<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 30, 1996
-----------------
CROWN NORTHCORP, INC.
- ----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-22936 22-3172740
- ----------------------------------------------------------------------------
(State of Other Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification Number)
1251 DUBLIN ROAD, COLUMBUS, OHIO 43215
- ----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
614/488-1169
- ----------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- ----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
The undersigned registrant hereby amends the following terms, financial
statements, exhibits or other parts of this report on Form 8-K as set forth
below:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired:
The following audited financial statements of Merchants Mortgage
Corporation and independent auditors' report thereon are included in
Annex A attached hereto and filed as part of this report:
o Independent Auditor's Report
o Balance Sheets, December 31, 1995 and 1994
o Statements of Income for the years ended December 31, 1995 and 1994
o Statements of Change in Shareholder's Equity for year ended December
31, 1995 and 1994.
o Statement of Cash Flows for the years ended December 31, 1995 and
1994
o Notes to Financial Statements for the years ended December 31, 1995
and 1994
The following unaudited interim financial statements of Merchants
Mortgage Corporation and notes thereto are included in Annex A-1
attached hereto and filed as part of this report:
o Balance Sheet, September 30, 1996
o Statement of Income for the nine months ended September 30, 1996
o Statements of Cash Flows for the nine months ended September 30,
1996
Submission of financial statements of Reinlein/Lieser/McGee Holding
Corporation and R/L/M Employee Benefit Corporation is not required at
this time as the Company's purchase of all of the issued and
outstanding stock of these corporations does not constitute a
"significant business combination" as defined in Regulation S-B.
<PAGE> 3
(b) Unaudited Pro Forma Financial Information:
The following pro forma financial information is included in Annex B
attached hereto and filed as part of this report:
o Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1996
o Pro Forma Condensed Consolidated Statement of Income for year ended
December 31, 1995.
o Pro Forma Condensed Consolidated Statement of Income for the nine
months ended September 30, 1996.
Submission of pro forma financial information with respect to
Reinlein/Lieser/McGee Holding Corporation and R/L/M Employee Benefit
Corporation is not required at this time as the Company's purchase of
all of the issued and outstanding stock of these corporations does not
constitute a "significant business combination" as defined in
Regulation S-B.
(c) Exhibits:
1. Stock Purchase Agreement dated December 31, 1996 by and among
Crown NorthCorp, Inc., CNC/DUS Newco, Inc. and National City
Corporation. (1)
2. Amendment to Stock Purchase Agreement dated January 9, 1997 by and
among Crown NorthCorp, Inc., CNC/DUS Newco, Inc. and National City
Corporation. (2)
3. Stock Purchase Agreement dated May 22, 1996 by and among Crown
NorthCorp, Inc., CNC/DUS Newco, Inc., Reinlein/Lieser/McGee
Holding Corporation, R/L/M Employee Benefit Corporation, Karl H.
Reinlein, George F. Lieser and John R. McGee. (3)
4. Amendment to Stock Purchase Agreement dated January 9, 1997 by and
among Crown NorthCorp, Inc., CNC/DUS Newco, Inc.,
Reinlein/Lieser/McGee Holding Corporation, R/L/M Employee Benefit
Corporation, Karl H. Reinlein, George F. Lieser and John R. McGee.
(4)
5. Promissory note, dated January 10, 1997, by the Crown NorthCorp,
Inc. in favor of The Fifth Third Bank of Columbus. (5)
6. Cash security agreement, dated January 10, 1997, by the Crown
NorthCorp, Inc. in favor of The Fifth Third Bank of Columbus. (6)
<PAGE> 4
7. Promissory note, dated January 10, 1997, by the Crown NorthCorp,
Inc. in favor of The Fifth Third Bank of Columbus. (7)
8. Non-cash collateral security agreement, dated January 10, 1997, by
the Crown NorthCorp, Inc. in favor of The Fifth Third Bank of
Columbus. (8)
9. Letter of credit demand note, dated January 10, 1997, by Crown
NorthCorp, Inc. in favor of The Fifth Third Bank of Columbus. (9)
10. LC Security Agreement, dated January 10, 1997, by Crown NorthCorp,
Inc. in favor of The Fifth Third Bank of Columbus. (10)
11. Registration Rights Agreement, dated December 30, 1996, between
Crown NorthCorp, Inc. and Asdale Limited. (11)
12. Consent of Ernst & Young LLP. (12)
- -----------------------------
(1) Incorporated by reference to Exhibit 1 to the Company's current Report
on Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(2) Incorporated by reference to Exhibit 2 to the Company's current Report
on Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(3) A portion incorporated by reference to Exhibit 3 to the Company's
current Report on Form 8-K dated December 30, 1996 (Commission File
No. 0-22936); a portion filed herewith.
(4) Incorporated by reference to Exhibit 4 to the Company's current Report
on Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(5) Incorporated by reference to Exhibit 5 to the Company's current Report
on Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(6) Incorporated by reference to Exhibit 6 to the Company's current Report
on Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(7) Incorporated by reference to Exhibit 7 to the Company's current Report
on Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(8) Incorporated by reference to Exhibit 8 to the Company's current Report
on
<PAGE> 5
Form 8-K dated December 30, 1996 (Commission File No. 0-22936).
(9) Incorporated by reference to Exhibit 9 to the Company's current
Report on Form 8-K dated December 30, 1996 (Commission File No.
0-22936).
(10) Incorporated by reference to Exhibit 10 to the Company's current
Report on Form 8-K dated December 30, 1996 (Commission File No.
0-22936).
(11) Incorporated by reference to Exhibit 11 to the Company's current
Report on Form 8-K dated December 30, 1996 (Commission File No.
0-22936).
(12) Filed herewith.
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Crown NorthCorp, Inc.
March 25, 1997 /s/ RICHARD A. BROCK
-------------------------------
Name: Richard A. Brock
Title: Chief Financial Officer
/s/ RAY L. DRUSEIKIS
------------------------------
Name: Ray L. Druseikis
Title: Chief Accounting Officer
<PAGE> 7
INDEX TO EXHIBITS
1. Stock Purchase Agreement dated December 31, 1996 by and among Crown
NorthCorp, Inc., CNC/DUS Newco, Inc. and National City Corporation.
2. Amendment to Stock Purchase Agreement dated January 9, 1997 by and among
Crown NorthCorp, Inc., CNC/DUS Newco, Inc. and National City Corporation.
3. Stock Purchase Agreement dated May 22, 1996 by and among Crown NorthCorp,
Inc., CNC/DUS Newco, Inc., Reinlein/Lieser/McGee Holding Corporation,
R/L/M Employee Benefit Corporation, Karl H. Reinlein, George F. Lieser
and John R. McGee.
4. Amendment to Stock Purchase Agreement dated January 9, 1997 by and among
Crown NorthCorp, Inc., CNC/DUS Newco, Inc., Reinlein/Lieser/McGee Holding
Corporation, R/L/M Employee Benefit Corporation, Karl H. Reinlein, George
F. Lieser and John R. McGee.
5. Promissory note, dated January 10, 1997, by the Crown NorthCorp, Inc. in
favor of The Fifth Third Bank of Columbus.
6. Cash security agreement, dated January 10, 1997, by the Crown NorthCorp,
Inc. in favor of The Fifth Third Bank of Columbus.
7. Promissory note, dated January 10, 1997, by the Crown NorthCorp, Inc. in
favor of The Fifth Third Bank of Columbus.
8. Non-cash collateral security agreement, dated January 10, 1997, by the
Crown NorthCorp, Inc. in favor of The Fifth Third Bank of Columbus.
9. Letter of credit demand note, dated January 10, 1997, by Crown NorthCorp,
Inc. in favor of The Fifth Third Bank of Columbus.
10. LC Security Agreement, dated January 10, 1997, by Crown NorthCorp, Inc. in
favor of The Fifth Third Bank of Columbus.
11. Registration Rights Agreement, dated December 30, 1996, between Crown
NorthCorp, Inc. and Asdale Limited.
12. Consent of Ernst & Young, LLP
<PAGE> 8
ANNEX A
<PAGE> 9
ERNST&YOUNG LLP
One Indiana Square Phone: 317 681 7000
Suite 3400 Fax: 317 681 7216
Indianapolis, Indiana 46204-2094
Report of Independent Auditors
The Board of Directors
Merchants Mortgage Corporation
We have audited the accompanying balance sheets of Merchants Mortgage
Corporation, a wholly owned subsidiary of National City Corporation, as of
December 31, 1995 and 1994, and the related statements of income, changes in
shareholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Merchants Mortgage Corporation
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
January 17, 1996
Ernst & Young,LLP
Ernst & Young, LLP is a member of Ernst &
Young International, Ltd.
<PAGE> 10
Merchants Mortgage Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
---------------------------------
<S> <C> <C>
ASSETS
Cash $ 283,155 $ 507,465
Short-term investments 13,271,000 1,383,000
---------------------------------
13,554,155 11,890,465
Mortgage Loans (Note 3) 408,547 510,795
Allowances for loan losses (Note 3) (83,125) (83,125)
---------------------------------
325,422 427,670
Real estate held for sale, net -- 1,080,000
Interest receivable and other assets 59,739 192,567
Furniture, equipment and leasehold improvements, net 132,279 306,229
Deferred income taxes (Note 5) 2,486,279 1,532,964
---------------------------------
Total assets $ 16,557,874 $ 15,429,895
=================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Contingent servicing (Note 8) $ 6,620,962 $ 7,193,859
Payable to affiliates (Note 6) 205,670 17,506
Accounts payable and accrued liabilities 54,188 65,161
---------------------------------
Total liabilities 6,880,820 7,276,526
Shareholder's equity:
Common Stock - no par value - 350 shares authorized,
issued and outstanding 350,000 350,000
Capital surplus 3,420,934 3,420,934
Retained earnings 5,906,120 4,382,435
---------------------------------
Total shareholder's equity 9,677,054 8,153,369
---------------------------------
Total liabilities and shareholder's equity $ 16,557,874 $ 15,429,895
=================================
</TABLE>
See accompanying notes.
2
<PAGE> 11
Merchants Mortgage Corporation
Statements of Income
<TABLE>
<CAPTION>
December 31
1995 1994
---------------------------------
<S> <C> <C>
Revenues
Mortgage servicing $ 1,983,866 $ 2,087,331
Interest 736,958 450,455
Placement fees 6,000 123,672
Gain on sale of other real estate held 419,138 --
Other 4,067 233,758
---------------------------------
Total revenues 3,150,029 2,895,216
Expenses:
Salaries and related costs 185,993 207,531
General and administrative 138,101 228,741
Occupancy and equipment 213,465 237,527
Loss on disposal of capital assets 39,997 42,407
Provision for contingent servicing liabilities (Note 8) -- 3,314,569
Provision for loan losses (Note 3) -- 285,431
Other 10,339 --
---------------------------------
Total expenses 587,835 4,316,206
---------------------------------
Income (loss) before income taxes 2,562,194 (1,420,990)
Income tax provision (credit):
Federal 820,685 (454,924)
State and local 217,824 (120,745)
---------------------------------
1,038,509 (575,669)
---------------------------------
Net income (loss) $ 1,523,685 $ (845,321)
=================================
</TABLE>
See accompanying notes.
3
<PAGE> 12
Merchants Mortgage Corporation
Statements of Changes in Shareholder's Equity
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 350,000 $ 3,420,934 $ 4,382,435 $8,153,369
Net loss -- -- (845,321) (845,321)
-----------------------------------------------------------------
Balance, December 31, 1994 350,000 3,420,934 4,382,435 8,153,369
Net income -- -- 1,523,685 1,523,685
-----------------------------------------------------------------
Balance, December 31, 1995 $ 350,000 $ 3,420,934 $ 5,906,120 $9,677,054
=================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 13
Merchants Mortgage Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,523,685 $ (845,321)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization 63,971 108,684
Loss on disposal of capital asset 39,997 42,407
Gain on sale of other real estate held (419,138) --
Proceeds from sale of other real estate held 1,499,138 --
Provision for contingent servicing liabilities -- 3,314,569
Provision for loan losses -- 285,431
Changes in operating assets and liabilities:
Other assets (718,239) (303,864)
Other liabilities (395,706) (2,482,001)
---------------------------------
Net cash provided by operating activities 1,593,708 119,905
INVESTING ACTIVITIES
Disposal of capital assets 75,144 4,088
Purchase of capital assets (5,162) --
---------------------------------
Net cash provided by investing activities 69,982 4,088
---------------------------------
Increase in cash and cash equivalents 1,663,690 123,993
Cash and cash equivalents at beginning of year 11,890,465 11,766,472
---------------------------------
Cash and cash equivalents at end of year $ 13,554,155 $11,890,465
=================================
</TABLE>
See accompanying notes.
