Documents or to further evidence and more fully describe the collateral intended
as security for the Note, or to correct any omissions in this Agreement or the
other Loan Documents, or more fully to state the security for the obligations
set out herein or in any of the other Loan Documents, or to make any recordings,
to file any notices, or obtain any consents.
Section 6.05 Reimbursement of Expenses. Borrower shall pay (i) all
-------------------------
reasonable legal fees (including, without limitation, allocated costs for in-
house legal service) incurred by Lender in connection with the preparation,
negotiation or execution of this Agreement, the Note and the other Loan
Documents and any amendments , consents or waivers executed in connection
therewith, (ii) all fees, charges or taxes for the recording or filing of the
Security Instruments, (iii) all out-of-pocket expenses of Lender in connection
with the legal administration of this Agreement, the Note and the other Loan
Documents, including courier expenses incurred in connection with the Mortgage
Collateral, and (iv) all amounts expended, advanced or incurred by Lender to
satisfy any obligation of Borrower under this Agreement or any of the other Loan
Documents or to collect the Note, or to enforce the rights of Lender under this
Agreement or any of the other Loan Documents or to collect the Note, or to
enforce the rights of Lender under this Agreement or any of the other Loan
Documents, which amounts shall include all underwriting expenses, collateral
liquidation costs, court costs, attorneys' fees (including, without limitation,
for trial, appeal or other proceedings), fees of auditors and accountants, and
investigation expenses reasonably incurred by Lender in connection with any such
matters, together with interest at the post-maturity rate specified in the Note
on each item specified in clause (i) through (iv) from thirty (30) days after
the date of written demand or request for reimbursement until the date of
reimbursement.
Section 6.06 Insurance. Borrower shall maintain with financially sound and
---------
reputable insurers, insurance with respect to its Properties and business
against such liabilities, casualties, risks and contingencies and in such types
and amounts as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated, including, without limitation, a
fidelity bond or bonds with financially sound and reputable insurers with such
coverage and in such amounts as is customary in the case of Persons engaged in
the same or similar businesses and similarly situated. The improvements on the
land covered by each Mortgage shall be kept continuously insured at all times by
responsible insurance companies against fire and extended coverage hazards under
policies, binders, letters, or certificates of insurance, with a standard
mortgagee clause in favor of Borrower and its assigns. Each such policy must be
in an amount equal to the lesser of the maximum insurable
28
<PAGE>
value of the improvements or the original principal amount of the Mortgage Note,
without reduction by reason of any co-insurance, reduced rate contribution, or
similar clause of the policies or binders. Upon request of Lender, Borrower
shall furnish or cause to be furnished to Lender from time to time a summary of
the insurance coverage of Borrower in form and substance satisfactory to Lender
and if requested shall furnish Lender copies of the applicable policies.
Section 6.07 Accounts and Records: Servicing Records. Each Related Person
---------------------------------------
shall keep books of record and account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
activities, in accordance with GAAP. Each Related Person shall maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate all records pertaining to the performance of
such Related Person's obligations under the Servicing Agreements in the event of
the destruction of the originals of such records) and keep and maintain all
documents, books, records, computer tapes and other information reasonably
necessary or advisable for the performance by each Related Person of its
obligations under the Servicing Agreements .
Section 6.08 Right of Inspection. Each Related Person shall permit
-------------------
authorized representatives of Lender to discuss the business, operations, assets
and financial condition of such Related Person with their officers and
employees, to examine their Servicing Records and books of records and account
and make copies or extracts thereof and to visit and inspect any of the
Properties of each Related Person, all at such reasonable times and as often as
Lender may request. Each Related Person will provide its accountants with a copy
of this Agreement promptly after the execution hereof and will instruct its
accountants to answer candidly any and all questions that the officers of Lender
or any authorized representatives of Lender may address to them in reference to
the financial condition or affairs of any Related Person as those conditions or
affairs relate to this Agreement. Each Related Person may have its
representatives in attendance at any meetings between the officers or other
representatives of Lender and such Related Person's accountants held in
accordance with this authorization.
Section 6.09 Notice of Certain Events. Borrower shall promptly notify
------------------------
Lender upon (i) the receipt of any notice from, or the taking of any other
action by, the holder of any promissory note, debenture or other evidence of
Indebtedness of any Related Person with respect to a claimed default, together
with a detailed statement by a responsible officer of Borrower specifying the
notice given or other action taken by such holder and the nature of the claimed
default and what action Borrower is taking or proposes to take with respect
thereto; (ii) the commencement of, or any determination in, any legal, judicial
or regulatory proceedings which, if adversely dispute between any Related Person
and any Governmental Authority or any other Person which, if adversely
determined, could have a Material Adverse Effect; (iii) any change in senior
management of Borrower or Guarantor; (iv) any material adverse change in the
business, operations, prospects or financial condition of any Related Person,
including, without limitation, the insolvency of any Related Person, (v) any
event or condition which, if adversely determined, could have a Material Adverse
Effect or (vi) the occurrence of any Termination Event.
Section 6.10 Performance of Certain Obligations and Information Regarding
------------------------------------------------------------
Investors. Borrower shall perform and observe in all material respects each of
- ---------
the provisions of each Take-Out Commitment and each of the Servicing Agreements
on its part to be performed or observed and will cause all things to be done
which are necessary to have each item of Mortgage Collateral covered by a Take-
Out Commitment comply with the requirements of such Take-Out Commitment. Upon
request by Lender, Borrower will deliver to Lender financial information
concerning any Person Lender is reviewing to determine whether to approve such
Person as an Investor.
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Section 6.11 Use of Proceeds: Margin Stock. The proceeds of the Advances
-----------------------------
shall be used by Borrower solely for the funding of Mortgage Notes in the
ordinary course of Borrower's business. None of such proceeds shall be used for
the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U, or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of such Regulation U. Neither Borrower nor any Person acting on behalf
of Borrower shall take any action in violation of Regulation U or Regulation X
or shall violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.
Section 6.12 Notice of Default. Borrower shall furnish to Lender
-----------------
immediately upon becoming aware of the existence of any Default or Event of
Default, a written notice specifying the nature and period of existence thereof
and the action which Borrower is taking or proposes to take with respect
thereto.
Section 6.13 Compliance with Loan Documents. Each Related Person shall
------------------------------
promptly comply with any and all covenants and provisions of this Agreement the
Note and the other Loan Documents to be complied with by such Related Person.
Section 6.14 Operations and Properties. Each Related Person shall comply
-------------------------
with all rules, regulations and guidelines applicable to it. Borrower shall act
prudently and in accordance with customary industry standards in managing and
operating its Property.
ARTICLE VII
-----------
NEGATIVE COVENANTS
------------------
Each Related Person shall at all times comply with the covenants contained
in this Article VII, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding:
Section 7.01 No Merger. Borrower and its Subsidiaries shall not merge or
---------
consolidate with or into any Person, nor shall Borrower or its Subsidiaries
acquire by purchase or otherwise all or substantially all of the assets (except
to the extent that such assets consist solely of Mortgage Notes , securities
which evidence undivided interests in pools of Mortgage Notes, and rights to
service mortgage loans) or capital stock of any Person.
Section 7.02 Limitation on Indebtedness. Without Lender's prior written
--------------------------
approval, at no time shall Borrower incur, create, contract, assume, have
outstanding, guarantee or otherwise be or become, directly or indirectly, liable
in respect of any Indebtedness except:
(a) the Obligations;
(b) a Gestation Mortgage Warehousing Facility with ContiFinancial
Services, L.L.C. and any other facility established for the securitization
of the Mortgage Notes which is approved by Lender in writing and
substantially similar to the Gestation Mortgage Warehousing Facility with
ContiFinancial Services, L.L.C. in an amount not to exceed $40,000,000;
(c) trade debt, equipment leases, equipment loans and liens for taxes and
assessments not yet due and payable owed in the ordinary course of
business; and
30
<PAGE>
(d) unsecured Debt owed by Borrower to Guarantor which matures after the
Drawdown Termination Date and which is subordinated to the Obligations upon
terms and conditions satisfactory to Lender in its sole and absolute
discretion.
Section 7.03 Fiscal Year, Method of Accounting. Neither Borrower nor
---------------------------------
Guarantor shall change its fiscal year or make any material change in its method
of accounting without prior written notice to Lender.
Section 7.04 Business. Borrower shall not, directly or indirectly, engage
--------
in any business which differs materially from that currently engaged in by
Borrower or any other business customarily engaged in by other Persons in the
mortgage banking business without the prior written consent of Lender which
shall not be unreasonably withheld.
Section 7.05 Liquidations, Mergers, Consolidations and Dispositions of
---------------------------------------------------------
Substantial Assets. Borrower and/or its Subsidiaries shall not dissolve or
- ------------------
liquidate or sell, transfer, lease or otherwise dispose of any material portion
of its property or assets or business; provided however, that subject to
-------- -------
Section 3.04(b) hereof, nothing in this Section 7.05 shall be construed to
prohibit Borrower and/or its Subsidiaries from selling rights to service
mortgage loans and pools of mortgage loans or Mortgage Notes in the ordinary
course of its business.
Section 7.06 Loans, Advances, and Investments. Without Lender's prior
--------------------------------
written consent which shall not unreasonably be withheld, Borrower shall not
make any loan (other than Mortgage Loans), advance, or capital contribution to,
or investment in (including any investment in any Subsidiary, joint venture or
partnership), or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (collectively,
"Investment"), or otherwise acquire any interest in, or control of, another
- -----------
Person, except for the following:
(a) Cash Equivalents;
(b) Any acquisition of securities or evidences of indebtedness of others
when acquired by Borrower in settlement of accounts receivable or other debts
arising in the ordinary course of its business, so long as the aggregate amount
of any such securities or evidences of indebtedness is not material to the
business or condition (financial or otherwise) of Borrower;
(c) Mortgage Notes acquired in the ordinary course of Borrower's business;
and
(d) Investment in any Subsidiary listed on Exhibit "H", so long as the
Lender is given 10 days advance notice of each such Investment in a Subsidiary
and the aggregate amount paid, contributed, lent, or otherwise invested in such
Subsidiary does not exceed $200,000.
Section 7.07 Use of Proceeds. Borrower shall not permit the proceeds of the
---------------
Advances to be used for any purpose other than those permitted by Section 6.11
hereof. Borrower shall not, directly or indirectly, use any of the proceeds of
the Advances for the purpose, whether immediate, incidental or ultimate, of
buying any "margin stock" or of maintaining, reducing or retiring any
Indebtedness originally incurred to purchase a stock that is currently any
"margin stock", or for any other purpose which might constitute this transaction
a "purpose credit", in each case within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System (12 C.F.R. 207, as amended), or
Regulation U, or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation T
(12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any
other regulation of such board.
31
<PAGE>
Section 7.08 Actions with Respect to Mortgage Collateral. Except with
-------------------------------------------
Lender's prior written consent which shall not unreasonably be withheld,
Borrower shall not:
(a) Compromise, extend, release, or adjust payments on any Mortgage
Collateral, accept a conveyance of mortgaged property in full or partial
satisfaction of any Mortgage Collateral, or release any Mortgage securing or
underlying any Mortgage Collateral;
(b) Agree to the amendment or termination of any Take-Out Commitment in
which Lender has a security interest or to substitution of a Take-Out Commitment
for a Take-Out Commitment in which Lender has a security interest hereunder, if
such amendment, termination or substitution may reasonably be expected (as
determined by Lender in its sole discretion) to have a Material Adverse Effect;
(c) Transfer, sell, assign, or deliver any Mortgage Collateral pledged to
Lender to any Person other than Lender, except pursuant to a Take-Out Commitment
or pursuant to Section 3.04; or
(d) Grant, create, incur, permit or suffer to exist any Lien upon any
Mortgage Collateral except for Liens granted to Lender to secure the Notes and
Obligations and such non-consensual Liens as may be deemed to arise as a matter
of law pursuant to any Take-Out Commitment.
Section 7.09 Net Worth. As of the end of each calendar month, Borrower's
---------
Net Worth shall not be less than $1,750,000. As of the end of each Fiscal
Quarter, Guarantor's Net Worth shall not be less than $5,000,000.
Section 7.10 Total Liabilities to Net Worth Ratio. The ratio of Borrower's
------------------------------------
Total Liabilities to Borrower's Net Worth shall not be more than 12.0 to 1.0 as
of the end of each calendar month.
Section 7.11 Restrictions on Dividends. Borrower shall not directly or
-------------------------
indirectly declare or make, or incur any liability to make, any Dividend.
Section 7.12 Transactions with Affiliates. Borrower shall not enter into
----------------------------
any transactions including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transactions are otherwise permitted under this Agreement, are in the
ordinary course of Borrower's business and are upon fair and reasonable terms no
less favorable to Borrower than it would obtain in a comparable arm's length
transaction with a Person not an Affiliate.
Section 7.13 Liens. Borrower shall not grant, create, incur, assume, permit
-----
or suffer to exist any Lien, upon any of its Property, including without
limitation any and all of Borrower's Mortgage Notes, and Servicing Rights and
the proceeds from any thereof, other than (i) Liens which secure payment of the
Obligations, and (ii) to the extent not otherwise prohibited hereunder, Liens
which secure payment of the Indebtedness described in Section 7.02(b) on
property other than Collateral.
Section 7.14 ERISA Plans. Borrower shall not adopt or agree to maintain or
-----------
contribute to any ERISA Plan without the prior written consent of Lender which
consent shall not be unreasonably withheld. Borrower shall promptly notify
Lender in writing in the event an ERISA Affiliate adopts an ERISA Plan.
32
<PAGE>
Section 7.15 Change of Principal Office. No Related Person shall move its
--------------------------
principal office, executive office or principal place of business from the
address set forth in Section 10.01 without prior written notice to Lender.
Section 7.16 Minimum Unrestricted Balance Sheet Liquidity. The Unrestricted
--------------------------------------------
Balance Sheet Liquidity of Borrower shall not be less than $200,000 as of the
end of each calendar month. The Unrestricted Balance Sheet Liquidity of
Guarantor shall not be less than $750,000 as of the end of each calendar month.
As used in this section with respect to any Person, the term "Unrestricted
Balance Sheet Liquidity" means the sum of (i) the Cash Equivalents owned by such
Person and (ii) the unutilized portion of any revolving credit facility of such
Person which is then available for borrowing.
ARTICLE VIII
------------
EVENTS OF DEFAULT
--------- -------
Section 8.01 Nature of Event. An Event of Default shall exist if any one or
---------------
more of the following occurs:
(a) Borrower fails to make any payment of principal of or interest on the
Note, or payment of any fee, expense or other amount due hereunder, under the
Note or under any other Loan Document, on or before the date such payment is due
and such default continues unremedied for two (2) Business Days after any
executive officer of such Related Person obtains knowledge thereof;
(b) Guarantor fails to make any payment of any Obligation on the date such
payment is due and such default continues unremedied for two (2) Business Days
after any executive officer of such Related Person obtains knowledge thereof;
(c) Default is made in the due observance or performance by any Related
Person of any covenant set forth in Sections 7.09 through 7.11 and Section
7.16 and such default continues unremedied for thirty (30) calendar days after
any executive officer of such Related Person obtains knowledge thereof;
(d) Default is made in the due observance or performance by any Related
Person of any covenant set forth in Article VII that is not described in
subsections (a), (b) or (c) immediately above;
(e) Default is made in the due observance or performance by any Related
Person of any of the other covenants or agreements contained in this Agreement
and such Default continues for a period of fifteen (15) days after Lender gives
Borrower notice thereof;
(f) Any Related Person defaults in the due observance or performance or
any of the covenants or agreements contained in any other Loan Document to which
it is a party, and (unless such default otherwise constitutes a Default pursuant
to other provisions of this Section 8.01) such default continues unremedied
beyond the expiration of any applicable grace period which may be expressly
allowed under such other Loan Document;
(g) Any material statement, warranty or representation by or on behalf of
any Related Person contained in this Agreement, the Notes or any other Loan
Document to which it is a party, or in any Borrowing Request, Officer's
certificate or other writing furnished in connection with this
33
<PAGE>
Agreement, proves to have been incorrect or misleading in any material respect
as of the date made or deemed made;
(h) Any Related Person:
(i) suffers the entry against it of a judgment, decree or order
for relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended,
or has any such proceeding commenced against it which remains
undismissed for a period of sixty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended; or applies for
or consents to the entry of an order for relief in an involuntary case
under any such law; or makes a general assignment for the benefit of
creditors; or fails generally to pay (or admits in writing its
inability to pay) its debts as such debts become due; or takes
corporate or other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Mortgage Collateral in a proceeding brought against or
initiated by it, and such appointment or taking possession is neither
made ineffective nor discharged within sixty days after the making
thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $500,000 (not covered by insurance
satisfactory to Lender in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial part
of its assets or any part of the Mortgage Collateral, and such writ or
warrant of attachment or any similar process is not stayed or released
within thirty days after the entry or levy thereof or after any stay
is vacated or set aside;
(i) Any Related Person fails to make when due or within any applicable
grace period any payment on any Indebtedness, other than the Obligations with an
unpaid principal balance of over $100,000; or any event or condition occurs
under any provision contained in any agreement under which such obligation is
governed, evidenced or secured (or any other material breach or default under
such obligation or agreement occurs) if the effect thereof is to cause or permit
the holder or trustee of such obligation to cause such obligation to become due
prior to its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of any
Related Person with unpaid principal balances exceeding, in the aggregate,
$100,000;
(j) Any default or event of default occurs under any other Indebtedness
of any Related Person to Lender;
34
<PAGE>
(k) This Agreement, the Notes or any other Loan Document shall for any
reason cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part as the result of any action initiated by any
Person other than Lender; or the validity or enforceability of any such document
shall be challenged or denied by any Person other than Lender other than by
reason of illegality;
(l) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Code in excess of $25,000 exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate, or
(ii) any Termination Event occurs with respect to any ERISA Plan and the then
current value of such ERISA Plan's benefits guaranteed under Title IV of ERISA
exceeds the then current value of such ERISA Plan's assets available for the
payment of such benefits by more than $10,000 (or in the case of a Termination
Event involving the withdrawal of a substantial employer, the withdrawing
employer's proportionate share of such excess exceeds such amount) or (iii) any
Related Person or any ERISA Affiliate withdraws from a multiemployer plan
resulting in liability under Title IV of ERISA of an amount in excess of
$10,000; or
(m) A Change of Control occurs.
Section 8.02 Default Remedies. Upon the occurrence of an Event of Default,
----------------
Lender may declare its Commitment to be terminated and/or declare the entire
principal and all interest accrued on the Note to be, and the Note, together
with all Obligations, shall thereupon become, forthwith due and payable, without
any presentment, demand, protest, notice of protest and nonpayment, notice of
acceleration or of intent to accelerate or other notice of any kind, all of
which hereby are expressly waived. Notwithstanding the foregoing, if an Event of
Default specified in Subsections 8.01 (h)(i), (ii) or (iii) above occurs with
respect to Borrower, the Commitment shall automatically and immediately
terminate and the Note and all other Obligations shall become automatically and
immediately due and payable, both as to principal and interest, without any
action by Lender and without presentment, demand, protest, notice of protest and
nonpayment, notice of acceleration or of intent to accelerate, or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in any Note to the contrary notwithstanding.
ARTICLE IX
------- --
CONCERNING LENDER
---------- ------
Section 9.01 Indemnification. Each of Borrower and Guarantor agrees to
---------------
indemnify Lender and each director, officer, agent, attorney, employee,
representative and Affiliate of Lender (each an "Indemnified Party"), upon
demand, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this Section 9.01 collectively called
"liabilities and costs") which to any extent (in whole or in part) may be
imposed on, incurred by, or asserted against any Indemnified Party growing out
of, resulting from or in any other way associated with any of the Mortgage
Collateral, the Loan Documents and the transactions and events (including the
enforcement or defense thereof) at any time associated therewith or contemplated
therein.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES
AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER
ANY CLAIM OR THEORY OF STRICT LIABILITY,
35
<PAGE>
OR ARE CAUSED IN WHOLE OR PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY KIND BY SUCH INDEMNIFIED PARTY,
provided only that such indemnified party shall be not entitled under this
section to receive indemnification for that portion, if any, of any liabilities
and costs which is proximately caused by its own individual gross negligence or
willful misconduct.
Section 9.02 Limitation of Liability. Neither Lender nor any of its
-----------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement.
THE FOREGOING EXCULPATION SHALL APPLY TO ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY ANY SUCH PERSON, PROVIDED THAT SUCH PERSON SHALL BE LIABLE FOR ITS OWN
INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
ARTICLE X
------- -
MISCELLANEOUS
-------------
Section 10.01 Notices. Any notice or request required or permitted to be
-------
given under or in connection with this Agreement, the Note or the other Loan
Documents (except as may otherwise be expressly required therein) shall be in
writing and shall be mailed by first class or express mail, postage prepaid, or
sent by telex, telegram, telecopy or other similar form of rapid transmission,
confirmed by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission, or
personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered to the parties hereto at their
respective addresses as follows:
Borrower: Mortgage Portfolio Services, Inc.
5520 LBJ Freeway
Suite 200
Dallas, Texas 75240
Attn: James E. Hinton
FAX: (214) 701-6934
Telephone: (214) 404-4400
Guarantor: NAB Asset Corporation
5520 LBJ Freeway
Suite 200
Dallas, Texas 75240
Attn: Michael Caton
FAX: (706) 579-1464
Telephone: (706) 579-2777
Lender: Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: Mr. James Robertson
FAX: (214) 360-1660
Telephone: (214) 360-2770
36
<PAGE>
or at such other addresses or to such individual's or department's attention as
any party may have furnished the other party in writing. Any communication so
addressed and mailed shall be deemed to be given when so mailed, except that
notices and requests given pursuant to Subsection 3.04(e), Borrowing Requests,
Collateral Release Requests, and communications related thereto shall not be
effective until actually received by Lender or Borrower, as the case may be; and
any notice so sent by rapid transmission shall be deemed to be given when
receipt of such transmission is acknowledged, and any communication so delivered
in person shall be deemed to be given when receipted for by, or actually
received by, an authorized officer of Borrower or Lender, as the case may be.
Section 10.02 Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement, the Security Instruments, the Note, or any other Loan Document,
nor consent to any departure by any Related Person from the terms thereof, shall
in any event be effective unless the same shall be in writing and signed by
Lender and the other parties to the Loan Document being amended or waived, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
Section 10.03 Invalidity. In the event that any one or more of the
----------
provisions contained in the Note, this Agreement or any other Loan Document
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of such document.
Section 10.04 Survival of Agreements. All covenants and agreements herein
----------------------
and in any other Loan Document not fully performed before the date hereof or the
date thereof, and all representations and warranties herein or therein, shall
survive until payment in full of the Obligations and termination of the
Commitment.
Section 10.05 Renewal, Extension or Rearrangement. All provisions of this
-----------------------------------
Agreement and of the other Loan Documents shall apply with equal force and
effect to each and all promissory notes hereafter executed which in whole or in
part represent a renewal, extension for any period, increase or rearrangement of
any part of the Obligations originally represented by the Note or of any part of
such other Obligations.
Section 10.06 Waivers. No course of dealing on the part of Lender, or any
-------
of its officers, employees , consultants or agents , nor any failure or delay by
Lender with respect to exercising any right, power or privilege of Lender under
the Note, this Agreement or any other Loan Document shall operate as a waiver
thereof, except as otherwise provided in Section 10.02 hereof.
Section 10.07 Cumulative Rights. The rights and remedies of Lender under
-----------------
the Note, this Agreement, and any other Loan Document shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.
Section 10.08 Construction. THIS AGREEMENT, THE NOTE AND EACH OTHER
------------
LOAN DOCUMENT IS A CONTRACT MADE UNDER AND SHALL BE CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE UNITED STATES OF
AMERICA AND THE STATE OF TEXAS. TEX. REV. CIV. STAT. ANN. ART. 5069, CH. 15
(WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTE.
37
<PAGE>
Section 10.09 Limitation on Interest. Lender, each Related Person and any
----------------------
other parties to the Loan Documents intend to contract in strict compliance with
applicable usury law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable law from time to time in
effect. Neither each Related Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Lender
expressly disavows any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or
(c) Lender or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Obligations to an amount in excess of
that permitted to be charged by applicable law then in effect, then all such
sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at Lender's or such holder's option, promptly
returned to each Related Person or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable
law, Lender and the each Related Persons (and any other payors thereof) shall to
the greatest extent permitted under applicable law, (i) characterize any non-
principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
In the event applicable law provides for an interest ceiling under Texas Revised
Civil Statutes Annotated article 5069-1.04, that ceiling shall be the indicated
rate ceiling.
Section 10.10 Bank Accounts: Offset. To secure the repayment of the
---------------------
Obligations each Related Person hereby grants to Lender and to each financial
institution which hereafter acquires a participation or other interest in the
Loan or Note (in this section called a "Participant") a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of Lender or Participant at common law, under the
Loan Documents, or otherwise, and each of which shall be upon and against (a)
any and all moneys, securities or other property (and the proceeds therefrom) of
any Related Person now or hereafter held or received by or in transit to Lender
or Participant from or for the account any Related Person, whether for
safekeeping, custody pledge, transmission, collection or otherwise, (b) any and
all deposits (general or special, time or demand, provisional or final) of any
Related Person with Lender or Participant, and (c) any other credits and claims
of any Related Person at any time existing against Lender or Participant,
including claims under certificates of deposit. Lender shall provide Borrower
with notice of the existence and identity of any Participant within a reasonable
time after such Participant acquires a participation or other interest in the
Loan or Note. Upon the occurrence of any Default, each of Lender and
Participants is hereby authorized to foreclose upon, offset, appropriate, and
apply, at any time and from time to time, without notice to Borrower, any and
all items hereinabove referred to against the Obligations then due and payable.
38
<PAGE>
Section 10.11 Assignments and Participations. All covenants and
------------------------------
agreements by or on behalf of each Related Person in the Note, this Agreement,
or any other Loan Document shall bind such Related Person's successors, and
assigns and shall inure to the benefit of Lender and its successors and assigns.
each Related Person shall not, however, have the right to assign its rights
under this Agreement or any interest herein, without the prior written consent
of Lender. In the event that Lender sells participations in the Note or other
Obligations of each Related Person incurred or to be incurred pursuant to this
Agreement to other lenders, each of such other lenders shall have the rights of
offset against such Obligations and similar rights or Liens to the same extent
as may be available to Lender. If Lender assigns all its rights hereunder, it
shall promptly give notice thereof to each Related Person; provided, however,
that failure to give such notice shall not render Lender liable to each Related
Person and shall not affect each Related Person's Obligations or the rights and
remedies of Lender hereunder. Lender may disclose information (including,
without limitation, information identified to it in writing as confidential
information) regarding each Related Person, the Affiliates of each Related
Person, and the transactions contemplated by this Agreement, to participants and
prospective participants, in the Obligations; provided, that Lender shall not
make any such confidential information available to any such participant or
prospective participant without first securing from such Person a written
agreement to maintain all such confidential information in confidence.
Section 10.12 Exhibits. The exhibits attached to this Agreement are
--------
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
Section 10.13 Titles of Articles, Sections and Subsections. All titles or
--------------------------------------------
headings to articles, sections, subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 10.14 Counterparts. This Agreement may be executed in counterparts,
------------
and it shall not be necessary that the signatures of both of the parties hereto
be contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all counterparts together shall constitute one and the same
instrument.
Section 10.15 ENTIRE AGREEMENT. THE NOTE, THIS AGREEMENT, AND THE
------ ---------
OTHER LOAN DOCUMENTS EXECUTED AND DELIVERED As OF EVEN DATE HEREWITH REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
Section 10.16 Termination: Limited Survival. In its sole and absolute
-----------------------------
discretion Borrower may at any time that no Obligations are owing elect in a
notice delivered to Lender to terminate this Agreement. Upon receipt by Lender
of such a notice, if no Obligations are then owing, this Agreement (including
but not limited to the power of attorney granted under Section 3.03 hereof) and
all other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Person in any Loan Documents, any Obligations, and any obligations which any
Person may have to indemnify or compensate Lender shall survive any
39
<PAGE>
termination of this Agreement or any other Loan Document. At the request and
expense of Borrower, Lender shall prepare and execute all necessary instruments
to reflect and effect such termination of the Loan Documents .
Section 10.17 Joint and Several Liability. All Obligations which are
---------------------------
incurred by two or more Related Persons shall be their joint and several
obligations and liabilities.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER: MORTGAGE PORTFOLIO SERVICES, INC.
- --------
By:/s/ JAMES E. HINTON
---------------------------------------
Name: James E. Hinton
Title: President
GUARANTOR: NAB ASSET CORPORATION
- ---------
By:/s/ MICHAEL W. CATON
---------------------------------------
Name: Michael W. Caton
Title: President
LENDER: GUARANTY FEDERAL BANK, F.S.B
- ------
By:/s/ CHAD PATTON
---------------------------------------
Name: Chad Patton
Title: Loan Officer
40
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$10,000,000 Dallas, Texas , 1996
FOR VALUE RECEIVED, the undersigned, Mortgage Portfolio Services, Inc.
(herein called "Borrower"), hereby promises to pay to the order of Guaranty
Federal Bank, F.S.B. (herein called "Lender"), the principal sum of Ten Million
Dollars ($10,000,000) or, if less, the aggregate unpaid principal amount of the
Loan made under this Note by Lender to Borrower pursuant to the terms of the
Credit Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of Guaranty Federal Bank, F.S.B., 8333 Douglas Avenue, Dallas,
Texas or at such other place within Dallas County, Texas, as from time to time
may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain Credit Agreement
of even date herewith among Borrower, NAB Asset Corporation and Lender (herein,
as from time to time supplemented, amended or restated, called the "Credit
Agreement"), and is the Note as defined therein, (b) is subject to the terms and
provisions of the Credit Agreement, which contains provisions for payments and
prepayments hereunder and acceleration of the maturity hereof upon the happening
of certain stated events, and (c) is secured by and entitled to the benefits of
certain Security Instruments (as identified and defined in the Credit
Agreement). Payments on this Note shall be made and applied as provided herein
and in the Credit Agreement. Reference is hereby made to the Credit Agreement
for a description of certain rights, limitations of rights, obligations and
duties of the parties hereto and for the meanings assigned to terms used and not
defined herein and to the Security Instruments for a description of the nature
and extent of the security thereby provided and the rights of the parties
thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the fifteenth (15th) day of
----------------------
each calendar month, beginning August 15, 1996, and (ii) any day on
which past due interest or principal is owed hereunder and is unpaid.
If the terms hereof or of the Credit Agreement provide that payments
of interest or principal hereon shall be deferred from one Base Rate
Payment Date to another day, such other day shall also be a Base Rate
Payment Date.
"Eurodollar Payment Date" means, with respect to any Eurodollar
-----------------------
Portion, (i) the day on which the related Interest Period ends, and
(ii) any day on which past due interest or past due principal is owed
hereunder with respect to such Eurodollar Portion and is unpaid. If
the terms hereof or of the Credit Agreement provide that payments of
interest or principal with respect to such Eurodollar Portion shall be
deferred from one Eurodollar Payment Date to another day, such other
day shall also be a Eurodollar Payment Date.
"Late Payment Rate" means, at the time in question, four
percent (4.0%) per annum plus the Base Rate then in effect.
"Maximum Rate" means at the particular time in question the
maximum rate of interest which, under applicable law, may then be
charged on this Note. If such maximum rate of interest changes after
the date hereof, the Maximum Rate shall be automatically increased or
<PAGE>
decreased, as the case may be, without notice to Borrower from time to
time as of the effective time of each change in such maximum rate. If
applicable law ceases to provide for such a maximum rate of interest,
the Maximum Rate shall be a per annum rate of interest equal to
twenty-five percent (25.0%) plus the Base Rate from time to time in
effect.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on the Drawdown Termination Date.
The Base Rate Portion of the Loan (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the Base Rate in effect on such day; provided, however, that
interest on the part of such Base Rate Portion equal to the Balance Funded
Amount of such Base Rate Portion shall bear interest on each day outstanding at
the Balance Funded Rate. On each Base Rate Payment Date Borrower shall pay to
the holder hereof all unpaid interest which has accrued on the Base Rate Portion
through and including the last day of the immediately preceding calendar month.
Each Eurodollar Portion of the Loan (exclusive of any past due principal or
interest) shall bear interest on each day during the related Interest Period at
the related Adjusted Eurodollar Rate in effect on such day. On each Eurodollar
Payment Date relating to such Eurodollar Portion, Borrower shall pay to the
holder hereof all unpaid interest which has accrued on such Eurodollar Portion
to but not including such Eurodollar Payment Date. All past due principal of and
past due interest on the Loan shall bear interest on each day outstanding at the
Late Payment Rate in effect on such day, and such interest shall be due and
payable immediately as it accrues. Notwithstanding the foregoing provisions of
this paragraph, if at any time the rate at which interest is payable on this
Note (considering together all portions of the Loan and the interest payable
thereon) exceeds the Maximum Rate, this Note shall bear interest at the Maximum
Rate only but shall continue to bear interest at the Maximum Rate until such
time as the total amount of interest accrued hereon equals (but does not exceed)
the total amount of interest which would have accrued hereon had there been no
Maximum Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Maximum Rate and for all other purposes. The term "applicable
law" as used in this Note shall mean the laws of the State of Texas or the laws
of the United States, whichever laws allow the greater interest, as such laws
now exist or may be changed or amended or come into effect in the future.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum interest which, under applicable law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest,
2
<PAGE>
notice of intention to accelerate the maturity of this Note, declaration or
notice of acceleration of the maturity of this Note, diligence in collecting,
the bringing of any suit against any party and any notice of or defense on
account of any extensions, renewals, partial payments or changes in any manner
of or in this Note or in any of its terms, provisions and covenants, or any
releases or substitutions of any security, or any delay, indulgence or other act
of any trustee or any holder hereof, whether before or after maturity.
No waiver by Lender of any of its rights or remedies hereunder or under any
other document evidencing or securing this Note or otherwise shall be considered
a waiver of any other subsequent right or remedy of Lender; no delay or omission
in the exercise or enforcement by Lender of any rights or remedies shall ever by
construed as a waiver of any right or remedy of Lender; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust any
right or remedy of Lender.
Borrower reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
---- ---- --- --- ------ --- ------ -- --- ------- ------ ----- -----------
BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY
- -------------- ------------ ------------- ---------------------- ---------------
APPLICABLE FEDERAL LAW.
- ------------------ ---
MORTGAGE PORTFOLIO SERVICES, INC.
By:
-------------------------------------------
Name:
Title:
3
<PAGE>
GUARANTY
--------
THIS GUARANTY is made as of August 7, 1996 by NAB Asset Corporation, a
Texas corporation ("Guarantor"), in favor of a ("Lender").
RECITALS:
1. Mortgage Portfolio Services, Inc., a Texas Corporation ("Borrower") has
executed in favor of Lender that certain promissory note of even date herewith,
payable to the order of Lender in the principal amount of $10,000,000 (such
promissory note, as from time to time amended, and all promissory notes given in
substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of even date
herewith, (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), by and among Borrower, Guarantor and Lender,
pursuant to which Lender has agreed to advance funds to Borrower under the
Note.
3. It is a condition precedent to Lender's obligation to advance funds
pursuant to the Credit Agreement that Guarantor shall execute and deliver to
Lender a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.
4. Guarantor owns directly, or indirectly through one or more
subsidiaries, all of the preferred stock of Borrower and eighty percent (80%) of
the common stock of Borrower.
5. The board of directors of Guarantor has determined that Guarantor's
execution, delivery and performance of this Guaranty may reasonably be expected
to benefit Guarantor, directly or indirectly, and are in the best interests of
Guarantor.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantor from Lender's advances of funds to Borrower under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Lender to advance funds under the Credit Agreement, Guarantor
hereby agrees with Lender as follows:
AGREEMENTS
Section 1 . Definitions. Reference is hereby made to the Credit Agreement
-----------
for all purposes. All terms used in this Guaranty which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Obligation Document, Loan
Document, or other document or instrument refer to the same as from time to time
amended, supplemented or restated. As used herein the following terms shall have
the following meanings:
"Obligations" means collectively all of the indebtedness, obligations, and
-----------
undertakings which are guaranteed by Guarantor and described in subsections (a)
and (b) of Section 2.
<PAGE>
"Obligation Documents" means this Guaranty, the Note, the Credit Agreement,
--------------------
the Loan Documents, all other documents and instruments under, by reason of
which, or pursuant to which any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other documents,
instruments, agreements, certificates, legal opinions and other writings
heretofore or hereafter delivered in connection herewith or therewith.
"Obligors" means Borrower, Guarantor and any other endorsers, guarantors or
--------
obligors, primary or secondary, of any or all of the Obligations.
"Security" means any rights, properties, or interests of Lender, under the
--------
Obligation Documents or otherwise, which provide recourse or other benefits to
Lender in connection with the Obligations or the non-payment or non-performance
thereof, including collateral (whether real or personal, tangible or intangible)
in which Lender has rights under or pursuant to any Obligation Documents,
guaranties of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of subrogation,
rights of offset, and rights pursuant to which other claims are subordinated to
the Obligations.
Section 2. Guaranty
--------
(a) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete, and full payment when due, and no
matter how the same shall become due, of:
(i) the Note, including all principal, all interest thereon and
all other sums payable thereunder; and
(ii) All other sums payable under the other Obligation Documents,
whether for principal, interest, fees or otherwise; and
(iii) Any and all other indebtedness or liabilities which
Borrower may at any time owe to Lender in connection with the Note and
other Obligation Documents, whether incurred heretofore or hereafter
or concurrently herewith, voluntarily or involuntarily, whether owed
alone or with others, whether fixed, contingent, absolute, inchoate,
liquidated or unliquidated, whether such indebtedness or liability
arises by notes, discounts, overdrafts, open account indebtedness or
in any other manner whatsoever, and including interest, attorneys'
fees and collection costs as may be provided by law or in any
instrument evidencing any such indebtedness or liability.
Without limiting the generality of the foregoing, Guarantor's liability
hereunder shall extend to and include all post-petition interest, expenses, and
other duties and liabilities of Borrower described above in this subsection (a),
or below in the following subsection (b), which would be owed by Borrower but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization, or similar proceeding involving Borrower.
(b) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete and full performance, when due, and no
matter how the same shall become
2
<PAGE>
due, of all obligations and undertakings of Borrower to Lender under, by reason
of, or pursuant to any of the Obligation Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantor will, forthwith upon demand by Lender, pay such Obligation in full to
Lender. If Borrower shall for any reason fail to perform promptly any
Obligation, Guarantor will, forthwith upon demand by Lender, cause such
Obligation to be performed or, if specified by Lender, provide sufficient
funds, in such amount and manner as Lender shall in good faith determine, for
the prompt, full and faithful performance of such Obligation by Lender or such
other Person as Lender shall designate.
(d) If either Borrower or Guarantor fails to pay or perform any Obligation
as described in the immediately preceding subsections (a), (b), or (c) Guarantor
will incur the additional obligation to pay to Lender, and Guarantor will
forthwith upon demand by Lender pay to Lender, the amount of any and all
expenses, including reasonable fees and disbursements of Lender's counsel and of
any experts or agents retained by Lender, which Lender may incur as a result of
such failure.
Section 3. Unconditional Guaranty.
----------------------
(a) With the exception of any gross negligence or willful misconduct by
Lender, no action which Lender may take or omit to take in connection with any
of the Obligation Documents, any of the Obligations (or any other indebtedness
owing by Borrower to Lender), or any Security, and no course of dealing of
Lender with any Obligor or any other Person, shall release or diminish
Guarantor's obligations, liabilities, agreements or duties hereunder, affect
this Guaranty in any way, or afford Guarantor any recourse against Lender,
regardless of whether any such action or inaction may increase any risks to or
liabilities of Lender or any Obligor or increase any risk to or diminish any
safeguard of any Security. Without limiting the foregoing, Guarantor hereby
expressly agrees that Lender may, from time to time, without notice to or the
consent of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in Part, any one or more
of the Obligation Documents unless Guarantor's consent or agreement
thereto is expressly required by the Obligation Document so amended,
changed or modified, and give or refuse to give any waivers or other
indulgences with respect thereto other than amendments or
modifications that would eliminate grace and notice provisions
afforded Guarantor.