5
<PAGE> 14
Merchants Mortgage Corporation
Notes to Financial Statements
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Merchants Mortgage Corporation (the Corporation) is a wholly owned subsidiary
of National City Corporation (NCC). The principal business activity of the
Corporation is the servicing of commercial mortgage loans for others. NCC and
affiliated companies provide specialized services to the Corporation in various
areas of operations.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash.
INCOME RECOGNITION
Fees for servicing loans owned by investors are generally based upon a
stipulated percentage of the outstanding monthly principal balance of such
loans and are receivable only out of interest collected from mortgagors. Such
loan servicing fees are recorded as income upon receipt of mortgage payments.
Late charges and other miscellaneous fees are also recognized as income upon
receipt.
ALLOWANCES FOR LOAN LOSSES AND CONTINGENT SERVICING LIABILITIES
The allowances for loan losses and contingent servicing liabilities are
maintained at a level believed adequate by management to absorb potential
losses. Management's determination of the adequacy of the allowances is based
on an evaluation of the financial condition of the borrowers, estimated value
of the real estate which collateralizes the loans, past loss experience,
current economic conditions and, for the contingent servicing liabilities, the
co-insurance percentage (also see Note 8). The allowances and contingent
servicing liabilities are increased by provisions charged against income and
reduced by net charge-offs.
REAL ESTATE HELD FOR SALE
Real estate held for sale arises from loan foreclosures or loans deemed to be
in-substance foreclosures and is recorded at fair value less estimated selling
costs. Expenses of real estate held for sale includes the cost of operating
foreclosed properties, gain or loss on disposal of properties, and write-downs
of carrying value.
6
<PAGE> 15
Merchants Mortgage Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are carried at cost less
accumulated depreciation. Depreciation of furniture and equipment is computed
using the straight-line method over the estimated useful lives of the assess,
principally five years.
Leasehold improvements are amortized using the straight-line method over the
estimated useful life of the improvement or the lease term; whichever is
shorter. At December 31, 1995 and 1994, accumulated depreciation and
amortization was $383,942 and $846,820, respectively. Depreciation and
amortization expense was $63,971 and $108,684 for the years ended December 31,
1995 and 1994, respectively.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain elements of the 1994 financial statements have been reclassified to
conform with the presentation basis.
2. NEW ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of FASB Statement No. 65." This Standard is
effective for the Corporation for the year ended December 31, 1996. This
standard requires mortgage companies to capitalize the cost of mortgage
servicing rights for loans purchased or originated with a definitive plan to
sell or securitize the loan and retain the servicing rights. The Corporation
did not originate, purchase, sell, or securitize any loans for the years ended
December 31, 1995 and 1994. No purchased servicing rights were recorded as of
and for the years ended December 31, 1995 and 1994. The Corporation will adopt
Statement 122 in the first quarter of 1996 and, based on current circumstances,
does not believe the effect of adoption will be material.
7
<PAGE> 16
MERCHANTS MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
Residential mortgage loans, for which carrying value approximates fair value,
were $408,547 and $510,795 as of December 31, 1995 and 1994, respectively.
The change in the allowance for loan losses on loans is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------------
<S> <C> <C>
Balance $ 83,125 $ 74,569
Provision -- 285,431
Loans charged-off -- (276,875)
---------------------------------
Balance at end of year $ 83,125 $ 83,125
=================================
</TABLE>
4. MORTGAGE SERVICING FOR OTHERS
The balance sheets at December 31, 1995 and 1994 do not include approximately
$200,565,139 and $250,033,430, respectively, of principal balances of permanent
mortgage loans owned by and serviced for unaffiliated investors (also see Note
6).
The servicing of loans includes collection of loan and escrow payments from
individual mortgagors, deposit of these collections into restricted trust
accounts, periodic remittance of principal and interest to investors, payment
of property taxes and insurance premiums, and periodic inspection of certain
properties. At December 31, 1995 and 1994, the Corpration held escrow, agency
and fiduciary funds of $4,333,925 and $5,217,067, respectively, representing
undisbursed collections from mortgagors. These trust funds and the
corresponding fiduciary trust liability are not included in the accompanying
balance sheets as they do not represent assets or liabilities of the
Corporation.
5. INCOME TAXES
The Corporation is included in the consolidated federal income tax return of
NCC. NCC's policy is to allocate income taxes to its subsidiaries on a separate
return basis, which includes any net operating income or losses or alternative
minimum taxes, subject to recognition of such items on a consolidated basis.
8
<PAGE> 17
Merchants Mortgage Corporation
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Deferred tax assets were approximately $2,359,000 and $1,792,000 and deferred
tax liabilities were approximately $105,000 and $280,000, at December 31, 1995
and 1994, respectively. The deferred tax assets result primarily from provision
for contingent servicing liabilities and deferred tax liabilities result
primarily from differences in depreciation methods.
The federal income tax provision (credit) for the years ended December 31, 1995
and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------------------------------
<S> <C> <C>
Current $ 1,562,546 $ 160,506
Deferred (741,861) (615,430)
-------------------------------
Provision (credit) $ 820,685 $ (454,924)
===============================
</TABLE>
Deferred income taxes result principally from differences in the recognition of
contingent servicing liabilities and loan loss deductions for income tax and
financial reporting purposes.
Cash paid to NCC for income taxes was $1,774,000 and $1,932,000 for the years
ended December 31, 1995 and 1994, respectively.
6. RELATED PARTY TRANSACTIONS
Cash is deposited in various demand deposit accounts at an affiliate, National
City Bank Indiana (the Bank). In addition, the Corporation invests funds in
short-term money market securities of the Bank. Interest earned by the
Corporation on these investments was $699,287 and $409,223 in 1995 and 1994,
respectively.
In 1994, the Corporation and all affiliated GNMA issuers were required to enter
into a Cross-Default Agreement with GNMA. This Agreement makes the event of
default under an issuers' respective Guaranty Agreement with GNMA an event of
default by other affiliated issuers. Thus, GNMA is entitled to perfect its
rights in the pooled mortgages and custodial accounts of the Corporation and
pursue any and all other remedies it may have against the Corporation or any
affiliated issuer.
9
<PAGE> 18
Merchants Mortgage Corporation
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1995 and 1994, the Corporation was servicing mortgage loans for
NCC affiliates totaling approximately $352,332,383 and $315,971,823,
respectively. Servicing fees related to these loans are included in the
mortgage servicing revenues and were $1,200,000 and $1,229,393 in 1995 and
1994.
The Corporation is covered by a $25,000,000 fidelity bond provided by NCC.
7. EMPLOYEE BENEFIT PLANS
The Corporation's employees are covered by the noncontributory defined benefit
rerirement plan of NCC and certain affiliated companies. The Corporation's
allocated pension expense was $2,904 and $4,032 for the years ended December
31, 1995 and 1994, respectively.
The Corporation's employees are also covered by a NCC benefit plan which
provides postretirement medical and life insurance benefits to all employees
meeting certain age and eligibility requirements. The amounts charged so
expense for 1995 and 1994 were immaterial.
An employee thrift plan offers all employees, who meet certain age and
eligibility requirements, a program of regular savings and investment funded by
their own contributions and discretionary matching contributions of the
Corporation. The amount charged to expense for the years ended December 31,
l995 and 1994 was $4,159 and $4,042, respectively.
8. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Corporation is a party to off-balance sheet financial instruments in the
normal course of business to meet the financing needs of customers. These
agreements involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheet. The contract amounts of these
instruments, which are not included in the financial statements, indicate the
Corporation's activities in particular classes of financial instruments.
10
<PAGE> 19
Merchants Mortgage Corporation
Notes to Financial Statements (continued)
8. OFF-BALANCE SHEET RISK FINANCIAL INSTRUMENTS (CONTINUED)
The Corporation's off-balance sheet financial instruments, for which the
contract amounts exceed the amount of potential credit risk, relate to two
co-insurance multifamily housing loan programs. The Corporation is a
participant in the U.S. Department of Housing and Urban Development (HUD)
223(f) co-insurance program and the Federal National Mortgage Association -
Delegated Undewriting and Servicing ("FNMA-DUS") program. The Corporation was
co-insuring $175,068,240 and $224,171,785 under both programs at December 31,
1995 and 1994, respectively, for loans on properties in the Midwest which
mature between 1997 and 2023. Under the terms of both programs, the Corporation
is responsible for the first portion of loss on any co-insured loan, with the
percetage determined by the loan program. The Corporation's total exposure
under both the HUD 223(f) and FNMA-DUS programs, should the borrowr's default
and the collateral prove to be of no value, was $37,745,180 at December 31,
1995 and $47,697,553 at December 31, 1994. Individual co-insured loans have
letters of credit in favor of FNMA which may be drawn upon to cover collateral
deficiencies. At December 31, 1995, $7,012,282 in letters of credit were
available, of which $3,833,983 were from affiliates. At December 31, 1995 and
1994, the Corporation had an irrevocable standby bank letter of credit of
$2,500,000, with an annual commitment fee of .25%, in favor of the Federal
National Mortgage Association related to the FNMA-DUS loans.
The change in contingent servicing liabilities is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Balance at beginning of year $7,193,859 $4,320,703
Provision -- 3,314,569
Charge-offs (572,897) (441,413)
------------------------------
Balance at end of year $6,620,962 $7,193,859
==============================
</TABLE>
9. LEASES
The Corporation leased office space under a noncancelable operating lease which
expired June 30, 1995. Net rental expense for 1995 relating to the lease was
$111,755. Beginning in 1995,NCC provided certain of its office facilities to
the Corporation. Amounts charged to the Corporation for occupancy in 1995
totaled $11,188.
11
<PAGE> 20
ANNEX A-1
<PAGE> 21
Merchants Mortgage Corporation
Balance Sheet
September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
===============================================================================
- -------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $15,339,185
Accounts receivable-net 126,992
Prepaid expenses and other assets 3,862
-----------
Total current assets 15,470,039
PROPERTY AND EQUIPMENT-Net 4,637
OTHER ASSETS 2,270,082
-----------
TOTAL $17,744,758
===========
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $430,765
Accrued liabilities 59,392
-----------
Total current liabilities 490,157
LONG TERM OBLIGATIONS:
Loan loss reserve 6,620,351
-----------
Total long-term obligations 6,620,351
SHAREHOLDERS' EQUITY:
Common stock 350,000
Additional paid-in capital 3,420,934
Retained earnings 6,863,316
-----------
Total shareholders' equity 10,634,250
-----------
TOTAL $17,744,758
===========
</TABLE>
<PAGE> 22
Merchants Mortgage Corporation
Statement of Income
For the Nine Months Ended September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
===========================================================================
- ---------------------------------------------------------------------------
<S> <C>
REVENUES:
Management fees $1,081,232
Other 627,115
----------
Total revenues 1,708,347
OPERATING AND ADMINISTRATIVE EXPENSES:
Personnel 80,884
Occupancy 21,571
Depreciation and Amortization 3,108
Other (6,698)
----------
Total operating and administrative expenses 98,865
EARNINGS BEFORE INCOME TAXES 1,609,482
INCOME TAX EXPENSE 652,288
----------
NET EARNINGS $ 957,194
==========
</TABLE>
<PAGE> 23
Merchants Mortgage Corporation
Statement of Cash Flows
For the Nine Months Ended September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
- --------------------------------------------------------------------------------
<S> <C>
Operating Activities:
Net income $ 957,194
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 3,108
Provision for loan loss (65,142)
Loss on sale of capital assets 4,500
Changes in operating assets and liabilities:
Other current assets 319,449
Other current liabilities 410,621
-----------
Net cash provided by operating activities 1,629,730
Investing Activities:
Disposal of capital assets 120,034
Other-net 35,266
-----------
Net cash provided by investing activities 155,300
-----------
Increase in cash and cash equivalents 1,785,030
Cash and cash equivalents at beginning of year 13,554,155
-----------
Cash and cash equivalents at September 30, 1996 $15,339,185
===========
</TABLE>
<PAGE> 24
ANNEX B
<PAGE> 25
CROWN NORTHCORP, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisition by Crown NorthCorp, Inc. (the "Company") of
Merchants Mortgage Corporation ("Merchants") using the purchase method of
accounting, and are based on estimates and assumptions set forth below and in
the notes to such statements, which include pro forma adjustments. These pro
forma financial statements are based upon the historical financial statements
of Crown NorthCorp, Inc., adjusted to give effect to the acquisition of
Merchants on January 1, 1996 and 1995, respectively.