(ii) Neglect, delay, fail, or refuse to take or prosecute any
action for the collection or enforcement of any of the Obligations, to
foreclose or take or prosecute any action in connection with any
Security or Obligation Document, to bring suit against any Obligor or
any other Person, or to take any other action concerning the
Obligations or the Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the time,
rate, terms, or manner for payment or performance of any one or more
of the Obligations (whether for
3
<PAGE>
principal, interest, fees, expenses, indemnifications, affirmative
or negative covenants, or otherwise); to the extent not prohibited by
the Credit Agreement.
(iv) Compromise or settle any unpaid or unperformed Obligation or
any other obligation or amount due or owing, or claimed to be due or
owing, under any one or more of the Obligation Documents.
(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations,
accept additional or substituted Security therefor, and perfect or
fail to perfect Lender's rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply to the Obligations all monies received from Obligors
under the Obligation Documents or others with respect to the
Obligations, or from any Security for any of the Obligations, as
Lender may determine to be in its best interest, without in any way
being required to marshall Security or assets or to apply all or any
part of such monies upon any particular Obligations.
(b) With the exception of any gross negligence or willful misconduct by
Lender, no action or inaction of any Obligor or any other Person, and no change
of law or circumstances, shall release or diminish Guarantor's obligations,
liabilities, agreements, or duties hereunder, affect this Guaranty in any way,
or afford Guarantor any recourse against Lender. Without limiting the foregoing,
the obligations, liabilities, agreements, and duties of Guarantor under this
Guaranty shall not be released, diminished, impaired, reduced, or affected by
the occurrence of any or all of the following from time to time, even if
occurring without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution, sale
of all or substantially all assets, marshalling of assets or
liabilities, receivership, conservatorship, assignment for the benefit
of creditors, insolvency, bankruptcy, reorganization, arrangement, or
composition of any Obligor or any other proceedings involving any
Obligor or any of the assets of any Obligor under laws for the
protection of debtors, or any discharge, impairment, modification,
release, or limitation of the liability of, or stay of actions or lien
enforcement proceedings against, any Obligor, any properties of any
Obligor, or the estate in bankruptcy of any Obligor in the course of
or resulting from any such proceedings.
(ii) The failure by Lender to file or enforce a claim in any
proceeding described in the immediately preceding subsection (i) or to
take any other action in any proceeding to which any Obligor is a
party.
(iii) The release by operation of law of any Obligor from any of
the Obligations or any other obligations to Lender.
(iv) The invalidity, deficiency or unenforceability of any of the
Obligations or the Obligation Documents, in whole or in part, any bar
by any statute of limitations or other
4
<PAGE>
law of recovery on any of the Obligations, or any defense or excuse
for failure to perform on account of force majeure, act of God,
casualty, impossibility, impracticability, or other defense or excuse
whatsoever.
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of
any Obligor or Lender.
(vi) The fact that Guarantor may have incurred directly part of
the Obligations or is otherwise primarily liable therefor.
(c) Lender may invoke the benefits of this Guaranty before pursuing any
remedies against any Obligor or any other Person and before proceeding against
any Security now or hereafter existing for the payment or performance of any of
the Obligations. Lender may maintain an action against Guarantor on this
Guaranty without joining any other Obligor therein and without bringing a
separate action against any other Obligor.
(d) If any payment to Lender by any Obligor is held to constitute a
preference or a voidable transfer under applicable state or federal laws, or if
for any other reason Lender is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such payment to Lender
shall not constitute a release of Guarantor from any liability hereunder, and
Guarantor agrees to pay such amount to Lender on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of any such payment or payments.
Any transfer by subrogation which is made as contemplated in Section 6 prior to
any such payment or payments shall (regardless of the terms of such transfer) be
automatically voided upon the making of any such payment or payments, and all
rights so transferred shall thereupon revert to and be vested in Lender.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. Waiver. Guarantor hereby waives, with respect to the
------
Obligations, this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by Borrower, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) Guarantor shall take full responsibility for
informing itself of such matters, (ii) Lender shall have no responsibility of
any kind to inform Guarantor of such matters, and (iii) Lender is hereby
authorized to assume that Guarantor, by virtue of its relationships with
Borrower which are independent of this Guaranty, has full and complete knowledge
of such matters at each time when Lender extends credit to Borrower or takes any
other action which may change or increase Guarantor's liabilities or losses
hereunder).
(b) notice that Lender, any Obligor, or any other Person has taken or
omitted to take any action under any Obligation Document or any other agreement
or instrument relating thereto or relating to any Obligation.
5
<PAGE>
(c) notice of acceptance of this Guaranty and all rights of Guarantor under
(S)34.02 of the Texas Business and Commerce Code.
(d) demand, presentment for payment, and notice of demand, dishonor,
nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. Exercise of Remedies. Lender shall have the right to enforce,
--------------------
from time to time, in any order and at Lender's sole discretion, any rights,
powers and remedies which Lender may have under the Obligation Documents or
otherwise, including judicial foreclosure, the exercise of rights of power of
sale, the taking of a deed or assignment in lieu of foreclosure, the appointment
of a receiver to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment of leases,
rentals, oil or gas production, or other properties or rights, whether real or
personal, tangible or intangible; and Guarantor shall be liable to Lender
hereunder for any deficiency resulting from the exercise by Lender of any such
right or remedy even though any rights which Guarantor may have against Borrower
or others may be destroyed or diminished by exercise of any Such right or
remedy. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Lender provided herein and in
the other Obligation Documents are cumulative and are in addition to, and not
exclusive of, any other rights, powers or remedies provided by law or in equity.
The rights of Lender hereunder are not conditional or contingent on any attempt
by Lender to exercise any of its rights under any other Obligation Document
against any Obligor or any other Person.
Section 6. Limited Subrogation. Until all of the Obligations have been
-------------------
paid and performed in full Guarantor shall have no right to exercise any right
of subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty (including any right of subrogation
under (S)34.04 of the Texas Business and Commerce Code), and Guarantor hereby
waives any rights to enforce any remedy which Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall be paid to Guarantor on account of any such subrogation or other
rights, any such other remedy, or any Security at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Lender to be held by Lender as collateral for, or then or at any
time thereafter applied in whole or in part by Lender against, all or any
portion of the Obligations, whether matured or unmatured, in such order as
Lender shall elect. If Guarantor shall make payment to Lender of all or any
portion of the Obligations and if all of the Obligations shall be finally paid
in full, Lender will, at Guarantor's request and expense, execute and deliver to
Guarantor (without recourse, representation or warranty) appropriate documents
necessary to evidence the transfer by subrogation to Guarantor of an interest in
the Obligations resulting from such payment by
6
<PAGE>
Guarantor; provided that such transfer shall be subject to Section 3(d) above
and that without the consent of Lender (which Lender may withhold in its
discretion) Guarantor shall not have the right to be subrogated to any claim or
right against any Obligor which has become owned by Lender, whose ownership has
otherwise changed in the course of enforcement of the Obligation Documents, or
which Lender otherwise has released or wishes to release from its Obligations.
Section 7. Successors and Assigns. Guarantor's rights or obligations
----------------------
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of Guarantor,
as well as Guarantor. This Guaranty shall apply to and inure to the benefit of
Lender and its successors or assigns. Without limiting the generality of the
immediately preceding sentence, Lender may assign, grant a participation in, or
otherwise transfer any Obligation held by it or any portion thereof, and Lender
may assign or otherwise transfer its rights or any portion thereof under any
Obligation Document, to any other Person, and such other Person shall thereupon
become vested with all of the benefits in respect thereof granted to Lender
hereunder unless otherwise expressly provided by Lender in connection with such
assignment or transfer.
Section 8. Subordination and Offset. Guarantor hereby subordinates and
------------------------
makes inferior to the Obligations any and all indebtedness now or at any time
hereafter owed by Borrower to Guarantor. Guarantor agrees that after the
occurrence of any Default or Event of Default it will neither permit Borrower to
repay such indebtedness or any part thereof nor accept payment from Borrower of
such indebtedness or any part thereof without the prior written consent of
Lender. If Guarantor receives any such payment without the prior written consent
of Lender, the amount so paid shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor, and shall forthwith be
paid over to Lender to be held by Lender as collateral for, or then or at any
time thereafter applied in whole or in part by Lender against, all or any
portions of the Obligations, whether matured or unmatured, in such order as
Lender shall elect. Guarantor hereby grants to Lender a right of offset to
secure the payment of the Obligations and Guarantor's obligations and
liabilities hereunder, which right of offset shall be upon any and all monies,
securities and other property (and the proceeds therefrom) of Guarantor now or
hereafter held or received by or in transit to Lender from or for the account of
Guarantor, whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special except for
escrow or trust accounts held by Guarantor for unrelated third parties), credits
and claims of Guarantor at any time existing against Lender. Upon the occurrence
of any Default or Event of Default Lender is hereby authorized at any time and
from time to time, without notice to Guarantor, to offset, appropriate and apply
any and all items hereinabove referred to against the Obligations and
Guarantor's obligations and liabilities hereunder irrespective of whether or not
Lender shall have made any demand under this Guaranty and although such
obligations and liabilities may be contingent or unmatured. Lender agrees
promptly to notify Guarantor after any such offset and application made by
Lender, provided that the failure to give such notice shall not affect the
validity of such offset and application. The rights of Lender under this section
are in addition to, and shall not be limited by, any other rights and remedies
(including other rights of offset) which Lender may have.
Section 9. Representations and Warranties. Guarantor hereby represents and
------------------------------
warrants to Lender as follows:
7
<PAGE>
(a) The Recitals at the beginning of this Guaranty are true and correct in
all respects.
(b) Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation as set forth in the
Recitals to this Guaranty; and Guarantor has all requisite power and authority
to execute, deliver and perform this Guaranty.
(c) The execution, delivery and performance by Guarantor of this Guaranty
have been duly authorized by all necessary corporate action and do not and will
not contravene its certificate or articles of incorporation or bylaws.
(d) The execution, delivery and performance by Guarantor of this Guaranty
do not and will not contravene any law or governmental regulation or any
contractual restriction binding on or affecting Guarantor or any of its
Affiliates or properties, and do not and will not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.
(e) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or other regulatory body or third party
is required for the due execution, delivery and performance by Guarantor of this
Guaranty.
(f) This Guaranty is a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights and general principles of equity.
(g) There is no action, suit or proceeding pending or, to the knowledge of
Guarantor, threatened against or otherwise affecting Guarantor before any court,
arbitrator or governmental department, commission, board, bureau, agency or
instrumentality which may materially and adversely affect Guarantor's financial
condition or its ability to perform its obligations hereunder.
(h) The direct or indirect value of the consideration received and to be
received by Guarantor in connection herewith is reasonably worth at least as
much as the liability and obligations of Guarantor hereunder, and the incurrence
of such liability and obligations in return for such consideration may
reasonably be expected to benefit Guarantor, directly or indirectly.
(i) Guarantor is not "insolvent" on the date hereof (that is, the sum of
Guarantor's absolute and contingent liabilities, including the Obligations, does
not exceed the fair market value of Guarantor's assets). Guarantor's capital is
adequate for the businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or otherwise), nor does
Guarantor intend to incur or believe that it will incur, debts which will be
beyond its ability to pay as such debts mature.
(j) All balance sheets, earning statements, financial data and other
information concerning Guarantor which have been furnished to Lender by
Guarantor to induce it to accept this Guaranty (or otherwise furnished to Lender
by Guarantor in connection with the transactions contemplated hereby or
associated herewith) fairly represent the financial condition of Guarantor as of
the dates and the results of Guarantor's operations for the periods for which
the same are furnished. None
8
<PAGE>
of such balance sheets, earnings and cash flow statements, financial data and
other information contains any untrue statement of a material fact or omits to
state any material fact which is necessary to make any statements contained
therein not misleading.
Section 10. No Oral Change. No amendment of any provision of this Guaranty
--------------
shall be effective unless it is in writing and signed by Guarantor and Lender,
and no waiver of any provision of this Guaranty, and no consent to any departure
by Guarantor therefrom, shall be effective unless it is in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 11. Invalidity of Particular Provisions. If any term or provision
------------- ---------------------
of this Guaranty shall be determined to be illegal or unenforceable all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
Section 12. Headings and References. The headings used herein are for
-----------------------
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 13. Term. This Guaranty shall be irrevocable until all of the
----
Obligations have been completely and finally paid and performed, Lender has no
obligation to make any loans or other advances to Borrower, and all obligations
and undertakings of Borrower under, by reason of; or pursuant to the Obligation
Documents have been completely performed, and this Guaranty is thereafter
subject to reinstatement as provided in Section 3(d). All extensions of credit
and financial accommodations heretofore or hereafter made by Lender to Borrower
shall be conclusively presumed to have been made in acceptance hereof and in
reliance hereon.
Section 14. Notices. Any notice or communication required or permitted
-------
hereunder shall be given as provided in the Credit Agreement.
Section 15. Limitation on Interest. Lender and Guarantor intend to
----------------------
contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantor is obligated are expressly incorporated herein by reference.
Section 16. Loan Document. This Guaranty is a Loan Document, as defined in
-------------
the Credit Agreement, and is subject to the provisions of the Credit Agreement
governing Loan Documents. Guarantor hereby ratifies, confirms and approves the
Credit Agreement and the other Loan Documents and, in particular, any provisions
thereof which relate to Guarantor.
9
<PAGE>
Section 17. Counterparts. This Guaranty may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to constitute one
and the same Guaranty.
SECTION 18. GOVERNING LAW. TILLS GUARANTY IS TO BE PERFORMED IN THE STATE
OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
NAB ASSET CORPORATION
By:/s/ MICHAEL W. CATON
---------------------------------------
Name: Michael W. Caton
Title: President
10
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT made as of December 1, 1996, by and between NAB ASSET CORPORATION,
a Texas corporation (the "COMPANY"), and MICHAEL W. CATON whose address is 20
Chelsea Point, Monarch Beach, CA 92629 (the "EMPLOYEE").
WITNESSETH
WHEREAS, the Employee is currently serving as President and Chief Operating
Officer of the Company; and
WHEREAS, the Company desires to continue to enjoy the benefits of the
Employee's managerial services upon the terms and conditions set forth in this
Agreement, and the Employee is willing to continue to provide such services on
such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement the parties agree as follows:
THE PROVISIONS OF SECTIONS 1 THROUGH 6 OF THIS AGREEMENT ARE SUBJECT TO THE
PROVISIONS OF SECTION 7 HEREOF.
SECTION 1. TERM OF EMPLOYMENT.
- -----------------------------
Subject to the terms and provisions of Section 6, the Company shall employ
the Employee, and the Employee accepts employment by the Company, on the terms
and conditions contained in this Agreement for a period commencing on the date
hereof and ending on June 30, 1999 (the "EMPLOYMENT PERIOD").
SECTION 2. DUTIES: ETC.
- ----------------------
The Employee shall serve as the Company's President and Chief Operating
Officer and shall perform such services and duties for the Company consistent
with such position as the Board of Directors of the Company or its designee may
reasonably assign or delegate to him from time to time, and, subject to
Section 6, he shall serve as such during the Employment Period unless and until
the Board of Directors of the Company removes him from such position prior
thereto. The Employee shall also serve, if elected, as a director of the Company
without additional compensation. The Employee also agrees to serve, if elected
or appointed, as a managerial employee, officer and/or director of (i) any
corporation which is the surviving corporation of any merger or consolidation
involving the Company or otherwise becomes a successor to the Company (a
"SUCCESSOR"), (ii) any corporation which is or becomes a subsidiary of the
Company (a "SUBSIDIARY"), (iii) any corporation which owns 80% or more of the
common stock of the Company (a "PARENT") and/or (iv) any division of a
Successor or a Subsidiary or a Parent, all without additional compensation.
The
<PAGE>
Employee shall devote his entire time, energy and skill during regular business
hours to the affairs of the Company (and/or any Successor, Parent or Subsidiary)
and to the promotion of their interests.
SECTION 3. COMPENSATION: BENEFITS: BONUS
- ----------------------------------------
(a) SALARY. As full compensation for his services and covenants under this
Agreement and subject to the provisions of Section 6, the Company shall pay the
employee a salary at the following annual rates during the Employment Period:
<TABLE>
<CAPTION>
Period Annual Salary Rate
----------------- ------------------
<S> <C>
11/01/96-12/31/96 $160,000
01/01/97-12/31/97 $185,000
01/01/98-06/30/99 $210,000
</TABLE>
The annual salary rates specified above may be increased at the discretion
of the Company's Board of Directors depending upon the size of and scope of the
operations of the Company and its subsidiaries. Such salary shall be payable in
accordance with the Company's regular payroll practices for its full-time
managerial employees, prorated for any partial month, but no less frequently
than monthly.
(b) BENEFITS. (i) Subject to Section 6, the Company shall provide the
following benefits to the Employee during the Employment Period:
(A) The Company shall include the Employee in any group medical,
health and dental insurance coverages which may hereafter be adopted and
maintained from time to time by the Company for its full-time managerial
employees, such participation to be upon the same terms and conditions as
apply generally to such employees.
(B) The Employee shall be entitled to participate and be included in
any pension, profit-sharing, "401K" or other retirement plan which may
hereafter be adopted and maintained from time to time by the Company for the
benefit of its full-time managerial employees, such participation to be
upon the same terms and conditions as apply generally to such employees.
As of the date of this Agreement, the Company has no such plans in effect.
(C) The Employee shall be entitled to participate in and be included
in any long-term disability plan which may hereafter be adopted and
maintained from time to time by the Company for the benefit of its full-time
managerial employees, such participation to be upon the same terms and
conditions as apply generally to such employees. As of the date of this
Agreement, the Company has no such plan in effect.
2
<PAGE>
(D) The Employee shall be entitled to vacation, with pay, of 15
working days per year (up to five of which may be carried forward to the
next year) and to such holidays and similar rights and privileges as are
enjoyed generally in accordance with policies and practices established from
time to time by the Company.
(E) The Company shall pay the Employee the sum of $550 per month as
car allowance. The Company shall not be responsible for any costs or
expenses associated with the Employee's car, it being understood that the
same are the Employee's responsibility.
(F) The Employee shall be entitled to participate in other employee
benefits which hereafter may be provided by the Company for its full-time
managerial employees, such participation to be on the same terms and
conditions as apply generally to such employees, except that the Employee
shall not be entitled to participate in any stock option, bonus or incentive
compensation plan or arrangement, except as otherwise provided in this
Agreement or in any other agreement in writing between the Company and the
Employee.
(ii) If any benefits provided by the Company to the Employee are determined
to constitute, in whole or in part, taxable income to him, then, in such case,
the Company shall be entitled to withhold from the Employee's salary such
additional amounts in respect thereof as are required to be withheld therefrom
by applicable law.
(c) EXPENSE REIMBURSEMENT. The Company will reimburse the Employee for all
---------------------
documented expenses that he properly and reasonably incurs during the Employment
Period in the performance of his duties under this Agreement to the extent that
such expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company for federal income tax purposes and are
substantiated by the Employee as required by the Internal Revenue Service.
SECTION 4. BONUS: LONG-TERM DEFERRED INCENTIVE PLAN.
- ---------------------------------------------------
(a) BONUS. The Employee shall be eligible to receive a bonus in respect of
-----
each fiscal year of the Company during the Employment Period in an amount up to
50% of his salary for such year. One-half of bonus will be based upon actual
performance of the Company as measured against its annual budget approved by the
Company's Board of Directors. The remaining portion of the bonus will be based
upon other factors in the discretion of the Board of Directors.
3
<PAGE>
(b) LONG TERM DEFERRED INCENTIVE PLAN.
----------------------------------
(i) As used in this Section 4(b), the following terms have the following
meanings:
"Cost Basis" means, with respect to an Equity Interest in a
Subsidiary, the sum of (A) the aggregate amount paid by the Company or
any other Subsidiary to purchase such Equity Interest on or prior to
the Determination Date plus (B) the amount of all contributions to the
capital of such Subsidiary made by the Company and/or any other
Subsidiary on or prior to the Determination Date.