The unaudited pro forma consolidated balance sheet at September 30, 1996
reflects the accounts of Merchants Mortgage Corporation as if such acquisition
occurred on September 30, 1996.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deemed appropriate;
however, management does not expect the final purchase price allocation to
materially differ from the above amounts. The unaudited pro forma consolidated
financial information does not profess to represent the Company's results of
operations had the above transaction, in fact, occurred on these dates, or to
project the Company's combined results of operations for any date or period.
The pro forma consolidated financial information should be read in conjunction
with the Company's historical financial statements and notes thereto.
<PAGE> 26
Crown NorthCorp Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
==================================================================================================================================
Merchants Pro Forma Pro Forma
Historical (a) Mortgage (b) Adjustments Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $390,265 $15,339,185 (15,339,185)(d) $390,265
Accounts receivable-net 2,805,740 126,992 (126,992)(c) 2,805,740
Prepaid expenses and other assets 215,245 3,862 (3,862)(c) 215,245
---------- ----------- ----------- -----------
Total current assets 3,411,250 15,470,039 (15,470,039) 3,411,250
PROPERTY AND EQUIPMENT-Net 2,054,925 4,637 (4,637)(c) 2,054,925
RESTRICTED CASH 367,792 3,298,653 (d) 3,666,445
INTANGIBLE ASSETS-Net 440,270 244,787 (e) 685,057
OTHER ASSETS 231,962 2,270,082 (2,270,082)(c) 231,962
---------- ----------- ----------- -----------
TOTAL $6,506,199 $17,744,758 (14,201,318) $10,049,639
---------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Notes payable $2,638,152 $ 2,638,152
Current portion of long term obligations 35,000 35,000
Accounts payable 334,094 $430,765 (430,765)(c) 334,094
Accrued liabilities 309,879 59,392 (59,392)(c) 309,879
---------- ----------- ------------ -----------
Total current liabilities 3,317,125 490,157 (490,157) 3,317,125
LONG TERM OBLIGATIONS- Less current portion:
Industrial development revenue bond 1,330,000 1,330,000
Loan loss reserve 6,620,351 (5,358,866)(c) 1,261,485
---------- ----------- ------------ -----------
Total long-term obligations 1,330,000 6,620,351 (5,358,866) 2,591,485
PREFERRED STOCK 2,000,000 (d) 2,000,000
SHAREHOLDERS' EQUITY:
Preferred stock 281,955 (d) 281,955
Common stock 82,500 350,000 (350,000)(c) 82,500
Additional paid-in capital 2,192,772 3,420,934 (3,420,934)(c) 2,192,772
Retained earnings (386,039) 6,863,316 (6,863,316)(c) (386,039)
Excess purchase price of subsidiary (13,423) (13,423.00)
---------- ----------- ------------ -----------
Subtotal 1,875,810 10,634,250 (10,352,295) 2,157,765
Less: Treasury stock, at cost (16,736) (16,736.00)
---------- ----------- ------------ -----------
Total shareholders' equity 1,859,074 10,634,250 (10,352,295) 2,141,029
---------- ----------- ------------ -----------
TOTAL $6,506,199 $17,744,758 (14,201,318) $10,049,639
========== =========== ============ ===========
</TABLE>
(a) Historical unaudited condensed consolidated balance sheet of the Company as
of September 30, 1996
(b) Historical unaudited condensed balance sheet of Merchants as of September
30, 1996
(c) Adjustments to record assets purchased and liabilities assumed at their
estimated fair values.
(d) Reflects the acquisition for cash, the issuance of 2000 shares of the
Company's Series B Preferred Stock and 500 shares of the Company's Series C
Convertible Preferred Stock.
(e) The excess of purchase price over net tangible assets acquired allocated to
acquired loan servicing costs to be amortized over the term of the loan
servicing period.
<PAGE> 27
Crown NorthCorp Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
For the year ended December 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
=================================================================================================================================
Merchants Pro Forma Pro Forma
Historical Mortgage Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Management fees $7,459,832 $1,983,866 $9,443,698
Disposition, liquidation and bonus fees 6,943,795 6,943,795
Incentive fees 3,297,964 3,297,964
Other 381,591 1,166,163 (1,166,163) (a) 381,591
----------- ----------- ----------- -----------
Total revenues 18,083,182 3,150,029 (1,166,163) 20,067,048
OPERATING AND ADMINISTRATIVE EXPENSES:
Personnel 10,451,878 197,643 (197,643) (a) 10,451,878
Occupancy 1,180,827 149,816 (149,007) (a) 1,181,636
Insurance 303,894 303,894
Depreciation and Amortization 1,040,656 63,971 (63,971) (a) 1,040,656
Other 1,481,370 136,408 (63,389) (b) 1,574,389
20,000 (c)
----------- ----------- ----------- -----------
Total operating and administrative expenses 14,458,625 547,838 (474,010) 14,552,453
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 3,624,557 2,602,191 (692,153) 5,514,595
OTHER EXPENSES
Minority interest 397,222 397,222
Interest- expense 166,037 166,037
Loss on write off of property and equipment 19,884 39,997 (39,997) (a) 19,884
----------- ----------- ----------- -----------
Total other expenses 583,143 39,997 (39,997) 583,143
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 3,041,414 2,562,194 (652,156) 4,931,452
----------- ----------- ----------- -----------
INCOME TAX EXPENSE 1,348,668 1,038,509 (202,177) (a) 2,185,000
----------- ----------- ----------- -----------
NET EARNINGS $1,692,746 $1,523,685 ($449,979) $2,746,452
=========== =========== =========== ===========
EARNINGS PER SHARE $0.21 $0.33
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,244,381 8,244,381
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) To reflect revenue and expense reductions attributable to reduced cash
balances and the absorption of loan processing activities with accompanying
elimination of expenses.
(b) Includes expense reductions and amortization of acquired loan servicing
cost over the weighted average life of loans.
(c) To reflect letter of credit expense required for FNMA DUS program.
<PAGE> 28
Crown NorthCorp Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
====================================================================================================================================
Merchants Pro Forma Pro Forma
Historical Mortgage Adjustments Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Management fees $4,558,518 $1,081,232 $5,639,750
Disposition, liquidation and bonus fees 1,848,134 1,848,134
Incentive fees 1,302,219 1,302,219
Other 209,625 627,115 ($627,115) (a) 209,625
---------- ---------- ---------- ----------
Total revenues 7,918,496 1,708,347 (627,115) 8,999,728
OPERATING AND ADMINISTRATIVE EXPENSES:
Personnel 6,976,517 80,884 (80,884) (a) 6,976,517
Occupancy 1,084,334 21,571 (21,075) (a) 1,084,830
Insurance 207,132 207,132
Depreciation and Amortization 1,798,017 3,108 (3,108) (a) 1,798,017
Other 888,002 (6,698) 55,508 (b) 951,812
15,000 (c)
---------- ---------- ---------- ----------
Total operating and administrative expenses 10,954,002 98,865 (49,559) 11,018,308
---------- ---------- ---------- ----------
EARNINGS FROM OPERATIONS (3,035,506) 1,609,482 (577,556) (2,018,580)
OTHER EXPENSES
Minority interest (353,158) (353,158)
Interest 156,627 171,627
Loss on write off of property and equipment 47,779 47,779
Loss on disposal of subsidiary 1,406,724 1,406,724
---------- ---------- ---------- ----------
Total other expenses 1,257,972 0 0 1,272,972
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES (4,293,478) 1,609,482 (577,556) (3,291,552)
---------- ---------- ---------- ----------
INCOME TAX (CREDIT) EXPENSE (1,248,978) 652,288 (361,310) (a) (958,000)
---------- ---------- ---------- ----------
NET EARNINGS ($3,044,500) $957,194 ($216,246) ($2,333,552)
========== ========== ========== ==========
EARNINGS PER SHARE ($0.37) ($0.28)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,199,779 8,199,779
========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) To reflect revenue and expense reductions attributable to reduced cash
balances and the absorption of loan processing activities with accompanying
elimination of expenses.
(b) Includes expense reductions and amortization of acquired loan servicing
cost over the weighted average life of loans.
(c) To reflect letter of credit expense required for FNMA DUS program.
<PAGE> 1
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
CROWN NORTHCORP, INC.
By: /s/
---------------------------
Name: Louis J. Castelli
Title: President
CNC/DUS NEWCO, INC.
By: /s/
---------------------------
Name: Louis J. Castelli
Title: President
REINLEIN/LIESER/MCGEE HOLDING CORPORATION
By: /s/
---------------------------
Name: Karl H. Reinlein
Title: President
R/L/M EMPLOYEE BENEFIT CORPORATION
By: /s/
---------------------------
Name: Karl H. Reinlein
Title: President
/s/
---------------------------
KARL H. REINLEIN
[Signatures continued on next page]
S-1
<PAGE> 2
/s/
---------------------------
GEORGE F. LIESER
/s/
---------------------------
JOHN R. MCGEE
/s/
---------------------------
JOHN R. MCGEE, TRUSTEE
S-2
<PAGE> 3
Schedule 2.04
PURCHASE PRICE COMPUTATION
Restricted cash account (after adjustment in
February, 1996) $ 984,000
Purchased servicing rights 355,636
----------
SUBTOTAL $1,339,636
Less discount for future losses 100,000
----------
PURCHASE PRICE * $1,239,636
Adjustments pursuant to Section 2.04(e) [ ]
-----------
TOTAL [ ]
*In computing the purchase price, the parties have assumed that, at or
prior to Closing, the Stockholders will withdraw all unrestricted cash and
other liquid assets and will satisfy all liabilities, save and except for the
potential liabilities associated with the FNMA Loan portfolio. The Purchase
Price will be subject to adjustment pursuant to an Agreement of the parties as
provided in Section 2.04(e) of the Agreement.
ALLOCATION OF PURCHASE PRICE
<TABLE>
<CAPTION>
Cash Consideration Percentage Interest
------------------ -------------------
Stockholder Company No. of Shares Delivered at Closing in Escrow Account(1)
- ----------- ------- ------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Karl H. Reinlein Holding 45 $ 45%
George F. Lieser Holding 45 45%
John R. McGee, as
trustee Holding 10 10%
Karl H. Reinlein Benefit 45 45%
George F. Lieser Benefit 45 45%
John R. McGee Benefit 10 10%
-------------------
TOTAL $
</TABLE>
(1) At such time as the escrow is terminated pursuant to Section 2.04(d), the
sums remaining in the escrow account shall be distributed according to these
percentages.
<PAGE> 4
SCHEDULE 4.01
Stock Purchase and Restrictive Transfer Agreement with respect to Holding dated
April 21, 1988, as amended November 25, 1991.
Month-to-month lease between the Partnership and Patriot Mortgage - see
attached.