"Determination Date" means the earlier to occur of (A) June 30, 2001
or (B) the end of the calender month next preceding the calender month
in which the Employee's employment with the Company terminates.
"Economic Incentive Value" means, with respect to an Equity
Interest, the amount obtained by subtracting (A) the Cost Basis of such
Equity Interest from (B) the fair market value of such Equity Interest
as of the Determination Date determined in accordance with Section
4(b)(ii). Economic Incentive Value maybe a negative number.
"Equity Interest" means, with respect to any Subsidiary, all of the
shares of the capital stock of such Subsidiary which are owned by the
Company or any other Subsidiary on the Determination Date.
"LTDIP Amount" means an amount equal to five percent (5%) of the sum
of the Economic Incentive Values of all Equity Interests.
"Payment Dates" means June 30, 2002; June 30, 2003; and June 30,
2004.
"Subsidiary" means a corporation a majority of whose voting stock is
owned by the Company directly or indirectly on the Determination Date.
(ii) If the Company is obligated to pay the LTDIP Amount to the Employee
pursuant to Section 4(b)(iii), the fair market value of each Equity Interest
shall be determined in good faith by the Company's Board of Directors and
provided to the Employee in writing (the "DETERMINATION NOTICE") within 9O days
after the Determination Date. The Determination Notice shall also set forth the
LTDIP Amount as determined by the Board of Directors and the calculation
thereof. If the Employee objects to the fair market value of any Equity Interest
proposed in the Determination Notice (each item so objected to being herein
referred to as "Disputed Value Amount"), he shall give notice thereof in writing
(the "OBJECTION NOTICE") to the Company within 30 days after the Determination
Notice is given. The Objection Notice shall identify each Disputed Value Amount,
set forth the Employee's basis
4
<PAGE>
for objecting thereto, state the amount proposed by the Employee for such fair
market value and his calculations thereof. If the Employee fails to give an
Objection Notice within such 30-day period, the Board's determination as set
forth in the Determination Notice shall be deemed to be accepted and agreed to
by the Employee in its entirety, and it shall be binding on the parties. If the
Employee gives an Objection Notice, and if the parties are unable to reach
agreement on all Disputed Value Amounts within 30 days thereafter, then, in such
case, the fair market value of each Equity Interest which then remains in
dispute shall be determined in writing (the "VALUATION REPORT") by a nationally
recognized investment firm (the "VALUATION FIRM") which is engaged in the
valuation of businesses and their securities. The Valuation Firm shall be
selected by the Company's Board of Directors. If the Valuation Firm determines
that the fair market value of any Equity Interest which is in dispute is greater
than the fair market value thereof specified in the Determination Notice, then,
in such case, the Company shall pay the fees and costs of such determination by
the Valuation Firm. If the Valuation Firm determines that the fair market value
of an Equity Interest which then remains in dispute is equal to or less than the
fair market value thereof specified in the Determination Notice, the Employee
shall be obligated to reimburse the Company on demand for the entire amount of
the fees and costs of such determination by the Valuation Firm. The Company
shall be entitled, but not obligated, to collect any such reimbursement
obligation of the Employee by offset against the Company's payment obligations
under Section 4(b) (iii) in the order of their maturity. The determination of
the fair market value of any Equity Interest set forth in the Valuation Report
shall be conclusive and binding on the parties. The Company shall provide the
Employee with a copy of the Valuation Report promptly upon its receipt thereof.
(iii) On each of the Payment Dates, the Company shall pay to the Employee an
amount equal to one-third of the LTDIP Amount; provided, however, that the
--------- -------
Company shall not be obligated to pay, and the Employee shall not be entitled to
receive payment of, any LTDIP Amount if prior to June 30, 2001 his employment
with the Company is terminated for "cause" (as defined in Section 6(b)) or by
his resignation.
SECTION 5. LOYALTY. NON-COMPETITION AND CONFIDENTIALITY.
- --------------------------------------------------------
(a) NON-COMPETITION. The Employee agrees and covenants that, except for the
---------------
benefit of the Company (and/or any Successor, Parent or Subsidiary) during the
Non-Competition Period (as defined in Section 5(b)) he will not engage, directly
or indirectly (whether as officer, director, consultant, employee,
representative, agent, partner, owner, stockholder or otherwise), in any
business engaged in by the Company in the Non-Competition Area (as defined on
Section 5(c)). It is the parties express intention that if a court of competent
jurisdiction finds or holds the provisions of this Section 5(a) to be
excessively broad as to time, duration, geographical scope, activity or subject,
this Section 5(a) shall then be construed by limiting or reducing it so as to
comport with then applicable law.
5
<PAGE>
(b) NON-COMPETITION PERIOD. As used herein, the term "Non-Competition
----------------------
Period" means the period beginning on the date hereof and ending on a date which
is two years after the later to occur of (i) the date on which the Employment
Period ends or (ii) the date on which the Employee's employment with the Company
terminates (whether before or after the end of the Employment Period); provided,
---------
however, that if the Employee's employment is terminated by the Company without
- -------
"cause" pursuant to Section 6(a)(ii), the Non-Competition Period shall end on
the date of such termination.
(c) NON-COMPETITION AREA. As used herein, the term "Non-Competition Area"
--------------- ----
means anywhere in the United States of America.
(d) OTHER EMPLOYEES. The Employee agrees that during the Non-Competition
----- ---------
Period he shall not, directly or indirectly, for his own account or as agent,
servant or employee of any business entity, engage, hire or offer to hire or
entice away in any other manner persuade or attempt to persuade any officer,
employee, or agent of the Company or any Subsidiary to discontinue his or her
relationship with the Company or any Subsidiary.
(e) CONFIDENTIALITY. THE Employee acknowledges that he has learned and will
---------------
learn Confidential Information, as defined in Section 5(f), relating to the
business of the Company. The Employee agrees that he will not, except in the
normal and proper course of his duties, disclose or use or enable anyone else to
disclose or use, either during the Non-Competition Period or subsequently
thereto, any such Confidential Information without prior written approval of the
Board of Directors of the Company.
(f) CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" shall include, but
------------------------
not be limited to, the following types of information and regarding the Company:
corporate information, including contractual arrangements, plans, strategies,
tactics, policies, resolutions, copyrights and patent applications, and any
litigation or negotiations; marketing information, including sales or product
plans, strategies, tactics, methods, customers, prospects, or market research
data; financial information, including cost and performance data, debt
arrangement, equity structure, investors, and holdings; operational information,
including trade secrets, secret formulae, control and inspection practices,
credit evaluation criteria, servicing and collection methods and techniques and
personal information, including personnel lists, resumes, personal data,
organizational structure and performance evaluations. Confidential Information
is limited to that information which is not generally known in the industries in
which the Company or any Subsidiary operates, and does not include skills,
knowledge, and experience acquired by the Employee during his employment with
the Company or any prior employer.
(g) CORPORATE DOCUMENTS. The Employee agrees that all documents of any
-------------------
nature pertaining to activities of the Company or to any of the foregoing
matters in his possession now or at any time during the Non-Competition Period,
including, without limitation,
6
<PAGE>
memoranda, notebooks, notes, data sheets, records and blueprints, are and shall
be the property of the Company and that they and all copies of them shall be
surrendered to the Company whenever requested by the Company from time to time
during the Non-Competition Period or thereafter and with or without request upon
termination of the Employee's employment with the Company.
(h) EQUITABLE REMEDIES. In the event of a breach by the Employee of
------------------
any of the provisions of this Section 5, the Company, in addition to any other
remedies it may have, shall be entitled to an injunction restraining the
Employee from doing or continuing to do any such act in violation of this
Section 5.
SECTION 6. TERMINATION OF EMPLOYMENT
- ------------------------------------
(a) The Employee's employment as provided in Section 1 may be terminated by
the Company at any time:
(i) for "cause" in accordance with Section 6(b);
(ii) without "cause" , or
(iii) upon the failure by the Employee to fully perform his duties under
this Agreement for an aggregate of 9O days (exclusive of vacation days and
up to 14 "sick days" per year) or more during any consecutive 12-month
period by reason of illness or physical or mental disability.
(b) The Company shall be entitled to terminate the employment of the
Employee for "cause" if (i) the Employee grossly neglects or willfully fails or
refuses to perform fully his duties and obligations under this Agreement,
(ii) he violates or breaches any of his covenants in Section 5 hereof, (iii) he
is convicted of a felony or crime involving moral turpitude, (iv) he commits any
fraudulent or dishonest act that results in material injury to the Company or
any Subsidiary or Parent, (v) he suffers from drug addition or alcohol abuse to
such extent that, in the reasonable and good faith judgment of the Board of
Directors, his ability to perform his duties hereunder is materially impaired,
(vi) he makes defamatory or derogatory remarks, orally or in writing, about the
Company, (excluding remarks made in good faith to senior officers or directors
of the Company for proper business purposes such as, for example, improving
operations, increasing sales, etc.) or (vii) he wilfully fails to follow the
instructions of the Board of Directors of the Company or the instructions of
persons reasonably designated by the Board to issue instructions to him relating
to the performance of his duties to the Company.
7
<PAGE>
(c) In the event that the Employee resigns his employment with the Company
or if his employment is terminated for "cause" pursuant to Sections 6(a)(i) and
6(b), (i) the Company's obligation to pay him salary and provide him benefits
hereunder shall cease as of the date of termination except for unpaid salary
earned prior thereto and except, in the case of health insurance, to the extent
otherwise required by applicable law, (ii) the Company shall not be obligated to
pay the Bonus, if any, or any portion thereof in respect of the fiscal year of
termination or any subsequent fiscal year and (iii) the Company shall be
entitled to such relief and remedies as may be available to it at law and/or in
equity.
(d) In the event that the Employee's employment with the Company is
terminated by reason of the death of the Employee, then, in such case, the
Company shall (i) subject to Section 6(g), continue the health insurance
coverage (if any is in effect on the date of death) provided by the Company for
the Employee's dependents (if the Company is providing such coverage for such
dependents on the date of death) for the period required by applicable law
(provided, however, that if the Company terminates such health insurance
-------- -------
coverage, if any, for its employees or their dependents generally, the Company
may discontinue such coverage for such dependents on the date of such general
termination), (ii) within 9O days after the end of the fiscal year in which his
death occurs, pay to the Employee's spouse (or his estate if there be no
surviving spouse) that portion of the Bonus, if any, for such fiscal year which
is determined by multiplying the full amount of such bonus (calculated as if the
Employee were an employee hereunder for the entire fiscal year) by a fraction
the denominator of which is 365 and the numerator of which is the number of days
in the period from the beginning of such fiscal year to the date of death, and
(iii) the Company shall not be obligated to provide or continue to provide any
other benefits or compensation.
(e) In the event that the Company terminates the employment of the Employee
without "cause" pursuant to Section 6(a) (ii), then subject to Sections 6(g) and
6(h), the Company shall (i) continue the health insurance coverage (if any is in
effect on the date of termination) provided by the Company for the Employee and
for the Employee's dependents (if the Company is providing such coverage for
such dependents on the date of termination) for the period required by
applicable law (provided, however, that if the Company terminates such health
--------- -------
insurance coverage, if any, for its employees or their dependents generally, the
Company may discontinue such coverage for the Employee and his dependents on the
date of such general termination), (ii) continue to pay the Employee the salary
provided for in Section 3(a) for a period ending on the later to occur of (A)
June 30, 1999 and (B) a date which is the first anniversary of the date of such
termination and (iii) within 9O days after the end of the fiscal year in which
such termination occurs, pay to the Employee that portion of the Bonus, if any,
for such fiscal year which is determined by multiplying the full amount of such
bonus (calculated as if the Employee were an employee hereunder for the entire
fiscal year) by a fraction the denominator of which is 365 and the numerator of
which is the number of days in the period from the beginning of the fiscal year
to the date of termination. After any termination pursuant to this Section 6(e),
the Company shall not be obligated to
8
<PAGE>
provide any benefits to the Employee or his dependents other than health
insurance in accordance with the foregoing provisions of this Section 7(e).
(f) In the event that the Company terminates the employment of the Employee
pursuant to Section 6 (a)(iii) by reason of the disability of the Employee,
subject to Sections 6(g) and 6(h), the Company shall (i) continue the health
insurance coverage (if any is in effect on the date of termination) provided by
the Company for the Employee and his dependents (if the Company is providing
such coverage to such dependents on the date of termination) for the period
required by applicable law (provided, however, that if the Company terminates
--------- -------
such health insurance coverage, if any, for its employees or their dependents
generally, the Company may discontinue such coverage for the Employee and his
dependents on the date of such general termination), (ii) continue to pay to the
Employee the salary provided for in Section 3(a) for a period ending on the
later to occur of (A) June 30, 1999 and (B) a date which is the first
anniversary of the date of termination and (iii) within 9O days after the end of
the fiscal year in which such termination occurs, pay to the Employee that
portion of the Bonus, if any, for such fiscal year which is determined by
multiplying the full amount of the Bonus (calculated as if the Employee were an
employee hereunder for the entire fiscal year) by a fraction the denominator of
which is 365 and the numerator is which is the number of days in the period from
the beginning of such fiscal year to the date of termination. The Company's
obligation to make salary continuation payments under this Section 6(f) shall be
reduced dollar-for-dollar by any benefits which the Employee receives under any
policy of disability insurance for which the Company has paid the premiums
(directly or indirectly).
(g) Notwithstanding any of the foregoing provisions of this Section 6
requiring that the Company provide health insurance coverage to the Employee
and/or his dependents after the date of termination of employment, the Company
shall not be obligated to provide such coverage (and shall not be in breach
hereof for failing to provide the same) if the Employee or his dependents are
not eligible for such continued coverage under the terms of the applicable
insurance policies or the rules of the insurer.
(h) If, pursuant to this Section 6, the Company becomes obligated to make
salary continuation payments to the Employee after the termination of his
employment, the Company shall be entitled to make such payments in installments
in accordance with the Company's regular payroll practices for its full-time
managerial employees, prorated for any partial month. Any continuation of salary
provided for in this Section 6 shall be offset dollar-for-dollar by any salary
and/or other compensation received or earned by the Employee during the period
of salary continuation for services rendered by him as an employee, consultant
or otherwise to any person, corporation or other entity.
9
<PAGE>
(i) The Company's obligations to the Employee with respect to the Long Term
Deferred Incentive Plan after termination of employment are governed by the
provisions of Section 4(b) and not by the provisions of Sections 6(a) through
6(h).
SECTION 7. LEASING ARRANGEMENT.
- -------------------------------
(a) As of the date hereof, the Employee is an employee of Staff Leasing,
Inc. ("SLI") and is providing the services described in Section 1 to the Company
(on a full-time basis) pursuant to a lease agreement between SLI and the Company
(the "Lease Agreement"). The Employee receives his compensation and benefits
directly from SLI. He receives no compensation or benefits directly from the
Company. In effect, the Company is leasing the Employee's services from SLI and
is making lease payments to SLI for the same.
The Company entered into the Lease Agreement upon the recommendation and at
the request of the Employee. The terms of the Lease Agreement were negotiated by
the Employee. The salary, benefits and other compensation provided by SLI to the
Employee are comparable to the salary, benefits and other compensation provided
for in Section 3, and it is the intention of the parties that such comparability
shall continue for so long as the Lease Agreement is in effect.
(b) For so long as the Lease Agreement is in effect, the Company shall have
no obligation to pay any salary, benefits or other compensation directly to the
Employee pursuant to Section 3 (and shall have no payroll related obligations in
respect thereof), and the Employee shall look solely to SLI for the payment or
provision thereof. The Company's only obligation in respect thereof shall be to
make the lease payments to SLI under the Lease Agreement in amounts sufficient
to support the contemplated salary, benefits and other compensation to be paid
or provided to the Employee. Further, the Company shall have no liability or
obligation to the Employee in the event that it is determined at any time that
the salary or benefits paid or provided to the Employee are less than, or less
favorable to the Employee, than those contemplated by Section 3, it being
understood and agreed that the Employee has negotiated the terms of the Lease
Agreement and the terms of his compensation from SLI. The Employee shall be
responsible for ensuring that the terms of the leasing arrangement with SLI
provide him with salary benefits and other compensation comparable to those
provided for in Section 3.
(c) The Company shall have the right at any time to terminate the Lease
Agreement and thereafter to (i) employ the Employee directly in accordance with
the terms of this Agreement (other than the terms of this Section 8) or
(ii) employ the Employee indirectly through another leasing company provided
that the salary, benefits and other compensation provided by such other leasing
company are at all times comparable to those provided for in Section 3.
10
<PAGE>
(d) Except to the extent otherwise provided in this Section 8, all of the
terms and provisions of this Agreement shall apply and be effective regardless
of whether the Employee is employed indirectly through SLI (or any replacement
leasing company) or directly, except that in the event of a termination of the
Employee's direct or indirect employment with the Company at a time when the
Employee is indirectly employed (through SLI or any replacement leasing
company), the Company shall have the option of satisfying its obligations under
Section 6 directly or through SLI or any replacement leasing company and except
that the Company shall have the option of satisfying any other payment
obligations under this Agreement directly or through SLI (for so long as the
Lease Agreement is in effect) or any replacement leasing company. Without
limiting the generality of the preceding sentence, for purposes of this
Agreement only and for purposes of determining the rights and obligations of the
parties hereunder, the Employee shall be deemed to be an employee of the Company
at all times during which he renders the services provided for in Section 1
whether he renders such services as a direct employee of the Company of as an
employee of SLI pursuant to the Lease Agreement or as an employee of any
replacement leasing company.
SECTION 8. SUCCESSORS, ASSIGNS, ETC.
- -----------------------------------
This Agreement shall be binding upon and shall inure to the benefit of the
Company and its successors and assigns (including without limitation any
successor by merger). This Agreement shall be binding upon the Employee and
shall inure to his benefit and to the benefit of his heirs, executors,
administrators and legal representatives, but his duties hereunder shall not be
assignable or delegable by the Employee.
SECTION 9. ENTIRE AGREEMENT: AMENDMENT.
- --------------------------------------
The Agreement constitutes the entire agreement between the Company and the
Employee relating to his employment and the additional matters herein provided
for. This Agreement may be amended or altered only by the written agreement of
the Company and the Employee. This Agreement supersedes all prior agreements, if
any, whether written or oral, between the Employee and the Company relating to
the employment of the Employee, and all such prior agreements, if any, are
hereby terminated and of no further force and effect.
SECTION 10. NOTICES.
- -------------------
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if hand delivered or mailed by first class registered or certified mail,
return receipt requested, postage and registry fees prepaid, addressed as
follows: if to the Company, at 19200 Von Karman
11
<PAGE>
Avenue, Suite 950, Irvine, California 93612, Attention: Chairman of the Board,
or if to the Employee, at the address first set forth above, or to such other
address as may have been furnished to the Company by the Employee as herein
provided in writing. Such addresses may be changed by notice in writing to the
other party as aforesaid.
SECTION 11. APPLICABLE LAW: SEVERABILITY.
- -----------------------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without regard to principles of conflicts of
laws. Each provision of this Agreement is severable from the others, and if any
provision hereof shall be to any extent unenforceable it and the other
provisions hereof shall continue to be enforceable to the full extent
allowable. This Agreement may be executed in multiple counterparts each of which
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the Employee has executed this Agreement and the Company
has caused this Agreement to be executed on its behalf by its duly authorized
officer, as of the day and year first above written.
THE COMPANY: THE EMPLOYEE:
NAB ASSET CORPORATION
By: /s/ CHARLES B. BRADLEY /s/ MICHAEL W. CATON
---------------------------------- -----------------------------------
Charles B. Bradley Michael W. Caton
Chairman of the Board
12
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
AGREEMENT made as of December 1 , 1996, by and between MORTGAGE PORTFOLIO
SERVICES, INC., a Delaware corporation (the "COMPANY"), and JAMES E. HINTON
whose address is 5420 Hilton Head Drive, Dallas TX 75287, Texas (the
"EMPLOYEE").
W I T N E S S E T H
WHEREAS, the Employee is currently serving as President and Chief Executive
Officer of the Company; and
WHEREAS, the Company desires to continue to enjoy the benefits of the
Employee's managerial services upon the terms and conditions set forth in this
Agreement, and the Employee is willing to continue to provide such services on
such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement the parties agree as follows:
THE PROVISIONS OF SECTIONS 1 THROUGH 6 OF THIS AGREEMENT ARE SUBJECT TO THE
PROVISIONS OF SECTION 7 HEREOF.