<PAGE> 5
PATRIOT
Mortgage
- --------------------------------------------------------------------------------
101 S. Hanley Road, Suite 1300
St. Louis, Missouri 63105-3406
(314)726-6789 (314)725-4547 Fax
December 16, 1993
Mr. Dean Wantland
Executive Vice President
Reinlein/Lieser/McGee
101 S. Hanley Rd., Suite 1300
St. Louis, MO 63105
Re: REINLEIN/LIESER/MCGEE
OCCUPANCY AGREEMENT
Dear Dean:
As you are aware, Patriot Mortgage Company will be relocating its offices,
estimated to be approximately February 1, 1994, to the Manchester/270 area. As
part of the structuring of our lease, we have provided segregated space for the
RLM operation within the area leased by Patriot. Your new area will contain 695
sq. ft. which does not include any allocation of square footage for common
areas, etc.
In order to keep the arrangement as simple as possible I've outlined an
arrangement whereby RLM would simply pay Patriot Mortgage a flat monthly fee,
which will be for rent as well as the utilization of copy machines, phone
system, common areas and utilization of the Patriot receptionist on an as
needed basis. This lease arrangement is extended to RLM on a month to month
basis and provided for a 90-day cancellation notice by either party.
Your monthly rent shall be $1800.00 per month, which includes rent and other
services at outlined above. Not included in this arrangement are any accounting
services or other functions provided by Patriot Mortgage for RLM. RLM shall be
responsible to pay for a prorata portion of the moving expenses related to
<PAGE> 6
the physical move as well as the cost of the installation of telephone and
computer equipment.
The only remaining issue I believe is the area of furniture. I believe Denise
and Sue actually utilize Patriot furniture whereas your furniture is owned by
RLM. As part of the relocation Patriot will purchase your furniture and provide
you and Denise and Sue with alternative furniture. I believe Martha has
Mr. Dean Wantland
December 16, 1993
Page Two
furniture identified for your use, and as we get closer to the move date,
specific pricing of what is being bought and sold can be finalized.
I request that you execute below and return an original for my file.
Yours very truly,
/s/
- ----------------------
Karl H. Reinlein
President
KHR:mjf
ACCEPTED BY:
REINLEIN/LIESER/MCGEE
/s/
- ----------------------
Dean W. Wantland
<PAGE> 7
SCHEDULE 4.02
Foreign qualifications: None
Authorized, issued and outstanding shares of Holding:
30,000 shares authorized at $1 par value, 100 shares outstanding
Authorized, used and outstanding shares of Benefit:
30,000 shares authorized at $1 par value, 100 shares outstanding
Contractual obligations:
Stock Purchase and Restrictive Transfer Agreement with respect to
Holding Terminate by Closing
DUS Contract - assign
DUS Loss Sharing Agreement - assign
DUS Reserve Agreement - assign
See attached servicing information disclosure
Governmental licenses, permits, approvals:
FHA Mortgage #72250-00007
FNMA Seller/Service #21174-000-0
Prior Approval #21174-076-0
DUS #22174-070-1
Leases: See Schedule 4.01
Bank accounts (See Attached); safe deposit boxes:
Mark Twain Bank
12223 Manchester
St. Louis, MO 63131
Box #166
Furniture, fixtures and equipment inventory: See Attached
<PAGE> 8
PLEASE NOTE: This pamphlet contains important
information About your permanent
Loan. Please retain for future
reference.
REINLEIN/LIESER/McGEE
IMPORTANT INFORMATION ABOUT YOUR
FANNIE MAE LOAN
<PAGE> 9
HEREINAFTER SET FORTH are certain procedures and requirements
associated with the permanent Loan servicing of Fannie Mae multifamily project
loans by Reinlein/Lieser/McGee (hereinafter "RLM").
The following address certain standard procedures as established for
these types of transactions. For further clarification, or should you desire
information or assistance in any matter that is not addressed herein, please
contact one of the following RLM representatives at
REINLEIN/LIESER/McGEE
101 South Hanley Road, Suite 1300
St. Louis, Missouri 63105
(314) 721-2500 [FAX: (314) 721-3149]
Denise Pearson, Servicing Manager
Carol A. McClelland, Assistant Vice President
J.R. (Jack) McGee, Managing Partner
We are pleased that you selected RLM as your Lender for this
transaction. We look forward to being of service.
<PAGE> 10
Escrows Established at Closing
These escrows are governed by Fannie Mae regulations, RLM's financing
commitment with Mortgagor, and the Escrow Agreements executed at closing and
thereafter. If a release of any portion of the escrowed funds is deemed
appropriate, Mortgagor should contact RLM to discuss the request procedure
and/or to obtain necessary forms. As release procedures vary among the regional
offices, it may be necessary for RLM to contact the appropriate Fannie Mae
office to determine the exact requirements/actions to be taken.
If an escrow is to be held in the form of a Letter of Credit, the issuing bank
shall have at least one of the following ratings:
1. Moody's or S & P Long-term Senior Debt Rating of AAA, AA or A
2. Keefe, Bruyette & Woods (KBW) Rating of B or better
3. Moody's Long-term Bank Deposit Rating of AAA, AA or A
4. LACE Bank Rating of B or better
Should a decline in the rating of the issuing bank occur during the term of the
Loan, the Letter of Credit must be replaced within 10 days by a Letter of
Credit issued by a bank with an acceptable rating.
I. Achievement Escrow
An achievement escrow, if applicable, shall exist in the form of a
Letter of Credit in an amount calculated as the maximum approved Loan
amount less the base Loan amount. A release of funds may occur when
the Loan can be reunderwritten to show that the base Loan amount does
not exceed the outstanding principal balance remaining on the Loan.
Releases may occur concurrently with the above recalculation for
portions of the escrow.
II. Operating Deficit Escrow
An operating deficit escrow, if applicable, shall exist in the form of
a cash escrow or Letter of Credit, in an amount equal to 150% of the
projected deficit. This escrow shall be held until sustaining
occupancy (break-even) is reached and sustained for a 6-month period.
Draws on the operating deficit escrow for the purpose of payment of
the debt service may be made upon submission and review of monthly
cash flow statements evidencing a deficit.
III. Replacement Reserves
A Reserve for replacements may be required in the form of a cash
escrow, and the Mortgagor shall have the option of determining the
form of investment to be utilized. RLM shall charge a fee for
administering the invested Replacement reserves based upon the form of
investment.
<PAGE> 11
The administrative fee shall be equal to 1% per annum of the amount
invested or $25.00/month, whichever is greater, for the following
types of securities:
A. Demand Deposit and Savings Accounts. The entire deposit must be
insured by the Federal Deposit Insurance Corporation (FDIC), the
National Credit Union Share Insurance Fund (NCUSIF), or the Federal
Savings and Loan Insurance Corporation (FSLIC).
B. Insured Money Market Accounts. Investment in money market accounts
is permitted, provided that the account is insured by one of the
Federal agencies identified above.
IV. Completion/Repairs Escrows
A Completion/Repair escrow, if applicable, shall exist in the form of
a cash escrow or Letter of Credit in an amount equal to 150% of the
estimated cost of repairs. RLM reserves the right to choose the form
of investment, however, Mortgagor shall have the right to any interest
accrued thereon. RLM shall charge a fee for administering invested
Repair Escrow funds in amount equal to 1% per annum of the amount
invested or $25.00/month, whichever is greater.
V. Escrows for Taxes, Insurance, Etc.
The mortgage requires monthly deposits for taxes, insurance, etc. The
amount of said deposits will appear on Mortgagor's Monthly Statement.
Mortgagor should forward any and all tax bills, insurance invoices,
etc., promptly to RLM for payment. Should any change in the tax
assessment, insurance premium, etc., occur, RLM will adjust the
amounts to be escrowed accordingly, and the change will be reflected
in the next billing.
<PAGE> 12
REINLEIN/LIESER/MCGEE
BANK ACCOUNT LISTING
EFFECTIVE AS OF 04/17/95
<TABLE>
<CAPTION>
ACCOUNT LOAN ACCOUNT
DESCRIPTION NUMBER NUMBER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
MERCANTILE BANK OF ST. LOUIS, N.A.
Arch Account N/A 73210000914
Montgomery City Accnt. N/A 305840065
Corporate Funding Accnt. N/A 100-10-90099
Corporate Checking Accnt. N/A 100-10-84092
FNMA Commitment Fee Draft Accnt. N/A 100-14-89549
FNMA PA P&I N/A 100-12-86978
FNMA PA T&I N/A 100-18-15107
Replacement Reserve 30023 100-18-22145
Insurance Loss 30023 100-18-72946
Special Escrow Clearing Accnt. 30023 100-11-04346
FNMA DUS P&I N/A 100-16-94874
FNMA DUS T&I (Checking) N/A 100-14-95165
FNMA DUS T&I (Money Market) N/A 100-18-20404
Replacement Reserve 30003 100-18-19232
Replacement Reserve 30004 100-18-18853
Replacement Reserve 30006 100-18-18986
Replacement Reserve 30011 100-18-21808
Replacement Reserve 30013 100-18-21824
Replacement Reserve 30014 100-18-21832
Replacement Reserve 30021 100-18-22327
Replacement Reserve 30022 100-18-16576
FNMA MBS P&I N/A 100-14-91867
FNMA MBS T&I N/A 100-18-18440
Replacement Reserve 50001 100-18-18770
Replacement Reserve 50002 100-18-18531
Insurance Loss 50002 100-18-73676
COMMERCE BANK OF ST. LOUIS
Money Market Accnt. N/A 0203032428
</TABLE>
<PAGE> 13
03/13/96
REINLEIN/LIESER/MCGEE
INVENTORY LIST
<TABLE>
<CAPTION>
NUMBER ORIGINAL
OF ITEMS ITEM DESCRIPTION COST
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
1 STEELCASE WOODEN EXECUTIVE DESK $70
- ----------------------------------------------------------------------------------------------
1 STEELCASE WOODEN CREDENZA $100
- ----------------------------------------------------------------------------------------------
1 EXECUTIVE DESK CHAIR $212
- ----------------------------------------------------------------------------------------------
1 JG GUEST CHAIR $858
- ----------------------------------------------------------------------------------------------
1 FIVE DRAWER LATERAL FILE $130
- ----------------------------------------------------------------------------------------------
1 FOUR SHELF WOOD BOOKSHELF $10
- ----------------------------------------------------------------------------------------------
2 STEELCASE WOODEN SECRETARIAL DESK $200
- ----------------------------------------------------------------------------------------------
2 OAK FINISH BOOKSHELVES $140
- ----------------------------------------------------------------------------------------------
2 SECRETARIAL OFFICE CHAIRS $738
- ----------------------------------------------------------------------------------------------
2 TWO-DRAWER LATERAL FILING CABINETS $941
- ----------------------------------------------------------------------------------------------
1 THREE-DRAWER SHORT FILING CABINET $250
- ----------------------------------------------------------------------------------------------
4 FOUR-DRAWER LATERAL FILING CABINETS $2,145
- ----------------------------------------------------------------------------------------------
4 FIVE-DRAWER FILING CABINETS $400
- ----------------------------------------------------------------------------------------------
1 FIRE-PROOF VAULT FILE $465
- ----------------------------------------------------------------------------------------------
2 36" X 20" ADJUSTABLE HEIGHT TABLES $146
- ----------------------------------------------------------------------------------------------
1 SIX-SHELF ADJUSTABLE METAL SHELVES $10
- ----------------------------------------------------------------------------------------------
1 TYPING TABLE $10
- ----------------------------------------------------------------------------------------------
1 TYPING CHAIR $50
- ----------------------------------------------------------------------------------------------
1 6015 XEROX MEMORYWRITER TYPEWRITER $755
- ----------------------------------------------------------------------------------------------
3 CALCULATORS $180
- ----------------------------------------------------------------------------------------------
1 IBM PS/II MODEL 30/286 COMPUTER $2,200
- ----------------------------------------------------------------------------------------------
1 HYUNDAI HCM-423E SUPER VGA COLOR MONIT $250
- ----------------------------------------------------------------------------------------------
1 DTK FILE SERVER COMPUTER SYSTEM $3,500
- ----------------------------------------------------------------------------------------------
2 DTK COMPUTER WORKSTATION $2,000
- ----------------------------------------------------------------------------------------------
3 WHITE MONOCHROME MONITOR $540
- ----------------------------------------------------------------------------------------------
1 HP LASERJET SERIES III LASER PRINTER $1,800
- ----------------------------------------------------------------------------------------------
1 PANASONIC KX-P2180 DOT MATRIX PRINTER $180
- ----------------------------------------------------------------------------------------------
1 MULTIMODEM 224E 1200/2400-BAUD MODEM $200
- ----------------------------------------------------------------------------------------------
1 A/B DATA TRANSFER SWITCH $22
- ----------------------------------------------------------------------------------------------
1 OMNIFAX 9S FAX MACHINE $1,233
- ----------------------------------------------------------------------------------------------
1 SERIES 6200 MAIL MACHINE WITH 5# SCALE & $2,872
POSTAGE BY PHONE POSTAGE METER
- ----------------------------------------------------------------------------------------------
1 TRAKKER 250MB TAPE BACKUP DRIVE $331
- ----------------------------------------------------------------------------------------------
1 EPSON LQ-870 PRINTER $495
- ----------------------------------------------------------------------------------------------
TOTAL $23,433
</TABLE>
MISCELLANEOUS OFFICE SUPPLIES AS REQUIRED TO CONDUCT BUSINESS
<PAGE> 14
SCHEDULE 5.01
Servicing Systems:
Financial Industry Computer Systems, Inc. (FICS) Commercial
Servicer Version 4.31
Loan categorization:
A, B & C: See Attached
Loan portfolio: See Attached
<PAGE> 15
SCHEDULE 1
REINLEIN LEISER McGEE - D.U.S. LOAN PORTFOLIO - 2/17/96 SUMMARY
<TABLE>
<CAPTION>
SEGMENT "A" DEBT SERVICE COVERAGE RATIO OF 1.65 OR GREATER FOR 1995 FULL YEAR
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY NAME CITY STATE # UNITS DSC RATIO ADJ DSCR CUR. OCC. YR. BUILT LOAN AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SANTA FE SHADOWS LAS VEGAS NV 124 1.67 97% 1989 $3,121,200
AUTUMNWOODS BIRMINGHAM AL 206 1.3 99% 1987 $5,497,799
DEERCROSS* LUFKIN TX 168 1.72 82% 1986 $2,695,497
LAKE MIST APTS CHAR. NC 144 1.32 95% 1984 $3,690,364
HARVARD TOWERS CAMBRDG MA 110 1.14 NA 1959 $4,388,701
COACH/CARRIAGE APTS CHLMSFD MA 149 1.15 96% 1968 $5,403,090
ADAMS STATION APTS ALBANY NY 166 1.18 85% 1988 $6,708,679
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LEVEL I 1067 $31,505,330
</TABLE>
<TABLE>
<CAPTION>
SEGMENT "A" DEBT SERVICE COVERAGE RATIO OF 1.65 OR GREATER FOR 1995 FULL YEAR
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY NAME ACH. ESC. LOAN/UNIT MAT. DATE YEARS-MAT. ANN SERV. TOTAL SERV. PRICE***
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SANTA FE SHADOWS $0 $25,171 Apr-97 1.00 $7,803 $7,803 $3,902
AUTUMNWOODS $0 $26,688 Jul-97 1.25 $13,744 $17,171 $8,586
DEERCROSS* $41,749 $16,045 Sep-2000 4.42 $6,739 $29,798 $14,899
LAKE MIST APTS $0 $25,626 Jul-97 1.25 $9,226 $11,526 $5,763
HARVARD TOWERS $0 $39,897 Mar-97 0.92 $10,972 $10,040 $5,020
COACH/CARRIAGE APTS $0 $36,262 Aug-97 1.33 $13,508 $18,023 $9,011
ADAMS STATION APTS $0 $40,414 Jan-2004 7.76 $42,265 $327,812 $169,059
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LEVEL I $31,505,330 $104,256 $422,173 $216,239
</TABLE>
<TABLE>
<CAPTION>
SEGMENT "B" DEBT SERVICE COVERAGE RATIO OF LESS THAN 1.65 FOR FULL YEAR 1995
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY NAME CITY STATE # UNITS DSC RATIO ADJ DSCR CUR. OCC. YR. BUILT LOAN AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BROOKSIDE APTS SACMNTO CA 92 1.01 92% 1989 $4,745,370
BELL STATION APTS MONTGRY AL 152 1.10 90% 1986 $5,139,325
BURTON PLACE APTS ONTARIO CA 36 0.96 88% 1989 $1,632,154
RIVERVIEW APTS** GRAFTON MA 60 1.00 96% 1966 $4,400,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LEVEL II 360 $16,116,849
</TABLE>
<TABLE>
<CAPTION>
SEGMENT "B" DEBT SERVICE COVERAGE RATIO OF LESS THAN 1.65 FOR FULL YEAR 1995
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY NAME ACH. ESC. LOAN/UNIT MAT. DATE YEARS-MAT. ANN SERV. TOTAL SERV. PRICE***
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BROOKSIDE APTS $420,000 $51,580 Feb-2000 3.84 $11,851 $45,488 $0
BELL STATION APTS $388,000 $33,811 Apr-2000 4.00 $12,958 $51,668 $0
BURTON PLACE APTS $0 $50,693 Jan-2004 7.76 $11,543 $89,526 $0
RIVERVIEW APTS** $0 $55,000 Apr-2003 7.00 $14,080 $98,560 $0
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LEVEL II $50,432 $285,442 $0
</TABLE>
<TABLE>
<CAPTION>
SEGMENT "C" NON-BUS LOANS
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY NAME CITY STATE AGENCY PROGRAM FUNDED LOAN AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOTOGRANDE-Somerset**** HURST TX FNMA PRIOR APP 09/25/90 $40,000,000
- --------------------------------------------------------------------------------------------------------------------------------
$40,000,000
TOTALS $87,622,179
</TABLE>
<TABLE>
<CAPTION>
SEGMENT "C" NON-BUS LOANS
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY NAME MAT. DATE YEARS-MAT. ANN SERV. TOTAL SERV. PRICE***
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOTOGRANDE-Somerset**** Jul-2005 9.29 $30,000 $278,795 $139,397
- --------------------------------------------------------------------------------------------------------------------------------
$30,000 $278,795 $139,397
TOTALS $355,636
</TABLE>
* CURRENTLY UNDER APPLICATION WITH MELLON FOR REFINANCE
** CURRENTLY UNDER APPLICATION FOR STREAMLINE REFINANCE INCLUDES $250,000
PERSONAL GUARANTEE
*** PRICE FOR SERVICING EQUALS 50% OF REMAINING SERVICING OR A MAXIMUM OF
4 TIMES ANNUAL
**** CURRENTLY INCLUDES $6 MIL IMPROVEMENT ESCROW WITH SERVICING FEE OF 1%
OF OUTSTANDING BALANCE
<PAGE> 16
REINLEIN/LIESER/McGEE
LOAN SERVICING SCHEDULE
APRIL 1996
<TABLE>
<CAPTION>
NOTE/COUPON TOTAL TOTAL "BOND"
PRICE/RLM/SERV/ PRINCIPAL DEBT SERVICE TRUSTEE RLM FNMA OPERATING
PROJECT NAME FNMA SERVICING BALANCE PAYMENT INTEREST SERVICING SERVICING FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOMERSET VILLAGE APTS 6.835% / 6.701% $40,000,000.00 $227,833.33 $223,666.67 $2,499.99 $1,666.67 $2,594.50
Hurst/Euless, TX 100.00% / 0.075%
#30023 0.050%
=====================================================================================
TOTALS: $40,000,000.00 $227,833.33 $223,666.67 $2,499.99 $1,666.67 $2,594.50
</TABLE>
* BOND OPERATING FUND IS DUE TRUSTEE IN PAYMENT OF TRUSTEE AND ISSUER FEES AND
IS IN ADDITION TO THE DEBT SERVICE DUE AND PAYABLE UNDER THE NOTE.
<TABLE>
<CAPTION>
NOTE/COUPON TOTAL TOTAL
PRICE/SERVICING/ PRINCIPAL MONTHLY FNMA RLM FNMA FNMA
PROJECT NAME MIP BALANCE PAYMENT INTEREST SERVICING PRINCIPAL MIP
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RIVERVIEW APTS. 9.250% / 9.000% $4,762,804.14 $42,545.45 $35,721.03 $595.35 $5,832.17 $396.90
GRAFTON, MA 99.216% / 0.150%
#30003 0.100%
HARVARD TOWERS 9.250% / 9.000% $4,362,473.24 $36,123.49 $32,718.55 $545.31 $2,496.09 $363.54
CAMBRIDGE, MA PAR / 0.150%
#30004 0.100%
SANTA FE SHADOWS 9.500% / 9.250% $3,103.627.40 $26,244.74 $23,923.79 $387.95 $1,674.36 $258.64
LAS VEGAS, NV 97.587% / 0.150%
#30006 0.100%
AUTUMNWOOD APTS 9.500% / 9.250% $5,467,614.27 $46,161.43 $42,146.19 $683.46 $2,876.15 $455.63
HOOVER, AL 97.069% / 0.150%
#30010 0.100%
LAKE MIST 8.500% / 8.250% $3,665,460.88 $28,324.95 $25,200.04 $458.18 $2,361.27 $305.46
CHARLOTTE, NC 92.303% / 0.150%
#30011 0.100%
COACH HOUSE/ 9.250% / 9.000% $5,372,094.65 $44,359.65 $40,290.71 $671.52 $2,949.75 $447.67
CARRIAGE HOUSE APTS. 97.078% / 0.150%
CHELMSFORD, MA 0.100%
#30013
</TABLE>
1
<PAGE> 17
REINLEIN/LIESER/McGEE
LOAN SERVICING SCHEDULE
APRIL 1996
FNMA - DUS (CONTINUED)
<TABLE>
<CAPTION>
NOTE/COUPON TOTAL TOTAL
PRICE/SERVICING/ PRINCIPAL MONTHLY FNMA RLM FNMA FNMA
PROJECT NAME MIP BALANCE PAYMENT INTEREST SERVICING PRINCIPAL MIP
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DEER CROSS APARTMENTS 9.750% / 9.500% $2,682,890.26 $23,116.21 $21,239.55 $335.36 $1,317.73 $223.57
LUFKIN, TX 98.614% / 0.150%
#30014 0.100%
ADAMS STATION APTS. 8.352% / 7.727% $6,655,198.47 $51,387.47 $42,853.93 $2,911.65 $5,067.29 $554.60
DELMAR, NY 100% / 0.525%
#30021 0.100%
BURTON PLACE APTS. 8.352% / 7.727% $1,817,547.71 $14,034.02 $11,703.49 $795.18 $1,383.89 $151.46
ONTARIO, CA 100% / 0.525%
#30022 0.100%
=====================================================================================
TOTALS $37,889,710.82 $312,297.41 $275,797.28 $7,383.96 $25,958.70 $3,157.47
</TABLE>
FNMA - MBS/DUS
<TABLE>
<CAPTION>
NOTE/COUPON TOTAL TOTAL
PRICE/SERVICING/ SECURITY MONTHLY FNMA RLM FNMA FNMA FNMA
PROJECT NAME MIP BALANCE PAYMENT INTEREST SERVICING PRINCIPAL GUARANTY MIP
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BROOKSIDE APTS. 8.250% / 7.500% $4,710,396.44 $35,696.07 $29,439.98 $588.80 $3,312.09 $1,962.67 $392.53
CARMICHAEL, CA PAR / 0.150%
#50001 0.100% / 0.500%
BELL STATION APTS. 8.250% / 7.500% $5,102,010.85 $38,610.03 $31,887.57 $637.74 $3,533.71 $2,125.84 $425.17
MONTGOMERY, AL PAR / 0.150%
#50002 0.100% / 0.500%
=========================================================================================
TOTALS $9,812,407.29 $74,306.10 $61,327.55 $1,226.54 $6,845.80 $4,088.51 $817.70
DISTRIBUTION: REINLEIN WANTLAND
LIESER FILE
MCGEE
</TABLE>
1
<PAGE> 18
SCHEDULE 6.02
The Somerset escrow is described in the attached Completion/Repair and Security
Agreement and Replacement Reserve and Security Agreement.