SECTION 1. TERM OF EMPLOYMENT.
- ------------------------------
Subject to the terms and provisions of Section 6, the Company shall employ
the Employee, and the Employee accepts employment by the Company, on the terms
and conditions contained in this Agreement for a period commencing on the date
hereof and ending on March 18, 1999 (the "Employment Period").
SECTION 2. DUTIES; ETC.
- -----------------------
The Employee shall serve as the Company's President and Chief Executive
Officer and shall perform such services and duties for the Company consistent
with such position as the Board of Directors of the Company or its designee may
reasonably assign or delegate to him from time to time, and, subject to Section
6, he shall serve as such during the Employment Period unless and until the
Board of Directors of the Company removes him from such position prior thereto.
The Employee shall also serve, if elected, as a director of the Company without
additional compensation. The Employee also agrees to serve, if elected or
appointed, as a managerial employee, officer and/or director of (i) any
corporation which is the surviving corporation of any merger or consolidation
involving the Company or otherwise becomes a successor to the Company (a
"Successor"), (ii) any corporation which becomes a subsidiary of the Company (a
"Subsidiary"), (iii) any corporation which owns 80% or more of the common stock
of the Company (a "PARENT") and/or (iv) any division of a Successor or a
Subsidiary or a Parent, all without additional compensation. The Employee
<PAGE>
shall devote his entire time, energy and skill during regular business hours to
the affairs of the Company (and/or any Successor, Parent or Subsidiary) and to
the promotion of their interests.
SECTION 3. COMPENSATION; BENEFITS.
- ----------------------------------
(a) SALARY. As full compensation for his services and covenants under this
------
Agreement and subject to the provisions of Section 6, the Company shall pay the
employee a salary at the rate of One Hundred Seventy Five Thousand Dollars
($175,000) per year during the Employment Period, which salary shall be reviewed
on March 18 of each year during the Employment Period and adjusted at the
discretion of the Board of Directors. Such salary shall be payable in accordance
with the Company's regular payroll practices for its full-time managerial
employees, prorated for any partial month, but no less frequently than monthly.
(b) BENEFITS. (i) Subject to Section 6, the Company shall provide the
--------
following benefits to the Employee during the Employment Period:
(A) The Company shall include the Employee in any group medical,
health and dental insurance coverages which may hereafter be adopted and
maintained from time to time by the Company for its full-time managerial
employees, such participation to be upon the same terms and conditions as
apply generally to such employees.
(B) The Employee shall be entitled to participate and be included in
any pension, profit-sharing, "401K" or other retirement plan which may
hereafter be adopted and maintained from time to time by the Company for the
benefit of its full-time managerial employees, such participation to be upon
the same terms and conditions as apply generally to such employees. As of
the date of this Agreement, the Company has no such plans in effect.
(C) The Employee shall be entitled to participate in and be included
in any long-term disability plan which may hereafter be adopted and
maintained from time to time by the Company for the benefit of its full-time
managerial employees, such participation to be upon the same terms and
conditions as apply generally to such employees. As of the date of this
Agreement, the Company has no such plan in effect.
(D) The Employee shall be entitled to vacation, with pay, of 15
working days per year (up to five of which may be carried forward to the
next year) and to such holidays and similar rights and privileges as are
enjoyed generally in accordance with policies and practices established from
time to time by the Company.
(E) The Company shall pay the Employee the sum of $550 per month as
car allowance. The Company shall not be responsible for any costs or
expenses associated
2
<PAGE>
with the Employee's car, it being understood that the same are the
Employee's responsibility.
(F) The Employee shall be entitled to participate in other employee
benefits which hereafter may be provided by the Company for its full-time
managerial employees, such participation to be on the same terms and
conditions as apply generally to such employees, except that the Employee
shall not be entitled to participate in any stock option, bonus or incentive
compensation plan or arrangement, except as otherwise provided in this
Agreement or in any other agreement in writing between the Company and the
Employee.
(ii) If any benefits provided by the Company to the Employee are determined
to constitute, in whole or in part, taxable income to him, then, in such case,
the Company shall be entitled to withhold from the Employee's salary such
additional amounts in respect thereof as are required to be withheld therefrom
by applicable law.
(c) EXPENSE REIMBURSEMENT. The Company will reimburse the Employee for all
---------------------
documented expenses that he properly and reasonably incurs during the Employment
Period in the performance of his duties under this Agreement to the extent that
such expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company for federal income tax purposes and are
substantiated by the Employee as required by the Internal Revenue Service.
SECTION 4. BONUS.
- ----------------
The Company may, in its discretion, award and pay to the Employee a bonus
(the "Bonus") in respect of any fiscal year if the same is approved by the Board
of Directors on the recommendation of the Chairman of the Board.
SECTION 5. LOYALTY, NON-COMPETITION AND CONFIDENTIALITY.
- --------------------------------------------------------
(a) NON-COMPETITION. The Employee agrees and covenants that, except for the
---------------
benefit of the Company (and/or any Successor, Parent or Subsidiary) during the
Non-Competition Period (as defined in Section 5(b)) he will not engage, directly
or indirectly (whether as officer, director, consultant, employee,
representative, agent, partner, owner, stockholder or otherwise), in the
business of originating and servicing sub-prime residential mortgage loans in
the Non-Competition Area (as defined on Section 5(c)). It is the parties express
intention that if a court of competent jurisdiction finds or holds the
provisions of this Section 5(a) to be excessively broad as to time, duration,
geographical scope, activity or subject, this Section 5(a) shall then be
construed by limiting or reducing it so as to comport with then applicable law.
3
<PAGE>
(b) NON-COMPETITION PERIOD. As used herein, the term "Non-Competition
----------------------
Period" means the period beginning on the date hereof and ending on a date which
is two years after the later to occur of (i) the date on which the Employment
Period ends or (ii) the date on which the Employee's employment with the Company
terminates (whether before or after the end of the Employment Period); provided,
---------
however, that if the Employee's employment is terminated by the Company without
- -------
"cause" pursuant to Section 6(a)(ii), the Non-Competition Period shall end on
the date of such termination.
(c) NON-COMPETITION AREA. As used herein, the term "Non-Competition Area"
--------------------
means anywhere in the United States of America.
(d) OTHER EMPLOYEES. The Employee agrees that during the Non-Competition
---------------
Period he shall not, directly or indirectly, for his own account or as agent,
servant or employee of any business entity, engage, hire or offer to hire or
entice away in any other manner persuade or attempt to persuade any officer,
employee, or agent of the Company or any Subsidiary to discontinue his or her
relationship with the Company or any Subsidiary.
(e) CONFIDENTIALITY. The Employee acknowledges that he has learned and will
---------------
learn Confidential Information, as defined in Section 5(f), relating to the
business of the Company. The Employee agrees that he will not, except in the
normal and proper course of his duties , disclose or use or enable anyone else
to disclose or use, either during the Non-Competition Period or subsequently
thereto, any such Confidential Information without prior written approval of the
Board of Directors of the Company.
(f) CONFIDENTIAL INFORMATION. "Confidential Information" shall include, but
------------------------
not be limited to, the following types of information and regarding the Company:
corporate information, including contractual arrangements, plans, strategies,
tactics, policies , resolutions, copyrights and patent applications, and any
litigation or negotiations; marketing information, including sales or product
plans, strategies, tactics, methods, customers, prospects, or market research
data; financial information, including cost and performance data, debt
arrangement, equity structure, investors, and holdings; operational information,
including trade secrets, secret formulae, control and inspection practices,
credit evaluation criteria, servicing and collection methods and techniques and
personal information, including personnel lists, resumes, personal data,
organizational structure and performance evaluations. Confidential Information
is limited to that information which is not generally known in the industries in
which the Company or any Subsidiary operates, and does not include skills,
knowledge, and experience acquired by the Employee during his employment with
the Company or any prior employer.
(g) CORPORATE DOCUMENTS. The Employee agrees that all documents of any
-------------------
nature pertaining to activities of the Company or to any of the foregoing
matters in his possession now or at any time during the Non-Competition Period,
including, without limitation,
4
<PAGE>
memoranda, notebooks, notes, data sheets, records and blueprints, are and shall
be the property of the Company and that they and all copies of them shall be
surrendered to the Company whenever requested by the Company from time to time
during the Non-Competition Period or thereafter and with or without request upon
termination of the Employee's employment with the Company.
(h) EQUITABLE REMEDIES. In the event of a breach by the Employee of any of
------------------
the provisions of this Section 5, the Company, in addition to any other remedies
it may have, shall be entitled to an injunction restraining the Employee from
doing or continuing to do any such act in violation of this Section 5.
SECTION 6. TERMINATION OF EMPLOYMENT
- ------------------------------------
(a) The Employee's employment as provided in Section 1 may be terminated by
the Company at any time:
(i) for "cause" in accordance with Section 6(b);
(ii) without "cause" , or
(iii) upon the failure by the Employee to fully perform his duties under
this Agreement for an aggregate of 9O days (exclusive of vacation days and
up to 14 "sick days" per year) or more during any consecutive 12-month
period by reason of illness or physical or mental disability.
(b) The Company shall be entitled to terminate the employment of the
Employee for "cause" if (i) the Employee grossly neglects or willfully fails or
refuses to perform fully his duties and obligations under this Agreement,
(ii) he violates or breaches any of his covenants in Section 5 hereof, (iii) he
is convicted of a felony or crime involving moral turpitude, (iv) he commits any
fraudulent or dishonest act that results in material injury to the Company or
any Subsidiary or Parent, (v) he suffers from drug addiction or alcohol abuse to
such extent that, in the reasonable and good faith judgment of the Board of
Directors, his ability to perform his duties hereunder is materially impaired,
(vi) he makes defamatory or derogatory remarks, orally or in writing, about the
Company, (excluding remarks made in good faith to senior officers or directors
of the Company for proper business purposes such as, for example, improving
operations, increasing sales, etc.) or (vii) he wilfully fails to follow the
instructions of the Board of Directors of the Company or the instructions of
persons reasonably designated by the Board to issue instructions to him relating
to the performance of his duties to the Company.
(c) In the event that the Employee resigns his employment with the Company
or if his employment is terminated for "cause" pursuant to Sections 6(a)(i) and
6(b), (i) the
5
<PAGE>
Company's obligation to pay him salary and provide him benefits hereunder shall
cease as of the date of termination except for unpaid salary earned prior
thereto and except, in the case of health insurance, to the extent otherwise
required by applicable law, (ii) the Company shall not be obligated to pay the
Bonus, if any, or any portion thereof in respect of the fiscal year of
termination or any subsequent fiscal year and (iii) the Company shall be
entitled to such relief and remedies as may be available to it at law and/or in
equity.
(d) In the event that the employee's employment with the Company is
terminated by reason of the death of the Employee, then, in such case, the
Company shall (i) subject to Section 6(g), continue the health insurance
coverage (if any is in effect on the date of death) provided by the Company for
the Employee's dependents (if the Company is providing such coverage for such
dependents on the date of death) for the period required by applicable law
(provided, however, that if the Company terminates such health insurance
- ---------- -------
coverage, if any, for its employees or their dependents generally, the Company
may discontinue such coverage for such dependents on the date of such general
termination), (ii) within 9O days after the end of the fiscal year in which his
death occurs, pay to the Employee's spouse (or his estate if there be no
surviving spouse) that portion of the Bonus, if any, for such fiscal year which
is determined by multiplying the full amount of such bonus (calculated as if the
Employee were an employee hereunder for the entire fiscal year) by a fraction
the denominator of which is 365 and the numerator of which is the number of days
in the period from the beginning of such fiscal year to the date of death, and
(iii) the Company shall not be obligated to provide or continue to provide any
other benefits or compensation.
(e) In the event that the Company terminates the employment of the Employee
without "cause" pursuant to Section 6(a) (ii), then subject to Sections 6(g) and
6(h), the Company shall (i) continue the health insurance coverage (if any is in
effect on the date of termination) provided by the Company for the Employee and
for the Employee's dependents (if the Company is providing such coverage for
such dependents on the date of termination) for the period required by
applicable law (provided, however, that if the Company terminates such health
--------- -------
insurance coverage, if any, for its employees or their dependents generally, the
Company may discontinue such coverage for the Employee and his dependents on the
date of such general termination), (ii) continue to pay the Employee the salary
provided for in Section 3(a) for a period ending on the later to occur of (A)
March 18, 1999 and (B) a date which is the first anniversary of the date of such
termination and (iii) within 9O days after the end of the fiscal year in which
such termination occurs, pay to the Employee that portion of the Bonus, if any,
for such fiscal year which is determined by multiplying the full amount of such
bonus (calculated as if the Employee were an employee hereunder for the entire
fiscal year) by a fraction the denominator of which is 365 and the numerator of
which is the number of days in the period from the beginning of the fiscal year
to the date of termination. After any termination pursuant to this Section 6(e),
the Company shall not be obligated to provide any benefits to the Employee or
his dependents other than health insurance in accordance with the foregoing
provisions of this Section 7(e).
6
<PAGE>
(f) In the event that the Company terminates the employment of the Employee
pursuant to Section 6(a)(iii) by reason of the disability of the Employee,
subject to Sections 6(g) and 6(h), the Company shall (i) continue the health
insurance coverage (if any is in effect on the date of termination) provided by
the Company for the Employee and his dependents (if the Company is providing
such coverage to such dependents on the date of termination) for the period
required by applicable law (provided, however, that if the Company terminates
--------- -------
such health insurance coverage, if any, for its employees or their dependents
generally, the Company may discontinue such coverage for the Employee and his
dependents on the date of such general termination), (ii) continue to pay to the
Employee the salary provided for in Section 3(a) for a period ending on the
later to occur of (A) March 18, 1999 and (B) a date which is the first
anniversary of the date of termination and (iii) within 9O days after the end of
the fiscal year in which such termination occurs, pay to the Employee that
portion of the Bonus, if any, for such fiscal year which is determined by
multiplying the full amount of the Bonus (calculated as if the Employee were an
employee hereunder for the entire fiscal year) by a fraction the denominator of
which is 365 and the numerator is which is the number of days in the period from
the beginning of such fiscal year to the date of termination. The Company's
obligation to make salary continuation payments under this Section 6(f) shall be
reduced dollar-for-dollar by any benefits which the Employee receives under any
policy of disability insurance for which the Company has paid the premiums
(directly or indirectly).
(g) Notwithstanding any of the foregoing provisions of this Section 6
requiring that the Company provide health insurance coverage to the Employee
and/or his dependents after the date of termination of employment, the Company
shall not be obligated to provide such coverage (and shall not be in breach
hereof for failing to provide the same) if the Employee or his dependents are
not eligible for such continued coverage under the terms of the applicable
insurance policies or the rules of the insurer.
(h) If, pursuant to this Section 6, the Company becomes obligated to make
salary continuation payments to the Employee after the termination of his
employment, the Company shall be entitled to make such payments in installments
in accordance with the Company's regular payroll practices for its full-time
managerial employees, prorated for any partial month. Any continuation of salary
provided for in this Section 6 shall be offset dollar-for-dollar by any salary
and/or other compensation received or earned by the Employee during the period
of salary continuation for services rendered by him as an employee, consultant
or otherwise to any person, corporation or other entity.
SECTION 7. LEASING ARRANGEMENT.
- --------------------------------
(a) As of the date hereof, the Employee is an employee of Staff Leasing,
Inc. ("SLI") and is providing the services described in Section 1 to the Company
(on a full-time
7
<PAGE>
basis) pursuant to a lease agreement between SLI and the Company (the "Lease
Agreement"). The Employee receives his compensation and benefits directly from
SLI. He receives no compensation or benefits directly from the Company. In
effect, the Company is leasing the Employee's services from SLI and is making
lease payments to SLI for the same.
The Company entered into the Lease Agreement upon the recommendation and at
the request of the Employee. The terms of the Lease Agreement were negotiated by
the Employee. The salary, benefits and other compensation provided by SLI to the
Employee are comparable to the salary, benefits and other compensation provided
for in Section 3, and it is the intention of the parties that such comparability
shall continue for so long as the Lease Agreement is in effect.
(b) For so long as the Lease Agreement is in effect, the Company shall
have no obligation to pay any salary, benefits or other compensation directly to
the Employee pursuant to Section 3 (and shall have no payroll related
obligations in respect thereof), and the Employee shall look solely to SLI for
the payment or provision thereof. The Company's only obligation in respect
thereof shall be to make the lease payments to SLI under the Lease Agreement in
amounts sufficient to support the contemplated salary, benefits and other
compensation to be paid or provided to the Employee. Further, the Company shall
have no liability or obligation to the Employee in the event that it is
determined at any time that the salary or benefits paid or provided to the
Employee are less than, or less favorable to the Employee, than those
contemplated by Section 3, it being understood and agreed that the Employee has
negotiated the terms of the Lease Agreement and the terms of his compensation
from SLI. The Employee shall be responsible for ensuring that the terms of the
leasing arrangement with SLI provide him with salary benefits and other
compensation comparable to those provided for in Section 3.
(c) The Company shall have the right at any time to terminate the Lease
Agreement and thereafter to (i) employ the Employee directly in accordance with
the terms of this Agreement (other than the terms of this Section 8) or
(ii) employ the Employee indirectly through another leasing company provided
that the salary, benefits and other compensation provided by such other leasing
company are at all times comparable to those provided for in Section 3.
(d) Except to the extent otherwise provided in this Section 8, all of the
terms and provisions of this Agreement shall apply and be effective regardless
of whether the Employee is employed indirectly through SLI (or any replacement
leasing company) or directly, except that in the event of a termination of the
Employee's direct or indirect employment with the Company at a time when the
Employee is indirectly employed (through SLI or any replacement leasing
company), the Company shall have the option of satisfying its obligations under
Section 6 directly or through SLI or any replacement leasing company
8
<PAGE>
and except that the Company shall have the option of satisfying any other
payment obligations under this Agreement directly or through SLI (for so long as
the Lease Agreement is in effect) or any replacement leasing company. Without
limiting the generality of the preceding sentence, for purposes of this
Agreement only and for purposes of determining the rights and obligations of the
parties hereunder, the Employee shall be deemed to be an employee of the Company
at all times during which he renders the services provided for in Section 1
whether he renders such services as a direct employee of the Company of as an
employee of SLI pursuant to the Lease Agreement or as an employee of any
replacement leasing company.
SECTION 8. SUCCESSORS, ASSIGNS, ETC.
- ------------------------------------
This Agreement shall be binding upon and shall inure to the benefit of the
Company and its successors and assigns (including without limitation any
successor by merger). This Agreement shall be binding upon the Employee and
shall inure to his benefit and to the benefit of his heirs, executors,
administrators and legal representatives, but his duties hereunder shall not be
assignable or delegable by the Employee.
SECTION 9. ENTIRE AGREEMENT; AMENDMENT.
- ---------------------------------------
The Agreement constitutes the entire agreement between the Company and the
Employee relating to his employment and the additional matters herein provided
for. This Agreement may be amended or altered only by the written agreement of
the Company and the Employee. This Agreement supersedes all prior agreements, if
any, whether written or oral, between the Employee and the Company relating to
the employment of the Employee, and all such prior agreements, if any, are
hereby terminated and of no further force and effect.
SECTION 10. NOTICES.
- --------------------
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if hand delivered or mailed by first class registered or certified mail,
return receipt requested, postage and registry fees prepaid, addressed as
follows: if to the Company, at c/o NAB Asset Corporation, 19200 Von Karman
Avenue, Suite 950, Irvine, California 93612, Attention: Chairman of the Board,
or if to the Employee, at the address first set forth above, or to such other
address as may have been furnished to the Company by the Employee as herein
provided in writing. Such addresses may be changed by notice in writing to the
other party as aforesaid.
9
<PAGE>
Section 11. Applicable Law: Severability.
- ---------- -----------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to principles of conflicts of
laws. Each provision of this Agreement is severable from the others, and if any
provision hereof shall be to any extent unenforceable it and the other
provisions hereof shall continue to be enforceable to the full extent allowable.
IN WITNESS WHEREOF, the Employee has executed this Agreement and the Company
has caused this Agreement to be executed on its behalf by its duly authorized
officer, as of the day and year first above written.