<PAGE> 19
COMPLETION/REPAIR AND SECURITY AGREEMENT
THIS COMPLETION/REPAIR AND SECURITY AGREEMENT (this "Agreement") is
made this as of 1st day of July, 1995 by Somerset Village Partners, L.P.
("Borrower"), and Tarrant County Housing Finance Corporation, a Texas
non-profit housing finance corporation, its successors, transferees and assigns
("Lender").
RECITALS:
A. This Agreement is being executed in connection with Lender's making a
mortgage Loan to Borrower in the original principal amount of $40,000,000.00
(the "Loan"). The proceeds of the Loan will be used to finance a multifamily
project known as Somerset Village Apartments, and located in 1700 Sotogrande,
Hurst/Euless, Tarrant County, Texas (the "Property").
B. The Loan is evidenced by a Multifamily Note (including any addenda, the
"Note"), dated the date of this Agreement, made by Borrower and is secured by,
among other things, a Multifamily Deed of Trust, Assignment of Rents and
Security Agreement (including any Riders, the "Security Instrument"), granting
a first lien on the Property. The Note, Security Instrument, this Agreement and
all other Documents executed in connection with the Loan are collectively
referred to as the "Loan Documents".
C. Lender requires as a condition of making the Loan that Borrower deposit
with Lender the Deposit (as defined below) as additional security for all of
the Borrower's obligations under the Loan Documents.
D. Lender intends to sell, transfer and deliver the Note and assign the
Security Instrument and the other Loan Documents to
NOW, THEREFORE, in consideration of the above and the mutual promises
contained in this Agreement, the receipt and sufficiency of which are
acknowledged, Borrower and Lender agrees as follows:
1. DEPOSITS TO THE COMPLETION/REPAIR
(a) Borrower agrees to deposit with Lender the sum of $6,000,000.00 Dollars
(the "Deposit") upon execution of this Agreement. The Deposit represents 100
percent of the estimated cost to complete the "Repairs" (defined in Section 2
below).
(b) Lender shall deposit the Deposit in an account (the "Collateral Account")
which meets the standards for custodial accounts as required by Lender from
time to time. Lender shall not be responsible for any losses resulting from
investment of the Collateral Account or for obtaining any specific level or
percentage of earnings on such investment. (The Deposit, and all other funds
from time to time in the Collateral Account are collectively referred to as the
"Collateral Account Funds".) All investment earnings on funds in the Collateral
Account shall be added to and become part of the Collateral Account Funds.
2. ADDITIONAL SECURITY. Borrower assigns to Lender all of Borrower's interest
in the Deposit, the Collateral Account Funds and the Collateral Account as
additional security for all of Borrower's obligations under the Loan Documents;
provided, however Lender shall make disbursements from the Collateral Account
in accordance with the terms of this Agreement. Excepts as otherwise provided
in Sections 4.3 and 6.2 of this Agreement, Lender shall make disbursements from
the Collateral Account to reimburse Borrower
FANNIE MAE COMPLETION/REPAIR AND SECURITY AGREEMENT
FORM 4505 3/94 (Page 1 of 10)
<PAGE> 20
for the costs of those repairs and improvements to the Property described on
Exhibit A attached to this Agreement and made a part hereof (the "Repairs") in
accordance with the terms of this Agreement.
3. AGREEMENT TO COMPLETE REPAIRS. Borrower shall commence the Repairs
immediately following the execution of this Agreement (or as soon thereafter as
weather reasonably shall permit) and shall at all times thereafter diligently
pursue the completion of all Repairs. Borrower shall complete all repairs and
submit invoices therefor no later than twenty-one (21) months after the date of
this Agreement and payment shall be made for such Repairs no later than
twenty-three (23) months after the date of this Agreement (the "Completion
Period"), unless another date for completion of such Repair is set forth on
Exhibit A, in which case Borrower shall complete such Repair no later than the
date specified on Exhibit A. All Repairs shall be made in a good and
workmanlike manner and shall be completed free and clear of any mechanic's or
materialman's liens and encumbrances. Borrower shall pay all costs necessary
for completion of the Repairs without regard to the sufficiency of funds in the
Collateral Account.
4. DISBURSEMENTS FROM THE COLLATERAL ACCOUNT.
4.1 REQUEST FOR DISBURSEMENTS
(a) Upon written request from Borrower and satisfaction of the requirements
set forth in Sections 4 and 5 of this Agreement, Lender shall disburse to
Borrower amounts from the Collateral Account to reimburse Borrower for the
actual cost of each Repair (but not exceeding 100 percent of the original
estimated cost of such Repair as set forth on Exhibit A, unless Lender has
agreed to reimburse Borrower for such excess cost pursuant to Section 4.3) upon
completion of such Repairs (or, upon the partial completion of any Repairs made
pursuant to, and in accordance with, Section 4.1(e) below). Notwithstanding the
preceding, Lender shall not be required to disburse any amounts which would
cause the amount of funds remaining in the Collateral Account after any
disbursement (other than with respect to the final disbursement) to be less
than 100 percent of the then current estimated cost of completing all remaining
Repairs. In no event shall Lender be obligated to disburse Collateral Account
Funds if a default exists under this Agreement (including but not limited to
Borrower's failure to pay in full any fees, costs and expenses then due and
payable under this Agreement) or any of the other Loan Documents, or if an act,
event or condition shall have occurred and then be existing that with notice
and/or the lapse of time would constitute a default under any of the Loan
Documents.
(b) Each request for disbursement from the Collateral Account shall be made
on a form provided or approved by Lender and shall specify (i) the specific
Repairs for which payment is requested, (ii) the quantity and price of each
item purchased, if the Repair includes the purchase or Replacement of specific
items (such as appliances), (iii) the price of all materials (grouped by type
or category) used in any Repair other than the purchase or Replacement of
specific items, and (iv) the cost of all contracted labor or other services
involved in the Repairs for which such request for disbursement is made.
Borrower shall certify that the Repairs covered by the requisition have been
completed in a good and workmanlike manner and in accordance with any plans and
specifications previously approved by Lender and that all such Repairs are in
compliance with all applicable laws, ordinances, rules and regulations of any
governmental authority, agency or instrumentality having jurisdiction over the
Property. Each request for reimbursement shall include copies of invoices for
all items or materials purchased and all labor or services provided and, unless
Lender has agreed to issue joint checks as described below in connection with a
particular Repair, shall include evidence of payment satisfactory to Lender.
FORM 4505 3/94 (Page 2 of 10)
<PAGE> 21
(c) Lender has agreed to issue checks in connection with Repairs made
pursuant to Section 4.1(e) below, payable to the supplier, materialman,
mechanic, subcontractor or other party to whom payment is due in
connection with a Repair described in Section 4.1(e). In the case of all
payments made by check, Lender may require a waiver of items from each
contractor receiving payments, prior to Lender's disbursement of any further
Collateral Account Funds.
(d) Except as provided in Section 4.1(e), each request for disbursement shall
be made only after completion of the Repair for which disbursement is
requested. Borrower shall provide Lender evidence satisfactory to Lender in
its reasonable judgment, of completion, as provided in Section 5.1 and 5.2
below.
(e) If (i) the contractor performing a Repair under a written contract
requires periodic payments, and (ii) Lender has approved in writing in advance
such periodic payments, a request for disbursement from the Collateral Account
may be made after completion of a portion of the work under such contract,
(provided that the contract requires payment upon completion of such portion of
the work), but only if (w) all other conditions for disbursement under this
Agreement have been met (including but not limited to the limitations in
Section 4.1(a)), (x) the materials for which the request for disbursement has
been made are on site at the Property and are properly secured or have been
installed in the Property, (y) the remaining funds in the Collateral Account
designated for such Repair are, in Lender's judgment, sufficient to complete
that Repair (z) each contractor or subcontractor receiving payments under such
Contract shall have provided a waiver of liens with respect to amounts which
have been previously paid to that contractor or subcontractor, and (aa) an
abstractor's certificate showing no mechanic's liens affecting the Property as
of the date of such disbursement is delivered to Lender.
(f) Borrower shall not make a request for disbursement from the Collateral
Account more frequently than once in any month. Other than in connection with
the final request for disbursement, Borrower shall not request disbursements
from the Collateral Account in an amount of less than $50,000 or more than
$200,000.00 unless accompanied by lien waivers for the excess over $200,000.00
4.2 FINAL DISBURSEMENT. Lender shall disburse to Borrower all remaining
Collateral Account Funds (less all amounts which may have been applied by
Lender as permitted by this Agreement) upon Borrower's completion of all
Repairs to the satisfaction of Lender on or before the expiration of the
Completion Period, provided that (i) there is no default under any of the Loan
Documents which has not been cured to Lender's satisfaction, (ii) Lender has
received evidence required by Section 5.3 below that there are no mechanic's or
materialmen's liens, and (iii) Lender has received all cost and architectural
information required by Lender.
4.3 ITEMS NOT SPECIFIED OR COSTS IN EXCESS OF THOSE SPECIFIED ON EXHIBIT A.
In the event Borrower requests a disbursement from the Collateral Account to
reimburse Borrower for the actual cost of labor or materials associated with
repairs or improvements other than Repairs specified on Exhibit A, or for a
Repair to the extent the cost of such Repair exceeds 100 percent of the
estimated cost of such Repair as set forth on Exhibit A (in either case, an
"Additional Cost Item"), Borrower shall disclose in writing to Lender why
Lender should make a disbursement from the Collateral Account to reimburse
Borrower for such Additional Cost Item. If Lender determines that (i) such
Additional Cost Item is of the type intended to be covered by this Agreement,
(ii) the costs for such Additional Cost Item are reasonable, (iii) and (iv) all
other conditions for disbursement under this Agreement have been met, Lender
shall disburse Collateral Account Funds for such Additional Cost Item;
provided, however, that Lender, in its discretion, may refuse to disburse
Collateral Account Funds for any item other than a Repair described on Exhibit
A.
FORM 4505 3/94 (Page 3 of 10)
<PAGE> 22
5. PERFORMANCE OF REPAIRS.
5.1 WORKMANLIKE COMPLETION.
(a) Lender shall have the right to approve all contracts or work orders in
excess of $100,000.00 with materialmen, mechanics, suppliers, subcontractors,
contractors or other parties providing labor or materials in connection with
the Repairs. Upon Lender's request, Borrower shall assign any contract or
subcontract to Lender.
(b) In the event Lender determines in its sole discretion that any Repair has
not been begun as agreed in Section 3 above, is not being performed in a
workmanlike or timely manner, or has not been completed in a workmanlike manner
within the Completion Period (or such other completion date as may be set forth
on Exhibit A), Lender shall have the option to withhold disbursements for such
nonsatisfactory Repair, proceed under existing contracts or contract with third
parties to make or complete such Repair and to apply the funds in the
Collateral Account toward the labor and materials necessary to make or complete
such Repair without providing any prior notice to Borrower and to exercise any
and all other remedies available to Lender upon a default pursuant to Section
6.1 hereof.
(c) In order to facilitate Lender's completion or making of the Repairs under
Section 5.1(b) above, Lender shall have the right to enter onto the Property
and perform any and all work and labor necessary to make or complete the
Repairs and employ watchmen to protect the Property from damage. All sums so
expended by Lender pursuant to this Section 5 or pursuant to any other
provision of this Agreement, shall be deemed to have been advanced to Borrower
and shall be secured by the Security Instrument. Borrower hereby constitutes
and appoints Lender its true and lawful attorney-in-fact with full power of
substitution to complete or undertake the Repairs in the name of Borrower.