THE COMPANY: THE EMPLOYEE:
MORTGAGE PORTFOLIO SERVICES, INC.
By: /s/ MICHAEL W. CATON /s/ JAMES E. HINTON
------------------------------------ ----------------------------------
Michael W. Caton James E. Hinton
Chairman of the Board
10
<PAGE>
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
BETWEEN
NAB ASSET CORPORATION
AND
CARS HOLDINGS, INC.
Dated as of March 27, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), dated as of March 27, 1997, is
made and entered into by and among NAB ASSET CORPORATION ("Seller"), and CARS
HOLDINGS, INC. ("Purchaser") (each a "Party" and collectively, the "Parties").
W I T N E S S E T H
WHEREAS, Seller is the record and beneficial owner of 80% of the issued and
outstanding common stock of CARS USA, INC. ("CARS"), and of all of the issued
and outstanding preferred stock of CARS, which consist of the following: 80,000
shares of common stock, no par value (the "Common Shares") and 100,000 shares of
preferred stock, no par value (the "Preferred Stock")(all of the Common Shares
and the Preferred Shares shall be collectively referred to herein as the
"Subject Shares"); and Seller is the holder of a $1,000,000 Subordinated
Promissory Note dated July 8, 1996 executed by CARS as maker and payable to the
order of Seller (the "Subordinated Note"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to buy
from Sellers, the Subject Shares and all of Seller's right, title and interest
in and to the Subordinated Note.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants, and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS; FORMAT
1.1 Certain Defined Terms. The terms set forth below shall have the
---------------------
following meanings in this Agreement:
"Agencies": With respect to a Person, a federal, state or local agency
-----------
or other governmental or quasi-governmental authority with authority to regulate
all or a portion of such Person's operations, as applicable.
"Agreement": This Stock Purchase Agreement and all exhibits and schedules
------------
attached hereto or delivered herewith, and all amendments hereof and supplements
hereto.
"Assumed Liabilities": As defined in Section 2.3 hereof.
----------------------
"Business Day": Any day other than a Saturday, Sunday, or any other day on
---------------
which banking institutions in the State of California are authorized or
obligated by law or executive order
<PAGE>
to be closed.
"CARS": CARS USA, INC., a California corporation.
-------
"Closing": The consummation of the transactions contemplated by this
----------
Agreement, as described in Article 3 hereof.
"Closing Date": Within five (5) Business Days following the receipt of all
---------------
of the Consents and the satisfaction of all of the other conditions specified in
Articles 6 and 7, but no later than April 30, 1997 unless the Parties otherwise
agree.
"Common Shares": As defined in the recitals hereof.
----------------
"Consent": The written consent or approval of the Agencies, the Creditors
----------
and any other Person, as applicable, to the sale of the Subject Shares and the
Note to Purchaser, without Material adverse modification to the rights of the
owner of the Subject Shares or of the Subordinated Note, and to the transfer to
Purchaser by Seller, and to the assumption by Purchaser of, and the release of
Seller from, Seller's obligations under one (1) or more Credit Agreements or
under any guaranty of the obligations of CARS thereunder.
"Credit Agreements": The agreements between CARS and any Person under
--------------------
which (i) CARS is entitled to the extension of credit by such Person, including,
without limitation, floor financing credit agreements, or (ii) CARS is the
lessee of any real or personal property.
"Creditor": A Person who is a lender or lessor under a Credit Agreement.
-----------
"Guaranty": The Guaranty of even date herewith executed and delivered by
-----------
Charles E. Bradley, Sr. and Charles E. Bradley, Jr. to Seller in connection with
the Promissory Note, a true and correct copy of which is attached hereto as
Exhibit A.
- ---------
"Indemnified Events": The events set forth in Sections 9.1 and 9.2 with
------------
respect to which Losses are indemnified by a Party.
"Indemnified Party": A Party that benefits from indemnification from
--------------------
another Party pursuant to Sections 9. 1 and 9.2.
"Indemnifying Party": A Party providing indemnification to another Party
---------------------
pursuant to Sections 9.1 and 9.2.
"Loan Documents": The Promissory Note, the Guaranty and any other
-----------------
documents or instruments that evidence or secure the indebtedness evidenced by
the Promissory Note.
2
<PAGE>
"Loss or Losses": Any claims, damages, liabilities, losses, costs or
-----------------
expenses of any kind or nature whatsoever (including without limitation
reasonable attorneys' fees, court costs, disbursements and carrying costs, and
the costs of investigation incurred in defending against or
settling any such claims, damages, liabilities, losses, costs or expenses)
imposed on, incurred or sustained by any Indemnified Party.
"Material or Materiality": An amount in excess of $5,000, unless a greater
--------------------------
or lesser amount is specified when such term is used.
"Mutual General Release": The Mutual General Release of even date herewith
-------------------------
among Seller, Purchaser, CARS, Charles E. Bradley, Sr. and Charles E. Bradley,
Jr., a true and correct copy of which is attached hereto as Exhibit B.
---------
"Person": An individual, corporation, joint venture, partnership, trust,
---------
unincorporated association, governmental or quasi-governmental body or agency or
instrumentality thereof, or any other entity.
"Preferred Shares": As defined in the recitals hereof.
-------------------
"Promissory Note": The Promissory Note of even date herewith in the face
------------------
amount of $1,300,000, bearing interest at the annual rate of 9%, executed by
Purchaser and payable to the order of Seller, a true and correct copy of which
is attached hereto as Exhibit C.
---------
"Purchase Price": $1.25 per share for the 80,000 Common Shares, $4.00 per
-----------------
share for the 100,000 Preferred Shares, and $1,000,000.00 for the Subordinated
Note, resulting in a total Purchase Price of One Million Five Hundred Thousand
Dollars ($1,500,000.00), payable in the amount of $200,000 by wire transfer of
immediately available funds and $1,300,000 in accordance with the Loan Documents
as set forth in Article 2 hereof.
"Purchaser": CARS Holdings, Inc., a Delaware corporation.
------------
"Schedule": One of several written Schedules to this Agreement, each of
-----------
which (i) is incorporated into and made a part of this Agreement for all
purposes and (ii) has been furnished to Purchaser in its final form in advance
of the execution of this Agreement and/or Closing, as the case may be.
"Seller": NAB Asset Corporation, a Texas corporation.
---------
"Stockholders Agreement": That certain Stockholders Agreement (CARS USA,
-------------------------
INC.) dated June 17, 1996 among CARS and Seller, Charles E. Bradley, Jr.,
Nicholas Carroll, and Sandra C. Watt.
"Subject Shares": As defined in the recitals hereof.
-----------------
3
<PAGE>
"Subordinated Note": As defined in the recitals hereof.
-------------------
"Third Party Claim": As defined in Section 9.3 hereof.
--------------------
1.2 Singular/Plural; Gender. Where the context so requires or permits, the
-----------------------
use of the singular form includes the plural, and the use of the plural form
includes the singular, and the use of any gender includes all genders.
ARTICLE 2
SALE OF SUBJECT SHARES; TERMS OF PAYMENT
2.1 Sale and Purchase of Subject Shares and Subordinated Note. On the
---------------------------------------------------------
terms and subject to the conditions contained in this Agreement, by appropriate
instruments of transfer, conveyance, assignment and assumption, Seller shall (a)
sell, assign, transfer and deliver the Subject Shares to Purchaser at the
Closing, duly endorsed in blank or accompanied by duly executed stock powers,
satisfactory in form to Purchaser and his counsel, the Subject Shares to be free
and clear of all security interests, liens, adverse claims, charges,
limitations, agreements, restrictions and encumbrances of every kind and nature
whatsoever, other than the terms and provisions of the Stockholders Agreement,
and (b) sell, assign, transfer and deliver to Purchaser all of Seller's right,
title and interest in and to the Subordinated Note at the Closing, duly endorsed
as follows: "Payable to the order of CARS Holdings, Inc., without recourse or
warranty"; and Purchaser, on the terms and subject to the conditions contained
herein, and relying on the representations, warranties and agreements of Seller
contained herein, agrees to purchase from Seller on the Closing Date all of the
Subject Shares and all of Seller's right, title and interest in and to the
Subordinated Note.
2.2 Payment at Closing; Manner and Place of Payment. On the terms and
-----------------------------------------------
conditions contained in this Agreement, at the Closing, Purchaser shall pay to
Seller an amount equal to $200,000 of the Purchase Price by wire transfer of
immediately available funds or by any other form of payment as may be acceptable
to the Parties. The balance of the Purchase Price shall be paid in accordance
with the Loan Documents.
2.3 Assumption of Liabilities under Credit Agreements. On the terms and
-------------------------------------------------
conditions contained in this Agreement, at the Closing, Seller hereby agrees to
transfer to Purchaser, and hereby does transfer to Purchaser, effective as of
the close of business on the Closing Date, and Purchaser hereby accepts such
transfer and agrees to assume, pay, perform and discharge, effective as of the
close of business on the Closing Date, the obligations and liabilities of
Seller, if any, under the Credit Agreements that accrue after the close of
business on the Closing Date (the "Assumed Liabilities").
4
<PAGE>
ARTICLE 3
CLOSING AND SETTLEMENT
3.1 Time and Place of Closing. Subject to the prior or contemporaneous
-------------------------
satisfaction or waiver of all of the conditions of Closing hereinafter set forth
in Articles 6 and 7, the Closing of the purchase and sale provided for in this
Agreement shall take place at the offices of Seller at 19200 Von Karman Avenue,
Irvine, California, at 10:00 a.m. on the Closing Date. In the event a Party
hereto becomes aware that one or more of the conditions specifically referred to
in Articles 6 and 7 will not be satisfied prior to the Closing Date, such Party
shall promptly so notify the other Party hereto, in which case the Parties shall
mutually agree upon a new Closing Date or, if such new date cannot be agreed
upon, this Agreement may be terminated as provided for herein.
3.2 Deliveries. On or before the Closing Date the following deliveries
----------
shall be made.
3.2.1 Seller to Purchaser. The following, to the extent that such
-------------------
items are in the possession or control of Seller, but not otherwise in
possession of CARS, in form satisfactory to Purchaser, shall be delivered by
Seller or on behalf of Seller to Purchaser:
(a) Stock certificates representing the Subject Shares, duly endorsed
in blank or accompanied by duly executed stock powers, and all other documents
that are necessary to transfer to Purchaser good and marketable title to the
Subject Shares, free and clear of any and all security interests, liens, adverse
claims, charges, options to purchase, voting trust or other voting agreements,
or encumbrances of any nature whatsoever, other than the terms and provisions of
the Stockholders Agreement, as required by Section 2.1 of this Agreement;
(b) The original Subordinated Note duly endorsed in the manner
provided in Section 2.1.
(c) A counterpart of the Mutual General Release, duly executed by
authorized officers of Seller and of CARS;
(d) The resignation from CARS of all employees of Seller who serve as
directors and/or officers of CARS;
(e) A certified copy of the resolution of the Board of Directors of
Seller authorizing the sale of the Subject Shares and the Subordinated Note
pursuant to this Agreement; and
(f) All other documents, instruments, agreements and writings required
to be delivered by Seller on or before the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
5
<PAGE>
3.2.2 Purchaser to Seller. The following, in form satisfactory to
-------------------
Seller, shall be delivered by Purchaser or on behalf of Purchaser to Seller:
(a) $200,000 of the Purchase Price, in the form provided for in
section 2.2 of this Agreement, and the Loan Documents, duly executed by an
authorized officer of Purchaser and, in the case of the Guaranty, by Charles E.
Bradley, Sr. and Charles E. Bradley, Jr., and containing such completed
acknowledgments as may be appropriate;
(b) A counterpart of the Mutual General Release duly executed by
Charles E. Bradley, Sr., Charles E. Bradley, Jr. and by an authorized officer of
Purchaser.
(c) The approvals, Consents, releases and waivers required by
Sections 6.3 and 7.3 of this Agreement;
(d) A certified copy of a resolution of the Board of Directors of
Purchaser authorizing the purchase of the Subject Shares and the Subordinated
Note and the Assumption of the Assumed Liabilities pursuant to this Agreement;
and
(e) All other documents, instruments, agreements and writings required
to be delivered by the Purchaser on or before the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
3.3 Termination and Default.
-----------------------
3.3.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing Date as follows:
(a) By mutual written consent of Seller and Purchaser;
(b) By Seller or Purchaser, by notice provided to the other, if any
condition in
this Agreement is not met within the specified time period; provided, however,
-----------------
that neither Seller nor Purchaser may terminate this Agreement pursuant to this
Section 3.3. 1 (b) if such party is in breach in any Material respect of any of
such parties' representations, warranties, covenants or obligations set forth in
this Agreement;
(c) By Purchaser, by notice provided to Seller, if Seller fails to
deliver on or prior to the Closing Date any of the items required by Section
3.2.1 and, as a result, the Closing shall not have occurred; provided, however,
-----------------
that Purchaser may not terminate this Agreement pursuant to this Section
3.3.1(c) if Purchaser is in breach in any Material respect of any of Purchaser's
representations, warranties, covenants or obligations set forth in this
Agreement;
(d) By Seller, by notice provided to Purchaser, if Purchaser fails to
deliver on or prior to the Closing Date any of the items required by Section
3.2.2 and, as a result, the Closing
6
<PAGE>
shall not have occurred, provided however, that Seller may not terminate this
Agreement pursuant to this Section 3.3. 1 (d) if Seller is in breach in any
Material respect of any of Seller's representations, warranties, covenants or
obligations set forth in this Agreement.
3.3.2 Effect of Termination. Except as provided in Section 3.3.3, in
---------------------
the event of a termination of this Agreement by either party, this Agreement
(other than the provisions of Sections 3.3.3, 8.1 and 8.3, and Article 9) shall
become void and have no effect, without any liability other than that set forth
in Section 3.3.3 on the part of Seller or Purchaser.
3.3.3 Default and Remedies. In the event of a Material default by
--------------------
Seller or Purchaser in any of his representations, warranties or covenants
contained in this Agreement, which breach has not been cured within thirty (30)
days after the nonbreaching party shall have given notice to the breaching party
of such breach, the nonbreaching party shall be entitled to:
(a) terminate this Agreement, in which event the nonbreaching party
may recover from the breaching party its damages, costs and expenses, including
reasonable attorneys' fees; or
(b) treat this Agreement as being in full force and effect, in which
event the nonbreaching party shall have the right to specific performance, and
may also recover all damages, costs and expenses, including reasonable
attorneys' fees.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement and to consummate
the transactions contemplated hereby, Seller represents and warrants as follows
(it being acknowledged that each such representation and warranty relates to
Material matters upon which Purchaser relied, and it being understood that each
such representation and warranty is made to Purchaser as of the date hereof and
the Closing Date, unless otherwise expressly provided herein):
4.1 Organization, Etc. Seller is a corporation duly organized, validly
-----------------
existing and in good standing under the laws of the State of Texas.
4.2 Ownership of Subject Shares and Subordinated Note and Authorization.
-------------------------------------------------------------------
Seller is the owner of all the Subject Shares which are duly authorized, validly
issued and outstanding, fully paid and nonassessable, free and clear of any
security interests, liens, adverse claims, charges, options to purchase, voting
trust or other voting agreements, or encumbrances of any nature whatsoever other
than the Stockholders Agreement; the documents selling, assigning, conveying and
otherwise transferring from Seller to Purchaser the Subject Shares will sell and
transfer to Purchaser good and marketable title to the Subject Shares free and
clear of security interests, liens,
7
<PAGE>
adverse claims, charges, options or encumbrances of any nature whatsoever other
than the Stockholders Agreement; Seller is the owner and holder of the
Subordinated Note free and clear of any security interests, liens, adverse
claims, charges or encumbrances of any kind or nature whatsoever; no payments of
principal or interest have been made under the Subordinated Note; Seller has all
requisite corporate power and authority to sell and transfer the Subject Shares
and the Subordinated Note to Purchaser in the manner provided herein, free and
clear of security interests, liens, adverse claims, charges, options or
encumbrances of any nature whatsoever other than the Stockholders Agreement;
Seller has the right, power, legal capacity and authority to enter into and
perform the obligations of Seller under this Agreement; this Agreement and all
other agreements and instruments required to be executed and delivered by Seller
pursuant hereto or thereto, when duly executed and delivered by Seller will
constitute a legal, valid and binding obligation enforceable against Seller in
accordance with its terms, subject to laws respecting bankruptcy, insolvency,
moratorium, reorganization, fraudulent transfer, and other laws affecting
creditors' rights generally and to general principles of equity.
4.3 Capitalization. The authorized capital stock of CARS consists of
--------------
100,000 shares of common stock, no par value per share, and 100,000 shares of
preferred stock, no par value per share. Of these, 100,000 shares of such common
stock and 100,000 shares of such preferred stock are and, at the Closing will
be, issued and outstanding. There are no, and on the Closing Date there will not
be any, options, warrants or other rights outstanding or in effect under which
the holder thereof has, or may have, the right to purchase (or otherwise acquire
or to be issued) any shares of any class of the capital stock of CARS.
4.4 Consents. There is no requirement applicable to Seller to make any
--------
filing with, or obtain any permit, authorization, consent or approval of, any
Agency or any other person as a condition to the lawful consummation by Seller
of the transactions contemplated by this Agreement, other than in connection
with the Consents and the waiver by all parties to the Stockholders Agreement of
the application of the terms and provisions of the Stockholders Agreement to the
sale and purchase contemplated by this Agreement.
4.5 No Violation. The execution and delivery of this Agreement or any
------------
other agreement or instrument required to be executed and delivered pursuant
hereto by Seller, and the consummation of the transactions contemplated hereby
or thereby, (a) will not violate or result in a breach by Seller, or constitute
a default under, or conflict with, or cause any cancellation or acceleration of
any obligation with respect to, (i) any provision or restriction of the charter
or bylaws of Seller, (ii) any law, rule or regulation, or any judgment, order,
writ, injunction or decree of any court or governmental authority or agency, or
any other restriction of any kind or character to which any assets or properties
of Seller are subject or by which Seller is bound, (iii) any provision or
restriction of any lien, lease, agreement, contract, or instrument, to which
Seller is a party or by which it is bound; and (b) will not result in the
creation or imposition of (or the obligation to create or impose) any lien,
charge or encumbrance upon any of its properties or assets pursuant to the terms
of any indenture, mortgage, deed of trust, lease, written agreement or other
instrument to which it may be bound.
8
<PAGE>
4.6 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 4, NO
----------
REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE (EXPRESS OR IMPLIED) IS BEING
MADE BY SELLER WITH RESPECT TO SELLER, CARS, THE BUSINESS OF CARS, THE RESULTS
OF OPERATIONS OR FUTURE OPERATIONS OR PROSPECTS OF CARS OR THE NATURE, CONDITION
OR VALUE OF ANY ASSETS OR LIABILITIES OF CARS, INCLUDING, WITHOUT LIMITATION,
ANY REPRESENTATION OR WARRANTY REGARDING THE MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, CONDITION, USE, QUALITY, WORKMANSHIP OR EXISTENCE OF ANY
ASSET, PROPERTY, COLLATERAL, RIGHT OR INTEREST OF THE SUBJECT SHARES, THE
SUBORDINATED NOTE OR CARS, AND PURCHASER ACKNOWLEDGES THAT, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE 4, THE TRANSFER IS
BEING MADE "AS IS, WHERE IS."
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and to consummate
the transactions contemplated hereby, Purchaser represents and warrants as
follows (it being acknowledged that each such representation and warranty
relates to Material matters upon which Seller relied, and it being understood
that each such representation and warranty is made to Seller as of the date
hereof and the Closing Date, unless otherwise expressly provided herein):
5.1 Binding Agreement. Purchaser is a corporation duly organized, validly
-----------------
existing and in good standing under the laws of the State of Delaware, and has
the right, power, legal capacity and authority to enter into and perform the
obligations of Purchaser under this Agreement; this Agreement and all other
agreements and instruments required to be executed and delivered by Purchaser
pursuant hereto or thereto, when duly executed and delivered by Purchaser will
constitute a legal, valid and binding obligation enforceable against Purchaser
in accordance with its terms, subject to laws respecting bankruptcy, insolvency,
moratorium, reorganization, fraudulent transfer, and other laws affecting
creditors' rights generally and to general principles of equity.