Borrower empowers said attorney-in-fact as follows:
(i) to use any of the funds in the Collateral Account which have not been
disbursed for the purpose of making or completing the Repairs;
(ii) to make such additions, changes and corrections to the Repairs as
shall be necessary or desirable to complete the Repairs;
(iii) to employ such contractors, subcontractors, agents, architects and
inspectors as shall be required for such purposes;
(iv) to pay, settle or compromise all bills and claims for materials and
work performed in connection with the Repairs or as may be necessary or
desirable for the completion of the Repairs or for clearance if title;
(v) to execute all applications and certificates in the name of the
Borrower which may be required by any of the contract Documents;
(vi) to prosecute and defend all actions or proceedings in connection with
the Property or the rehabilitation and repair of the Property; and
(vii) to do any and every act which Borrower might do in its own behalf to
fulfill the terms of this Agreement.
FORM 4505 3/94 (Page 4 of 10)
<PAGE> 23
It is further understood and agreed that this power of attorney, which shall be
deemed to be a power coupled with an interest, cannot be revoked. Borrower
specifically agrees that all power granted to Lender under this Agreement may
be assigned by Lender to Lender's successor or assigns as holder of the Note.
(d) Except as modified by Annex I, nothing in this Section 5.1 shall:
(i) make Lender responsible for making or completing the Repairs;
(ii) require Lender to expend funds to make or complete any Repair;
(iii) obligate Lender to proceed with the Repairs; or
(iv) obligate Lender to demand from Borrower additional sums to make
or complete any Repair.
5.2 ENTRY ONTO PROPERTY; INSPECTIONS
(a) Borrower shall permit Lender or Lender's representatives (including an
independent person such as an engineer, architect or inspector) or third
parties making Repairs pursuant to Section 5.1(b) of this Agreement, to enter
onto the Property during normal business hours (subject to the rights of
tenants under their leases) to inspect the progress of any Repairs and all
materials being used in connection with such Repairs, to examine all plans and
shop drawings relating to such Repairs which are or may be kept at the
Property, to inspect all books, contracts, subcontracts and records of Borrower
with respect to the Property, and to compete the Repairs pursuant to Section
5.1(b). Borrower agrees to cause all contractors and subcontractors to
cooperate with Lender, Lender's representatives, and such other persons
described above in connection with inspections and Repairs made pursuant to
this Section 5.2 and Section 5.1(b).
(b) Lender may inspect the Property in connection with any Repair prior to
disbursing Collateral Account Funds for such Repair. Borrower shall pay Lender
a reasonable inspection fee not exceeding $ -0- for each such inspection. Prior
to disbursing any amounts from the Collateral Account for a Repair, Lender may
require an inspection and/or certificate of completion by an appropriate
independent qualified professional (such as an architect, engineer, or
inspector, depending on the nature of the Repair) selected by Lender. Borrower
shall pay all reasonable fees and expenses charged by such engineer, architect,
inspector or other person inspecting the Property, and all other reasonable
fees, costs and expenses relating to such inspections.
5.3 LIEN-FREE COMPLETION.
(a) Borrower covenants and agrees that each of the Repairs and all materials,
equipment, fixtures, or any other item comprising a part of any Repair shall be
constructed, installed or completed, as applicable, free and clear of any
mechanic's, materialman's or other liens (except for liens existing on the date
of this Agreement which have been previously approved in writing by Lender).
(b) Prior to each disbursement of amounts from the Collateral Account, Lender
may require Borrower to provide Lender with either (i) a search of title to the
Property effective to the date of release, or (ii) an endorsement to the title
insurance policy insuring Lender's interest in the Property which updates the
effective date of the policy to the date of the disbursement from the
Collateral Account, which search or title endorsement shows that no mechanic's
or materialman's liens or other liens (other than the lien of the
FORM 4505 3/94 (Page 5 of 10)
<PAGE> 24
Security Instrument and any other liens previously approved in writing by
Lender, if any).
(c) In addition, Lender may require Borrower to obtain from any contractor,
subcontractor, or materialman an acknowledgment of payment and release of lien
for work performed and/or materials supplied. Any such acknowledgment and
release shall conform to the requirements of applicable law and shall cover all
work performed and materials (including equipment and fixtures) supplied for
the Property (except for any holdback amounts) through the date covered by the
current request for disbursement from the Collateral Account (or the date
covered by the previous request for disbursement in the event such contractor,
subcontractor or materialman is to be paid by a joint check).
5.4 COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS.
(a) All Repairs shall comply with all applicable laws, ordinances, rules and
regulations of all governmental authorities having jurisdiction over the
Property and applicable insurance requirements including, without limitation,
applicable building codes, special use permits, environmental regulations, and
requirements of insurance underwriters.
(b) Borrower represents and warrants that to the best of its knowledge, no
permits or approvals from any agency or authority, other than those previously
obtained and furnished to Lender, or which shall be obtained and furnished to
Lender prior to commencement of any work, are necessary for the completion of
the Repairs. Borrower shall pay all applicable fees and charges of such
agencies or authorities.
(c) In addition to any insurance required under the other Loan Documents,
Borrower shall provide or cause to be provided workmen's compensation
insurance, builder's risk, and public liability insurance and other insurance
required by applicable law in connection with completing the Repairs. All such
policies shall be issued by companies approved by Lender and shall be in form
and amount satisfactory to Lender. All such policies which can be endorsed with
standard mortgagee clauses making loss payable to Lender or its assigns shall
be so endorsed. The originals of such policies shall be delivered to Lender.
6. DEFAULTS
6.1 DEFAULT UNDER THIS AGREEMENT. If (i) Borrower at any time prior to the
completion of the Repairs abandons or ceases work on any Repair (which Borrower
has commenced making) for a period of more than 20 days, unless such cessation
results from causes beyond the control of Borrower and Borrower is diligently
pursuing the reinstitution of work, (ii) Borrower fails to complete each Repair
in a good and workmanlike manner and submit invoices therefor within twenty-one
(21) months after the date of this Agreement or payment is not made for such
Repairs within twenty-three (23) months of the date of this Agreement, (iii) a
mechanic's or materialman's lien is filed against the Property (unless such
mechanic's or materialman's lien is promptly contested in good faith by
Borrower and is bonded off to the satisfaction of Lender), (iv) Borrower fails
to comply with any provision of this Agreement not specifically addressed by
clauses (i), (ii) or (iii) above, and such failure is not cured within 10 days
of notice of such non-performance or non-compliance, or (v) a default occurs
under any of the other Loan Documents, such event shall be deemed a default
hereunder and Lender may at its option hold and apply the funds in the
Collateral Account as provided in Section 6.2 of this Agreement. Borrower
understands that a default under this Agreement shall be deemed to be a default
under the terms of the Note, the Security Instrument and the other Loan
Documents, and that in addition to the remedies specified in this Agreement,
the Lender will be able to exercise all of its rights and remedies under the
Note, Security Instrument and the other Loan Documents in the event of a
default.
FORM 4505 3/94 (Page 6 of 10)
<PAGE> 25
6.2 DEFAULT UNDER THE OTHER LOAN DOCUMENTS.
(a) Subject to the provisions of Annex I, if Borrower defaults on any payment
due under the Note or under any covenant in the Security Instrument, or any
term or provision of this Agreement or of any other Loan Document, then
Borrower shall immediately lose all of its rights to receive disbursements of
the Collateral Account Funds unless and until all amounts secured by the
Security Instrument have been paid in full and the lien of Security Instrument
has been released by Lender. Upon any such default, Lender, in its sole and
absolute discretion, may use the Collateral Account Funds (or any portion
thereof) for any purpose, including but not limited to (i) repayment of any
indebtedness secured by the Security Instrument and the prepayment premium
applicable upon a full or partial prepayment (as applicable) provided, however,
that such application of funds shall not cure or be deemed to cure any default;
(ii) reimbursement of Lender for any losses or expenses (including, without
limitation, legal fees) suffered or incurred by Lender as a result of such
default; (iii) making or completing the Repairs as provided in Section 5, or
(iv) applying the funds in connection with exercising any and all rights and
remedies available to Lender at law or in equity or under this Agreement or
pursuant to any of the other Loan Documents.
(b) Nothing in this Agreement or the Security Instrument shall obligate
Lender to apply all or any portion of the Collateral Account Funds on account
of any default by Borrower or to repayment of the indebtedness evidenced by the
Note or in any specific order of priority.
6.3 BORROWER'S OTHER OBLIGATIONS. Nothing contained in this Agreement shall
in any manner whatsoever alter, impair or affect the obligations of Borrower,
or relieve Borrower of any of its obligations to make payments and perform all
of its other obligations required under the Loan Documents.
7. REMEDIES CUMULATIVE. None of the rights and remedies conferred upon or
reserved to Lender under this Agreement are intended to be exclusive of any
other rights, and each and every such right shall be cumulative and concurrent,
and may be enforced separately, successively or together, and may be exercised
from time to time as often as may be deemed necessary by Lender.
8. ADDITIONAL DOCUMENTS. Upon completion of all or any portion of the Repairs
and upon Lender's request, Borrower shall execute and deliver to Lender an
amendment to the security Agreement provisions of the Security Instrument and
the original financing statement necessary or desirable to perfect Lender's
lien upon any Property for which Collateral Account Funds were expended.
9. ASSIGNMENT OF COLLATERAL ACCOUNT FUNDS AND THIS AGREEMENT.
10. INDEMNIFICATION. Borrower agrees to indemnify and hold Lender harmless
from and against any and all actions, suits, claims, demands, liabilities,
losses, damages, obligations and costs or expenses, including litigation costs
and reasonable attorney's fees, arising from or in any way connected with the
performance of the Repairs or investment of the Collateral Account Funds.
Borrower hereby assigns to Lender all rights and claims Borrower may have
against all persons or entities supplying labor or materials in connection with
the Repairs; provided, however, that Lender may not pursue any such right or
claim unless Borrower is in default under this Agreement or the Loan Documents.
11. DETERMINATION BY LENDER. In any instance where the consent or approval
of Lender may be given or
FORM 4505 3/94 (Page 7 of 10)
<PAGE> 26
is required, or where any determination, judgment or decision is to be rendered
by Lender under this Agreement, the granting, withholding or denial of such
consent or approval and the rendering of such determination, judgment or
decision shall be made or exercised by Lender (or its designated
representative) at its discretion.
12. BORROWER'S RECORDS. Borrower shall furnish such financial statements,
invoices, records, papers and Documents relating to the Property as Lender may
reasonable require from time to time to make the determinations permitted or
required to be made by Lender under this Agreement.
13. FEES AND COSTS. See Annex I
14. SUCCESSORS AND ASSIGNS BOUND. This Agreement shall be binding upon
Borrower and Lender and their respective successors and assigns, and shall
inure to the benefit of and may be enforced by the Lender and its successors,
transferees and assigns. Borrower shall not assign any of its rights and
obligations under this Agreement without the prior written consent of Lender.
15. NO THIRD PARTY BENEFICIARY. This Agreement is intended solely for the
benefit of Borrower and Lender and their respective successors and assigns, and
no third party shall have any rights or interest in the Collateral Account
Funds, the Collateral Account, this Agreement or any of the other Loan
Documents. Nothing contained in this Agreement shall be deemed or construed to
create an obligation on the part of Lender to any third party nor shall any
third party have a right to enforce against Lender any right that Borrower may
have under this Agreement. Notwithstanding any other provision of this
Agreement, Fannie Mae shall be a third party beneficiary of this Agreement.
16. COMPLETION OF REPAIRS. Lender's disbursement of Collateral Account Funds
or other acknowledgment of completion of any Repair in a manner satisfactory to
Lender shall not be deemed a certification by Lender that the Repair has been
completed in accordance with applicable building, zoning or other codes,
ordinances, statutes, laws, regulations or requirements of any governmental
authority agency. Borrower shall at all times have the sole responsibility for
insuring that all Repairs are completed in accordance with all such
governmental requirements.