5.2 No Defaults. The execution and delivery of this Agreement or any
-----------
other agreement or instrument required to be executed and delivered pursuant
hereto by Purchaser, and the consummation of the transactions contemplated
hereby or thereby, (a) will not violate or result in a breach by Purchaser, or
constitute a default under, or conflict with, or cause any cancellation or
acceleration of any obligation with respect to, (i) any provision or restriction
of the charter or bylaws of Purchaser, (ii) any law, rule or regulation, or any
judgment, order, writ, injunction or decree of any court or governmental
authority or agency, or any other restriction of any kind or character to which
any assets or properties of Purchaser are subject or by which Purchaser is
bound, (iii) any provision or restriction of any lien, lease, agreement,
contract, or instrument, to which Purchaser is a party or by which it is bound;
and (b) will not result in the creation or imposition of (or the obligation to
create or impose) any lien, charge or encumbrance upon any of its properties or
assets pursuant to the terms of any indenture, mortgage, deed of trust, lease,
9
<PAGE>
written agreement or other instrument to which it may be bound. Neither the
execution and delivery of this Agreement nor Purchaser's performance hereunder
will result in a violation or breach of any term or provision of, or constitute
a default under, any indenture, mortgage, deed of trust or other contract or
agreement to which Purchaser is a party or by which Purchaser is bound, the
effect of which would Materially adversely affect Purchaser's ability to perform
his obligations hereunder or thereunder.
5.3 Consents. There is no requirement applicable to Purchaser to make any
--------
filing with, or obtain any permit, authorization, consent or approval of, any
Agency or of any other person as a condition to the lawful consummation by
Purchaser of the transactions contemplated by this Agreement, other than in
connection with the Consents, waivers and other approvals contemplated by
Section 6.3.
5.4 Investment Intent. Purchaser represents and warrants that it is
-----------------
acquiring the Subject Shares for its own account and not with a view to, or for
sale or other disposition in connection with, any distribution thereof, nor with
any present intention of selling or otherwise disposing of the same, subject,
nevertheless, to any requirement of law that the disposition of your property
shall at all time be within your control.
5.5 Securities Matters; Access to Information. Purchaser acknowledges
-----------------------------------------
that it is fully informed that the Subject Shares being sold to it hereunder are
being sold pursuant to an exemption under the Securities Act of 1933 (the
"Securities Act") and are not being registered under the Securities Act or under
the securities or blue sky laws of any state or foreign jurisdiction; that such
securities must be held indefinitely unless they are registered under the
Securities Act and any applicable state securities or blue sky laws, or unless
an exemption from registration is available thereunder. Purchaser represents,
warrants and acknowledges that it has been provided with access to all
information deemed relevant by it with respect to the business of CARS and that
it has thoroughly investigated all elements and constituents of the business of
CARS. Purchaser further represents and warrants that it has such knowledge and
experience in business and financial matters as to be capable of evaluating the
merits and risks of the investment contemplated to be made hereunder, and that
it has the capacity to protect its own interests in connection with the
transactions contemplated hereby and that it has sufficient financial strength
to hold the same as an investment and to bear the economic risks of such
investment (including the possible loss of such investment) for an indefinite
period of time.
ARTICLE 6
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser at the Closing hereunder are subject to
satisfaction prior to or contemporaneously with the Closing hereunder of each of
the conditions set forth below, all of which are agreed to be Material. Any of
such conditions may be waived by Purchaser, but, except
10
<PAGE>
as to deemed waivers as provided herein, only in writing and only to the extent
that such waiver specifically identifies the conditions being waived; provided
that, if specific written notice of the failure of any one or more of such
conditions is given to Purchaser by Seller prior to Closing, Purchaser may
nevertheless proceed with the Closing without the satisfaction in whole or in
part of one or more of such conditions and without written waiver.
6.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties contained in Article 4 hereof shall have been true and correct when
made, and, in addition, shall be true and correct on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date.
6.2 Compliance with Terms. On the Closing Date, Seller shall have in all
---------------------
Material respects performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement to be performed and
complied with by Seller on or prior to the Closing Date.
6.3 Approvals and Consents. On or prior to the Closing Date, (i)
----------------------
Purchaser shall have received any required evidence of Consents to the
transactions contemplated by this Agreement from all necessary Agencies and such
Consents and the transactions contemplated hereby shall not have been contested
or threatened to be contested by any Agency or by any other third party, by
formal proceedings, (ii) all agreements and Consents of any Creditors of CARS
reasonably determined by Purchaser to be necessary to permit the consummation of
the transactions contemplated hereby and to maintain the Credit Agreements in
force as presently in effect shall have been obtained and to the extent that any
other contract or agreement to which Seller or CARS is a party shall require the
consent of any other person to the transactions provided for herein, such
consent shall have been obtained; and (iii) all of the parties to the
Stockholders Agreement shall have waived the application of the terms and
provisions of the Stockholders Agreement to the transactions contemplated hereby
(other than the requirement that Purchaser, upon acquisition of the Subject
Shares, shall thereafter be subject to the terms and provisions of the
Stockholders Agreement).
6.4 Mutual General Release. On the Closing Date, CARS, Purchaser, Charles
----------------------
E. Bradley, Sr., Charles E. Bradley, Jr. and Seller shall have entered into a
Mutual General Release in form and substance as set forth on Exhibit B hereto.
---------
ARTICLE 7
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller hereunder are subject to satisfaction prior to or
contemporaneously with the Closing hereunder of each of the conditions set forth
below, all of which are agreed to be Material. Any of such conditions may be
waived by Seller but only in
11
<PAGE>
writing and only to the extent that such waiver specifically identifies the
condition or conditions being waived; provided that, if specific written notice
of the failure of any one or more of such conditions is given to Seller by
Purchaser prior to Closing, Seller may nevertheless proceed with the Closing
without satisfaction in whole or in part of one or more of such conditions and
without written waiver.
7.1 Accuracy of Representations and Warranties. The representations and
-------------------------------
warranties made by Purchaser in this Agreement shall have been true and correct
when made, and, in addition, shall be true and correct at and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date.
7.2 Compliance with Terms. On the Closing Date, Purchaser shall have in
---------------------
all Material respects performed all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed and
complied with by it on or prior to the Closing Date.
7.3 Approvals and Consents. On or prior to the Closing Date, (i) Seller
----------------------
shall have received any required evidence of Consents to the transactions
contemplated by this Agreement from all necessary Agencies and such Consents and
the transactions contemplated hereby shall not have been contested or threatened
to be contested by any Agency or by any other third party, by formal
proceedings, (ii) all agreements, releases and Consents of any Creditors of CARS
reasonably determined by Seller to be necessary to permit the consummation of
the transactions contemplated hereby and the release of Seller from any future
liability or obligation under the Credit Agreements shall have been obtained,
and to the extent that any other contract or agreement to which Seller or CARS
is a party shall require the consent of any other person to the transactions
provided for herein, such consent shall have been obtained; and (iii) all of the
parties to the Stockholders Agreement shall have waived the application of the
terms and provisions of the Stockholders Agreement to the transactions
contemplated hereby (other than the requirement that Purchaser, upon acquisition
of the Subject Shares, shall thereafter be subject to the terms and provisions
of the Stockholders Agreement).
7.4 Mutual General Release. On the Closing Date, CARS, Purchaser and
----------------------
Seller shall have entered into a Mutual General Release in form and substance as
set forth on Exhibit E hereto.
---------
ARTICLE 8
COVENANTS
8.1 Expenses. The expenses incurred by Purchaser or Seller in connection
--------
with the authorization, preparation and execution of this Agreement, including
without limitation all fees and expenses of attorneys and accountants shall be
paid by the Party which incurred such expenses. Seller shall bear all other
normal costs associated with the sale of the Subject Shares
12
<PAGE>
(except as provided for in section 9.2(b) hereof); notwithstanding the
foregoing, CARS shall bear the expenses of obtaining all transfer or Consent
fees required to be paid in connection with the authorizations and Consents
contemplated in Section 8.6 hereof. The Parties represent to each other that
there have been no brokers retained by either Party in connection with this
transaction.
8.2 Cooperation. Seller and Purchaser shall cooperate fully with each
-----------
other and their respective counsel and other representatives and advisers in
connection with the steps required under this Agreement, including the filing of
all required notices and the obtaining of all necessary consents, permits,
authorization, qualifications and licenses. In addition, Purchaser agrees to
make the pre-Closing Date business records of CARS, including all business
records relating to the transaction contemplated by this Agreement, available to
Seller at such reasonable times and upon such reasonable notice from Seller, and
to allow Sellers to make copies (at Seller's expense) of such business records,
as are reasonably necessary for Seller to prepare income tax returns and to
respond to inquiries and/or disputes with the Internal Revenue Service and/or
with other taxing authorities. Prior to the Closing Date, Seller shall take all
necessary steps to provide for all bank account signature cards for bank
accounts of CARS to be changed to the persons designated by the Purchaser upon
Closing, if necessary.
8.3 Confidentiality; Announcements. Other than as necessary to pursue the
------------------------------
necessary approvals and Consents contemplated in this Agreement, Purchaser and
Seller and their respective agents (including without limitation their legal
counsel and accountants), will hold in confidence the existence of discussions
related to and the terms and conditions of this Agreement and any information
regarding the financial condition or business operations of the Parties that is
received or obtained in connection with consummating the transactions
contemplated hereby. Either Party may release such information with the written
consent of the other Party. Notwithstanding the foregoing, either Party, upon
written notification of the other Party, may release information required to be
disclosed (a) by or to a court, tribunal or regulatory authority or (b) under
securities law or other applicable law. Purchaser and Seller shall consult with
each other prior to any public announcement relating to the transactions
contemplated hereby, and will mutually approve the timing, content and manner of
dissemination of any public announcement, except to the extent any Party is not
reasonably able to consult with or obtain the approval of the other Party in
situations in which disclosures are required by applicable law.
8.4 Consents and Approvals. Purchaser and Seller shall cooperate with one
----------------------
another in using their reasonable best efforts to obtain, or to cause CARS to
obtain, prior to the Closing Date, the Consents required by law or pursuant to
contract to consummate the purchase of the Subject Shares and Subordinated Note,
and to satisfy all conditions of the Consents, approvals, waivers and releases
contemplated by this Agreement. All such Consents, approvals, releases and
waivers will be in the form reasonably satisfactory to Seller and Purchaser and
will be obtained without any cost or expense to Seller, and will be obtained
without any adverse modification in the terms of any of the Credit Agreements or
other agreements, leases, licenses or instruments of Seller or of CARS. Seller
shall make, or shall cause CARS to timely make, or cause to be made, all
filings, applications, statements and reports to all Creditors and Agencies or
other Persons which are required to be made prior to the Closing by CARS or
Seller pursuant to any license, agreement, statute, rule or legal requirement in
connection with the transactions contemplated by this Agreement. Purchaser shall
timely make, or cause to be made, all filings, applications, statements and
reports to all Creditors and Agencies or other Persons which are
13
<PAGE>
required to be made prior to the closing by Purchaser pursuant to any license,
agreement, statute, rule or legal requirement in connection with the
transactions contemplated by this Agreement.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by Seller. Subject to the limitations contained in
-------------------------
this Agreement, including those limitations of the introductory paragraph of
Article 4, and section 9.4 hereof, Seller covenants and agrees to indemnify and
hold harmless Purchaser against and in respect of any Loss arising out of,
incident to or in connection with: (a) a breach of any representation, warranty,
covenant or agreement of Seller set forth in this Agreement or any agreement
executed and delivered pursuant hereto, or the untruth or inaccuracy thereof,
including, but not limited to, all statements or figures contained in any of the
exhibits or Schedules to this Agreement, or in any other certificate, schedule
or instrument to be furnished to Purchaser hereunder by Seller or on Seller's
behalf, or (b) any claim for a commission, finder's fee or other compensation
due or alleged to be due to any broker, salesman, finder or agent whom Seller
has engaged in connection with the transactions contemplated hereby.
9.2 Indemnification by Purchaser. Subject to the limitations contained in
----------------------------
this Agreement, Purchaser covenants and agrees to indemnify and hold harmless
Seller, its directors, officers, employees, affiliates, representatives and
shareholders, against and in respect of any Loss arising out of, incident to or
in connection with: (a) a breach of any representation, warranty, covenant or
agreement of Purchaser set forth in this Agreement or any agreement executed and
delivered pursuant hereto, or the untruth or inaccuracy thereof, including, but
not limited to, all statements or figures contained in any of the Exhibits or
Schedules to this Agreement, or in any certificate, schedule or instrument to be
furnished to Seller hereunder by Purchaser, (b) any claim for a commission,
finder's fee or other compensation due or alleged to be due to any broker,
salesman, finder or agent whom Purchaser has, engaged in connection with the
transactions contemplated hereby, or (c) the liabilities, expenses, obligations
and commitments of CARS to any Person, whether arising on, prior to or after the
Closing Date, including without limitation, those relating to any existing
employment agreements between CARS and any of its employees.
9.3 Indemnification Procedures.
--------------------------
9.3.1 If any claim, action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against an Indemnified
Party by any third party (a "Third Party Claim") in respect of which the
Indemnified Party may be entitled to
14
<PAGE>
indemnification under the provisions of Sections 9. 1 and 9.2 above, the
Indemnified party will promptly notify the Indemnifying Party in writing. The
Indemnifying Party shall have ten (10) calendar days from its receipt of the
notice of Third Party Claim to advise the Indemnified Party that the
Indemnifying Party will assume the costs of the defense of such Third Party
Claim, including the costs of counsel selected by the Indemnified Party (counsel
reasonably satisfactory to the Indemnifying Party), and will be responsible for
any settlement reached or judgment rendered, subject to any financial
limitations of this Agreement. In the event the Indemnifying Party shall not
have timely responded to the notice of Third Party Claim, the Indemnified Party
may employ counsel to defend and compromise such Third Party Claim, and the fees
and expenses of such counsel, and any compromise or judgment, will be the
responsibility and expense of the Indemnifying Party. The Indemnified Party will
have the right to employ separate counsel in any such Third Party Claim as to
which the Indemnifying Party shall have so assumed the defense, and to
participate in the defense thereof, but the fees and expenses of such counsel
will be the expense of the Indemnified Party unless (i) the Indemnifying Party
has agreed to pay such fees and expenses, or (ii) the Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which may conflict with the interests of the Indemnifying Party
(in which case, if the Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party will not thereafter have the right to
assume the defense of such Third Party Claim on behalf of the Indemnifying
Party).
9.3.2 Except as provided for in section 10.3.1 hereof, the
Indemnifying Party will not be liable for any settlement or payment of any such
Third Party Claim effected without its prior written consent. The Indemnifying
Party shall at all times have the right to consult with counsel to the
Indemnified Party concerning the defense of any such Third Party Claim as to
which the Indemnified Party has selected counsel pursuant to Section 9.3.1
hereof and the Indemnifying Party shall retain the right to participate in the
defense of such Third Party Claim, at its expense. The Indemnified Party shall
have the right to join the Indemnifying Party as party defendant in any legal
action brought against the Indemnified Party which may give rise to a Loss for
which the Indemnifying Party may be liable hereunder, and the Indemnifying Party
hereby consents to the entry of an order making the Indemnifying Party a party
defendant.
ARTICLE 10
NOTICE AND MISCELLANEOUS PROVISIONS
10. 1. Notices. All notices or deliveries required or desired to be given
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, by overnight delivery, by confirmed facsimile transmission,
or by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the Parties at their respective addresses set forth below,
unless by such notice a different address shall have been designated.
15
<PAGE>
To Seller: NAB Asset Corporation
19200 Von Karman Avenue, Suite 950
Irvine, California 92612
Attn: Michael W. Caton, President
Fax: (714) 475-4440
With a copy to: Kevin J. Funnell
Parsons & Funnell, L.L.P.
303 East Seventeenth Avenue, Suite 700
Denver, Colorado 80203
Fax: (303) 837-9271
To Purchaser: CARS Holdings, Inc.
c/o Stanwich Partners, Inc.
Attention Charles E. Bradley, Sr.
62 Southfield Avenue
Stamford, Connecticut 06902
Fax: (203) 967-3923
Any notice given by personal delivery, by overnight delivery, or facsimile
transmission shall be deemed given, delivered, received and effective on the
date of receipt of such delivery or transmission at the address set forth above
(or such other address designated pursuant hereto) and any notice given by
registered or certified mail shall be deemed given, delivered, received and
effective on the third Business Day following the date on which it was deposited
in the United States postal system. Notice in writing may be given by a method
other than as described above and such notice shall be deemed given, delivered,
received and effective on the date actually received.
10.2. Further Assurances. Seller covenants and agrees with Purchaser
------------------
that Seller will, whenever and as often as reasonably requested so to do by
Purchaser, his successors and assigns, do, execute, acknowledge and deliver any
and all such other and further acts, assignments, transfers and any instruments
of further assurance, approvals and consents as Purchaser, his successors and
assigns, may hereinafter reasonably deem necessary or proper in order to
complete, insure and perfect the conveyances to Purchaser contemplated hereby.
Purchaser covenants and agrees with Seller that Purchaser will, whenever and as
often as reasonably requested so to do by Seller, Seller's successors and
assigns, or cause CARS to do, execute, acknowledge and deliver any and all such
other and further acts, assignments, transfers and any instruments of further
assurance, approvals and consents as Seller, its successors and assigns, may
hereafter reasonably deem necessary or proper in order to complete the
transactions contemplated hereby.
10.3. GOVERNING LAW. THIS AGREEMENT IS BEING DELIVERED AND IS INTENDED TO
-------------
BE PERFORMED IN THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF
16
<PAGE>
SUCH STATE AND, TO THE EXTENT CONTROLLING, APPLICABLE FEDERAL LAW OF THE UNITED
STATES OF AMERICA.
10.4 Litigation. In the event that there is litigation between the Parties
----------
arising out of this Agreement, the prevailing Party shall be entitled to payment
from the non-prevailing Party of the costs and expenses incurred by the
prevailing Party in connection therewith, including without limitation its
attorneys' fees.
10.5 Headings. The headings and titles to the Sections of this Agreement
--------
are inserted for convenience only and shall not be deemed a part hereof or
affect the construction or interpretation of any provisions hereof.
10.6 Modifications or Waiver. No termination, cancellation, modification,
-----------------------
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless specifically set forth in writing signed by the
Party or Parties to be bound thereby. The waiver of any right or remedy in
respect to any occurrence on one occasion shall not be deemed a waiver of such
right or remedy in respect to such occurrence or event on any other occasion.
10.7 Entire Agreement. This agreement and the agreements contemplated
----------------
hereby supersede all agreements, oral or written, heretofore made with respect
to the subject matter hereof and the transactions contemplated hereby, and
contain the entire agreement of the Parties.
10.8 Assignments. This Agreement and any rights or duties hereunder shall
-----------
not be assigned by any Party without the consent of the other Party.
10.9 Time of Essence. The Parties acknowledge that time is of the essence
---------------
in connection with their respective obligations hereunder.
10. 10 Survival of Representations, Warranties, Covenants and Agreements.
-----------------------------------------------------------------
Subject to the provisions of Article 4, the representations, warranties,
covenants and agreements given by Purchaser and Seller contained herein and in
certificates to be delivered at the Closing shall survive the Closing.
10.11 Binding on Successors. Except as otherwise provided herein, this
---------------------
Agreement shall be binding upon, and shall inure to the benefit of, the Parties
and their respective heirs, legal representatives, successors and assigns.
10.12 Counterparts; Facsimile Signatures. This Agreement may be executed
----------------------------------
in counterparts, each of which taken together shall constitute one and the same
instrument. All signatures to this Agreement may be delivered by facsimile and
such facsimile signatures shall be binding and have the full force and effect of
original signatures.
17
<PAGE>
10.13 Construction. This Agreement shall be construed fairly as to both
------------
Parties and not in favor of or against either Party, regardless of which Party
prepared this Agreement.
10.14 Severability. Every provision of this Agreement is intended to be
------------
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.
10.15 Obligation to Deal in Good Faith. The Parties hereto agree to deal
--------------------------------
in good faith with each other at all times.
10.16 No Third Party Beneficiaries. This Agreement does not create, and
----------------------------
shall not be deemed to create, a relationship between the Parties hereto, or
either of them, any third party in the nature of a third party beneficiary or
fiduciary relationship.
IN WITNESS WHEREOF, the Parties hereto, have executed this Agreement, this
27th day of March 1997.
<TABLE>
<S> <C>
"SELLER" "PURCHASER"
NAB ASSET CORPORATION CARS HOLDINGS, INC.,
a Texas corporation a Delaware corporation
By:___________________________ By:__________________________________
Michael W. Caton, President _____________________, President
</TABLE>
<PAGE>
EXHIBIT A
---------
GUARANTY
--------
THIS GUARANTY is given this ____ day of ________, 1997 by Charles E. Bradley,
Sr. and Charles E. Bradley, Jr. (The "Guarantors"), whose address is One
Stamford Landing, 62 Southfield Avenue, Stamford Connecticut 06902 in favor of
NAB Asset Corporation, a Texas corporation ("Lender").
RECITALS
--------
A. Guarantors are shareholders of CARS Holdings, Inc., a Delaware
corporation ("Borrower"). Concurrently with the execution and delivery of this
Guaranty, Borrower has executed and delivered to Lender its promissory note (the
"Note") of even date herewith, payable to the order of Lender in the principal
face amount of $1,300,000.00.
B. The Note is executed in conjunction with a Stock Purchase Agreement
between Borrower and Lender, of even date herewith. The Stock Purchase
Agreement, together with the Note, this Guaranty, and all other documents
executed by or delivered by Borrower or by Guarantors in connection therewith,
are collectively referred to as the "Loan Documents."
C. Lender is unwilling to accept the other Loan Documents or to advance
funds thereunder unless payment of the Note, as well as performance and
observance of all covenants and conditions of the other Loan Documents, are
unconditionally, independently and directly guaranteed by the Guarantors.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the matters recited above, and to induce
Lender to accept the other Loan Documents and to advance funds thereunder,
Guarantors hereby jointly and severally undertake and agree as follows:
1. GUARANTY OF PAYMENT. Guarantors hereby unconditionally and irrevocably
guaranty to Lender the payment when due of all indebtedness now or hereafter
evidenced by the Note, as such Note or indebtedness may be accelerated, renewed,
modifies or extended, including but not limited to payment of principal,
interest and costs of collections.
2. INDEPENDENT OBLIGATIONS. The obligations of Guarantors to Lender
hereunder are direct and independent of any obligations of Borrower to Lender.
A separate action or actions may be brought and prosecuted against Guarantors,
or any of them, without regard to whether any action is brought against Borrower
or whether Borrower is joined in any such action or actions. No circumstance
which operates to discharge, or to bar, suspend or delay Lender's right to
enforce, any obligation of Borrower to Lender (including but not limited to the
effect of any statute of
20
<PAGE>
limitations or the pendency or conclusion of any proceeding under the federal
bankruptcy laws or any similar present or future federal or state law) shall
have any effect upon the enforceability of Guarantors' obligations to Lender
hereunder. Any part payment by Borrower or other circumstance which operates to
toll any statute of limitations as to Borrower shall operate likewise to toll
the statute of limitations as to Guarantors.
3. LENDER'S AUTHORITY TO MODIFY BORROWER'S OBLIGATIONS. Guarantors
authorize Lender, without notice to Guarantors and without impairing the
liability of Guarantors hereunder, from time to time (a) to renew, extend,
accelerate, modify or otherwise change the times for or terms of payment or
performance of the obligations guaranteed hereby, including but not limited to
any increase or decrease in the rate of interest provided for in the Note or
other Loan Documents, (b) to take and hold security for the performance of this
Guaranty or the obligations hereby guaranteed, and to exchange, enforce, waive
and release such security, (c) to apply such security and direct or order the
manner of sale thereof as Lender in its sole discretion may determine, and (d)
to release or substitute, in whole or in part, any one or more of the Guarantors
without affecting the liability of the remaining Guarantors.
4. LENDER'S RIGHTS TO SELECT REMEDIES. Lender may proceed against
Guarantors hereunder without proceeding against Borrower, without proceeding
against or exhausting any security now or hereafter held by Lender for the
obligations hereby guaranteed, and without pursuing any other right or remedy
available to Lender whatever, including but not limited to any right or remedy
provided by other Loan Documents. Lender may also, either before, after or
concurrently with any proceeding against Guarantors hereunder, and without
notice to Guarantors, exercise any right or remedy it may have against Borrower,
or against any security now or hereafter held by Lender, including but not
limited to the right to foreclose upon any security by judicial or non-judicial
sale, without affecting or impairing in any way the liability of Guarantors
hereunder except to the extent the obligations hereby guaranteed are satisfied
through the exercise of such remedies. Guarantors waive any defense arising out
of the absence, impairment or loss of any right of reimbursement or subrogation,
or any other right or remedy of Guarantors against Borrower or against any such
security, whether resulting from any election made by Lender under this
paragraph or from any other cause.
5. SUBORDINATION OF GUARANTORS' CLAIMS AGAINST BORROWER. Guarantors
hereby postpone and subordinate to the claims of Lender against Borrower any
indebtedness or other claims which Guarantors or any of them may have against
Borrower. Until all the obligations hereby guaranteed have been paid and
satisfied in full, Guarantors shall have no right of subrogation, and waive any
right to enforce any remedy which Lender now has or may hereafter have against
Borrower, and waive any benefit of, and any right to participate in, any
security now or hereafter held by Lender.
6. WAIVERS BY GUARANTORS; PAYMENT OF COLLECTION EXPENSES. Guarantors waive
all presentments, demands for payment or performance, notices of nonpayment or
nonperformance, notices of defaults, protests, notices of protests, notices of
dishonor, notice of acceptance of this Guaranty, and all other noticed whatever,
and agree to, pay all costs and expenses, including reasonable attorneys' fees,
which may be incurred by Lender in connection with the enforcement
21
<PAGE>
of this Guaranty. Lender shall not be obligated to inquire into the powers of
Borrower or of the officers or agents acting or purporting to act on Borrower's
behalf, and any indebtedness created pursuant to the purported exercise of such
powers shall be guaranteed hereunder.
7. BINDING EFFECT; TERMINATION. This Guaranty shall inure to the benefit
of Lender and any successor holder of the Note, and shall be binding upon each
of the Guarantors and their respective heirs, personal representatives,
successors and assigns. Each Guarantor's obligations hereunder shall continue
in full force notwithstanding the transfer (with or without the consent of the
Lender) of such Guarantor's interest in Borrower.
8. APPLICABLE LAW. This Guaranty shall be construed and enforced in
accordance with the law of the State of California. Whenever possible, each
provision of this Guaranty shall be interpreted so as to be effective and valid
under applicable law, but if any provision hereof shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder or such
provision or the remaining provisions of this Guaranty.
9. EXECUTION IN COUNTERPARTS; FACSIMILE SIGNATURES. This Guaranty may be
executed in two or more counterparts, each of which shall become immediately
effective as to the Guarantor(s) executing such counterpart, without regard to
whether similar counterparts are executed by any other Guarantor(s). All
signatures to this Guaranty may be delivered by facsimile and such facsimile
signatures shall be binding and shall have the full force and effect of original
signatures.
IN WITNESS WHEREOF, the undersigned Guarantor(s) have executed this Guaranty
as of the date first mentioned above.
--------------------------------
Charles E. Bradley, Sr.
---------------------------------
Charles E. Bradley, Jr.
22
<PAGE>
EXHIBIT B
---------
MUTUAL GENERAL RELEASE
This Mutual General Release ("Release") is made this ____ day of ________,
1997 by and between NAB Asset Corporation ("NAB"), CARS Holdings, Inc.
("Purchaser"), Charles E. Bradley, Sr. ("Bradley, Sr."), Charles E. Bradley, Jr.
("Bradley, Jr."), and CARS USA, INC. ("CARS").
The parties recite the following facts as the basis of this Release:
A. On or about July 8, 1996, CARS issued and sold to NAB 80,000 shares of
common stock of CARS (the "Common Shares"), and 100,000 shares of preferred
stock of CARS (the "Preferred Shares"), and issued to NAB its Subordinated Note
in the face amount of $1,000,000 (the "Subordinated Note"). At such time,
Bradley, Jr. was, and remains the owner of 10,000 shares of the issued and
outstanding common stock of CARS.
B. On or about March 27, 1997 NAB entered into a Stock Purchase Agreement
(the "Agreement"), pursuant to which Purchaser shall purchase from NAB the
Common Shares, the Preferred Shares and the Subordinated Note in consideration
of the payment of $1,500,000.00, $200,000 to be paid in cash or other
immediately available funds and $1,300,000 in the form of a promissory note to
be secured by, among other things, the joint and several guaranty of Bradley,
Sr. and Bradley, Jr. (the promissory note, guaranty, and other documents
evidencing or securing the loan represented by the promissory note being
hereinafter referred to collectively as the "Loan Documents").
C. During the period in which NAB owned the Common Shares, the Preferred
Shares and the Subordinated Note, NAB guaranteed various obligations of CARS to
third parties, all of which obligations are to be assumed by Purchaser pursuant
to the terms of the Agreement and the documents to be executed and delivered in
connection therewith (the "Transaction Documents"), and NAB is to have no
further obligations or liabilities with respect to CARS following the date of
the closing of the transaction contemplated by the Agreement and the other
Transaction Documents.
D. Pursuant to Articles 6 and 7 of the Agreement, the execution and
delivery of this Mutual Release is a condition to the obligations of both NAB
and Purchaser under the Agreement, and each of the parties hereto agrees that
the consummation of the transactions contemplated by the Agreement will provide
consideration to each such party sufficient to support such party's agreements
contained herein.
NOW, THEREFORE, in consideration of the promises and covenants contained
in the Agreement, and the mutual promises and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, NAB, on the one hand, and CARS, Bradley, Sr., Bradley, Jr.,
and Purchaser, on the other hand, do mutually
23
<PAGE>
release each other according to the following terms.
1. NAB does hereby release, quit and forever discharge CARS, its employees,
officers, directors, shareholders, associates, agents, attorneys, predecessors,
successors, and assigns (hereinafter collectively, "CARS"), Purchaser, its
employees, officers, directors, shareholders, associates, agents, attorneys,
predecessors, successors, and assigns (hereinafter collectively,
"Purchaser"), Bradley, Sr. and Bradley, Jr., from any and all claims, causes of
actions in law or equity, demands, rights, damages, expenses, obligations,
suits, liens, contracts, agreements, or claims of any nature whatsoever, known
or unknown, fixed or contingent ("Claims"), which NAB has, has had or may
hereafter have by reason of any matter, event, or act or omission of any kind
accruing or occurring in any respect prior to the date of this Mutual General
Release and which relate in any manner to the purchase, ownership or sale by NAB
of the Common Shares, the Preferred Shares or the Subordinated Note, or to CARS,
or the operations or liabilities of CARS, except any Claims related to the
Agreement or any of the Transaction Documents (including, without limitation,
this Release) (the "NAB Reserved Claims").
2. NAB, for itself and any other person or entity claiming by, though or
under NAB, further covenants that it will not at any time after execution of
this Mutual General Release, assert any claim, make any demand, or commence any
action, lawsuit or other legal preceding against CARS, Purchaser, Bradley, Sr.
or Bradley, Jr., in law, or equity or otherwise, based upon any Claims described
in paragraph 1, other than the NAB Reserved Claims. If NAB or any other person
or entity claiming by, though or under NAB, makes any claim or demand, or
commences any action, lawsuit or other legal preceding in violation of this
provision, NAB shall be responsible for paying all costs, expenses, and
attorneys fees incurred by CARS, Purchaser, Bradley, Sr. and/or Bradley, Jr. in
defending such claim, demand, action, lawsuit or other preceding, and shall
indemnify and hold CARS, Purchaser, Bradley, Sr. and Bradley, Jr. harmless from
and against any loss, disability, cost or expense arising out of or occasioned
by any such claim, demand, action, lawsuit or other legal preceding.
3. CARS, Purchaser, Bradley, Sr. and Bradley, Jr. do hereby release,
acquit and forever discharge, NAB, its present and former representatives,
affiliates, subsidiaries, parents, subsidiaries of parents, partners, venturers,
employees, officers, directors, shareholders, associations, agents, attorneys,
predecessors, its successors, and assigns (hereinafter collectively "NAB") from
any and all actions, causes of action in law or in equity, demands, rights,
damages, expenses, obligations, suits, liens, contracts, agreements or claims of
any nature whatsoever, known or unknown, fixed or contingent, which it has, has
had, or may hereafter have by reason of any matter, event, or act of omission of
any kind accruing or occurring in any respect prior to the date of this Mutual
General Release and which relate in any manner to the purchase, ownership or
sale by NAB of the Common Shares, the Preferred Shares or the Subordinated Note,
or to CARS, or the operations or liabilities of CARS, except any Claims related
to the Agreement or any of the Transaction Documents (including, without
limitation, this Release) (the "CARS-Parties Reserved Claims").
4. CARS, Purchaser, Bradley, Sr. and Bradley, Jr. further covenant that
they will not
24
<PAGE>
at any time after the execution of this Mutual General Release, assert any
claim, make any demand or commence any action, lawsuit or other legal proceeding
against NAB, in law, or equity or otherwise, based upon any Claim described in
paragraph 2, other than the CARS-Parties Reserved Claims. If CARS, Purchaser,
Bradley, Sr. or Bradley, Jr. or any other person or entity claiming by, though
or under any such person or entity, makes any claim or demand, or commences any
action, lawsuit or other legal preceding in violation of this provision, then
whichever of the foregoing four persons and entities makes such claim or demand,
action, lawsuit or legal proceeding (or has it made by a third party claiming
by, through or under such person or entity) shall be responsible for paying all
costs, expenses, and attorneys fees incurred by NAB in defending such claim,
demand, action, lawsuit or other preceding, and shall indemnify and hold NAB
harmless from and against any loss, disability, cost or expense arising out of
or occasioned by any such claim, demand, action, lawsuit or other legal
preceding. If more than one of the foregoing four persons and entities is
responsible to NAB under this paragraph 4, such responsibility shall be joint
and several.
5. The parties hereto further covenant that on or prior to the date of
this Release that none of them has assigned any Claim to any other party or
person.
6. GOVERNING LAW. THIS RELEASE IS BEING DELIVERED AND IS INTENDED TO BE
-------------
PERFORMED IN THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SUCH STATE AND, TO THE EXTENT CONTROLLING,
APPLICABLE FEDERAL LAW OF THE UNITED STATES OF AMERICA.
7. This Release may be modified by an instrument in writing signed by all
of the parties hereto.
8. Each of the provisions of this Release shall be deemed severable so
that in the event any provision or provisions hereof are deemed or become
unenforceable for any reason and the remaining provisions shall remain in full
force and effect to the full extent permitted by law.
DATED this ___ day of ________, 1997.
[SIGNATURE PAGE FOLLOWS]
25
<PAGE>
NAB ASSET CORPORATION
By:_________________________________
Michael W. Caton, President
CARS HOLDINGS, INC.
By:__________________________________
___________________, President
CARS USA, INC.
By:__________________________________
___________________, President
____________________________________
Charles E. Bradley, Sr.
____________________________________
Charles E. Bradley, Jr.
26
<PAGE>
EXHIBIT C
---------
PROMISSORY NOTE
$1,300,000.00
_________, 1997
Irvine, California
FOR VALUE RECEIVED, the undersigned, CARS Holdings, Inc., a Delaware
corporation, (the "Maker"), whose address for notices is c/o Stanwich Partners,
Inc., Attention: Charles E. Bradley, Sr., One Stamford Landing, 62 Southfield
Avenue, Stamford, Connecticut 06902, promises to pay to the order of NAB Asset
Corporation, a Texas corporation (the " Holder") the principal sum of One
Million Three Hundred Thousand and No/100ths Dollars ($1,300,000.00) with
interest on so much thereof as is from time to time outstanding at the rate of
nine percent (9%) per annum, which interest shall commence accruing on ________,
1997, and shall be due and payable on the first day of January, April, July and
October of each year this promissory note is in effect. Said principal shall be
paid in two (2) installments, the first of which shall be in the amount of
$500.000.00 due and payable on _________, 1998, with the second installment in
the amount of $800,000.00 on ________, 1999, at which time the entire remaining
balance of unpaid principal and accrued interest shall become due and payable in
full.
All payments shall be payable in lawful money of the United States of America
(or in the form of such other property as may be mutually agreed upon by the
Maker and the Holder) at 19200 Von Karman Avenue, Irvine, California 92612, or
at such other place as the Holder may designate in writing.
At the option of the Holder, the payment of all principal and interest due in
accordance with the terms of this promissory note may be accelerated and such
principal and interest shall become due and payable ten (10) days after Written
Notice of a default under this promissory note or ten (10) days after Written
Notice of a breach or violation by the Maker of any provision or covenant
contained in any security agreement or other instrument relating to the
indebtedness evidenced by this promissory note which default, breach or
violation remains uncured at the end of such ten (10) day period; provided,
however, that the Maker shall not have a right to cure a non-monetary default
without the written consent of the Holder.
The Maker agrees that if any installment of principal and/or interest or any
other sum due pursuant to the terms of this note is not paid at maturity or when
due, such principal, interest or other payment shall draw interest at the rate
of twelve percent (12%) per anum.
All interest computations made under this promissory not shall be base on a
365 day year and the current outstanding unpaid balance of principal.
If any installment of principal and/or interest or any other sum due pursuant
to the terms of this promissory note is not paid at maturity or when due, the
Maker agrees to reimburse the
27
<PAGE>
Holder for all reasonable costs of collection or other costs incurred in the
protection of the interest of the Holder, including reasonable attorney's fees.
The Maker waives presentment, protest, notice of dishonor and all duties or
obligations of the Holder to perfect, protect, retain or enforce any security
for the payment of this promissory note or to proceed against any collateral
before otherwise enforcing this promissory note.
Written Notice shall be in writing and shall be deemed given when delivered
personally to the addressee or sent in the United states mail, postage prepaid,
either registered or certified, return receipt requested. Written Notice to the
Maker shall be sent to the address set forth in the first paragraph of this
promissory note, and Written Notice to the Holder shall be sent to the address
for delivery of payments. Either party may designate a new address by giving
Written Notice.
This promissory note shall be governed in all respects by the laws of the
State of California, which laws shall be applicable to the interpretation,
construction and enforcement hereof. Each Maker, endorser or guarantor agrees
that this promissory note may be enforced in any court of competent jurisdiction
in the State of California, and hereby submits to the jurisdiction of such court
regardless of such party's residence or the place of execution of this
promissory note or any endorsement or guaranty hereof.
No delay or omission or delay on the part of the Holder in exercising any
right hereunder shall operate as a waiver of such right or any other right under
this promissory note, and a waiver on one occasion shall not be construed as a
bar to or waiver of any such right and/or remedy on any future occasion.
CARS HOLDINGS, INC., a Delaware corporation
BY: _____________________________
President
28
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
------------------ ----------------------
<S> <C>
Mortgage Portfolio Services, Inc. Texas
CARS USA, Inc. California
NAFCO, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
NAB Asset Corporation:
We consent to incorporation by reference in the Registration Statements (No.
33-41700 and No. 33-41701) on Forms S-8 of NAB Asset Corporation of our report
dated March 28, 1997, relating to the consolidated balance sheets of NAB Asset
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996, annual report on Form 10-
K of NAB Asset Corporation.
KPMG Peat Marwick LLP
Orange County, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,315
<SECURITIES> 0
<RECEIVABLES> 13,740
<ALLOWANCES> 0
<INVENTORY> 3,446
<CURRENT-ASSETS> 0
<PP&E> 340
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,137
<CURRENT-LIABILITIES> 16,482
<BONDS> 0
0
0
<COMMON> 509
<OTHER-SE> 5,096
<TOTAL-LIABILITY-AND-EQUITY> 22,137
<SALES> 0
<TOTAL-REVENUES> 6,581
<CGS> 0
<TOTAL-COSTS> 8,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,919)
<DISCONTINUED> 3,467
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,548
<EPS-PRIMARY> (.38)
<EPS-DILUTED> 0
</TABLE>