17. NO AGENCY OR PARTNERSHIP. Nothing contained in this Agreement shall
constitute Lender as a joint venturer, partner or agent of Borrower, or render
Lender liable for any debts, obligations, acts, omissions, representations, or
contracts of Borrower.
18. ASSUMPTION OF LOAN/TRANSFER OF OWNERSHIP INTERESTS.
If a transfer (as defined in Uniform Covenant 19 of the Security Instrument)
of all or part of the Property or a direct or indirect ownership interest in
the Borrower shall occur or be contemplated, which Transfer pursuant to the
terms of the Security Instrument, requires the prior written consent of Lender,
the transferee(s) shall be required to assume Borrower's duties and obligations
under this Agreement and shall be required to execute and deliver to Lender
such Documents as Lender requires to effectuate such assumption of duties and
obligations. No transfer and assumption shall relieve the transferor of its
obligations under this Agreement or any of the other Loan Documents, unless the
Borrower has obtained the prior written consent of Lender.
19. TERMINATION OF COMPLETION/REPAIR AGREEMENT. Upon the earlier of (i)
Borrower's completion of
FORM 4505 3/94 (Page 8 of 10)
<PAGE> 27
all Repairs to the satisfaction of Lender (provided Borrower has supplied
Lender with evidence satisfactory to Lender of payment of all Repairs and if
requested by Lender, waivers of liens and a title search of the Property or an
endorsement to the mortgagee's title insurance policy), or (ii) the payment in
full of all sums secured by the Security Instrument and release of the lien of
the Security Instrument by Lender (and payment in full of all Repairs completed
or contracted to be performed prior to the date of the payment described in
clause (ii)), Lender shall disburse to Borrower all remaining Collateral
Account Funds.
20. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement contains the
complete and entire understanding of the parties with respect to the matters
covered and no change or amendment shall be valid unless it is made in writing
and executed by the parties to this Agreement. No specific waiver of any of the
terms of this Agreement shall be considered as a general waiver. If any
provision of this Agreement is in conflict with any provision of the Security
Instrument regarding the Collateral Account, the provision contained in this
Agreement shall control.
21. NOTICES. All notices given under this Agreement shall be in writing to
the other party, at the address and in the manner set forth in the Security
Instrument.
22. SEVERABILITY. The invalidity, illegality, or unenforceability of any
provision of this Agreement pursuant to judicial decree shall not affect the
validity or enforceability of any other provision of this Agreement, all of
which shall remain in full force and effect.
23. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the jurisdiction in which the Property is located.
24. NON-RECOURSE. This Agreement is being executed in connection with the
making of the Loan pursuant to the terms of the Note. Borrower's liability
hereunder shall be limited to the extent provided in the Note and the Security
Instrument. Annex I attached hereto is incorporated herein by reference for all
purposes.
Borrower and Lender have executed this Agreement on the date and year first
above written.
BORROWER:
SOMERSET VILLAGE PARTNERS, L.P.
By: BH Corporation V, a Michigan
Corporation, its Managing Partner
By: /s/
--------------------------------
Name: Mandell L. Berman
Title: Vice President
LENDER:
TARRANT COUNTY HOUSING FINANCE
CORPORATION
By: /s/
--------------------------------
Name: Bob Hampton
Title: President
FORM 4505 3/94 (Page 9 of 10)
<PAGE> 28
EXHIBIT A
TO THE COMPLETION/REPAIR AND SECURITY AGREEMENT
[Attach as Exhibit A to a list of Repairs, estimated costs of Repairs
and the completion date of any Repairs with a completion date other than that
set forth in Section 3 of the Agreement]*
Repair Estimated Cost Completion Date
* Not later than August 1,1995, Borrower shall provide Lender and Fannie Mae a
detailed estimate as required above for review and approval by Fannie Mae, in
its sole discretion. Failure to provide such estimate, shall, at the option of
Fannie Mae, be an event of default under this Agreement.
FORM 4505 3/94 (Page 10 of 10)
<PAGE> 29
ANNEX I
THIS ANNEX I TO COMPLETION/REPAIR AND SECURITY AGREEMENT (the "Annex") is made
July 1, 1995, effective as of July 1, 1995, and is incorporated into and shall
be deemed to amend and supplement the Completion/Repair and Security Agreement
(the "Agreement") made by Somerset Village Partners, L.P., a Texas limited
partnership ("Borrower") and Tarrant County Housing Finance Corporation, a
Texas nonprofit housing finance corporation, ("Lender"). Borrower and Lender
further covenant and agree:
A. CONFLICTING TERMS; DEFINITIONS. The covenants and agreements of
this Annex shall be incorporated into and shall amend and supplement the
covenants and agreements of the Agreement as if this Annex was a part of the
Agreement, and all references to the Agreement in the Loan Documents shall mean
the Agreement as so amended and supplemented. Any conflict between the
provisions of the Agreement and this Annex shall be resolved in favor of this
Annex. In case of any conflict between the Replacement Reserve and Security
Agreement (the "Replacement Reserve Agreement") of even date between Borrower
and Lender and this Agreement, the terms of this Agreement shall control. Terms
which are defined in the Agreement or other Loan Documents shall have the same
meanings when used in this Annex unless a different definition is given or
unless the context requires otherwise. Unless otherwise required by this Annex,
in cases of multiple definitions or conflicts, the definitions set forth in
this Annex shall control.
B. Payment and Performance Bonds. Notwithstanding any other provisions
of this Agreement, Lender shall have the right to require Borrower to provide
payment and performance in proper form with respect to any construction
contract for any Repair which exceeds $500,000.
C. Compliance with Bond Documents. The Loan has been funded with the
proceeds from the sale of the Series 1995 bonds (the "Bonds") in the amount of
$40,000,000.00 described in that certain Loan Agreement dated as of July 1,
1995, by and among Borrower, Tarrant County Housing Finance Corporation
("Issuer"), and Bank One Texas, N.A., as Trustee ("Trustee"), and
Reinlein/Lieser/McGee, a California general partnership. In connection with the
Bonds, the Issuer and the Trustee have entered into an Indenture of Trust dated
as of July 1, 1995 and the Issuer, the Trustee and Borrower have entered into a
Regulatory Agreement and Declaration of Restrictive Covenants dated as of July
1, 1995. Collectively, such Loan Agreement, Indenture of Trust, Regulatory
Agreement and Declaration of Restrictive Covenants and all other Documents
executed in connection with the Bonds are referred to as the "Bond Documents."
Notwithstanding any other provision of this Agreement or any other Loan
Document, in the event Lender or its successors or assigns shall ever foreclose
on the security interest or lien granted to it covering the Collateral Account
funds and the Collateral Account, Lender, for itself and its successors and
assigns, covenants and agrees that not less than the amount of the Deposit
which has not been disbursed but is required to be disbursed to make Repairs in
order to maintain the tax exempt status of the Bonds for federal income tax
purposes shall be reserved by the purchaser at any such foreclosure and used to
make Repairs in order to satisfy all requirements of the Bond Documents and
applicable laws or regulations with respect to such expenditures.
<PAGE> 30
D. Bondholder. The Federal National Mortgage Association ("Fannie
Mae") is the owner and holder of 100 percent of the Bonds and shall be a third
party beneficiary of this Agreement. Fannie Mae, as owner and holder of the
Bonds, and its successors and assigns, shall have the right to direct the
Lender in connection with any action taken by Lender under this Agreement.
Without limiting the foregoing, until directed otherwise in writing by Fannie
Mae, Lender agrees to accept direction in performance of its duties under
paragraph 4 and 5 of this Agreement from Reinlein/Lieser/McGee ("Servicer").
Unless and until Fannie Mae shall direct otherwise in writing, Servicer shall
perform all inspection to be made by Lender in connection with making the
determinations required under this Agreement. All disbursements under this
Agreement shall be subject to the prior written approval of Fannie Mae or, on
written direction of Fannie Mae, Servicer. Fannie Mae shall have the right to
change the entity performing the obligations of Servicer under this Agreement
without the written consent or approval of any other party.
E. Fees and Costs.
(a) Borrower shall pay Servicer, in its capacity as servicer
of the Loan or any successor thereto in such capacity, a monthly
administrative fee of one percent (1%) per annum of the average amount
invested under this Agreement for its services in connection with this
Agreement. Borrower shall pay such fee no later than the date
specified in a bill sent to Borrower.
(b) Borrower shall reimburse Servicer within ten days after
demand, all reasonable fees, charges, costs and expenses incurred by
Servicer in connection with all inspections or other services made by
Servicer or Servicer's representatives in carrying out Servicer's
responsibilities to make certain inspections and determinations under
this Agreement.
F. Rebate. Notwithstanding any other provision of this Agreement, none
of the interest earnings on the Collateral Account Funds shall not be disbursed
unless and until evidence satisfactory to Fannie Mae has been provided that the
obligations of the Borrower as to rebate of monies under the Indenture with
respect to the Bonds have been satisfied or provisions have been made for its
payment.
G. Review of Disbursement Procedure. Borrower may request changes in
the procedure for disbursements from the Collateral Account. Any changes shall
be subject to the approval of Fannie Mae in its sole discretion.
<PAGE> 31
EXECUTED on the date first set forth above.
BORROWER:
SOMERSET VILLAGE PARTNERS, L.P.,
a Texas limited partnership
By: BH Corporation V,
a Michigan Corporation,
its Managing Partner
By: /s/
-----------------------------------
Name: Mandell L. Berman
Title: Vice President
LENDER:
TARRANT COUNTY HOUSING FINANCE
CORPORATION
By: /s/
-----------------------------------
Name: Bob Hampton
Title: President
<PAGE> 32
REPLACEMENT RESERVE AND SECURITY AGREEMENT
This REPLACEMENT RESERVE AND SECURITY AGREEMENT ("Agreement") is made
this as of the 1st day of July, 1995 by Somerset Village Partners, L.P., a
Texas limited partnership ("Borrower"), and Tarrant County Housing Finance
Corporation, a Texas nonprofit housing finance corporation, its successors,
transferees and assigns ("Lender").
RECITALS:
A. This Agreement is being executed in connection with Lender's making a
mortgage Loan to Borrower in the original principal amount of $40,000,000.00
(the "Loan"). The proceeds of the Loan will be used to finance a 2,139 unit
multifamily project known as Somerset Village Apartments, and located in
Hurst/Euless, Tarrant County, Texas, (the "Property").
B. The Loan is evidenced by a Multifamily Note (including any addenda, the
"Note"), dated the date of this Agreement, made by Borrower and is secured by a
Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(including any riders, the "Security Instrument"), dated the date of this
Agreement, granting a lien on the Property (the Note, Security Instrument, this
Agreement and all other Documents executed in connection with the Loan are
collectively referred to as the "Loan Documents").
C. Lender requires as a condition to the making of the Loan that Borrower enter
into this Agreement and make certain deposits with Lender as provided in this
Agreement as additional security for all of Borrower's obligations under the
Loan Documents.
D. See Addendum attached hereto and made a part hereof for all purposes.
AGREEMENT:
NOW, THEREFORE, in consideration of the above and the mutual promises
contained in this Agreement, the receipt and sufficiency of which are
acknowledged, Borrower and Lender agree as follows:
1. Deposits to the Replacement Reserve.
(a) Concurrently with the execution of this Agreement, Borrower shall
deposit with Lender the sum of $107,615.39 (the "Initial Deposit").
(b) Subject to the provisions of Sections 2, 7, 10 and 19 of this
Agreement, on each date that a regularly scheduled payment of principal or
interest is due under the Note, Borrower shall deposit with Lender the
applicable Monthly Deposit (as defined in Section 1(c) of this Agreement).
(c) The "Monthly Deposit" required to be made each month during the
term of the Loan is set forth below:
<TABLE>
<CAPTION>
Amount of Monthly Deposit Period
- ------------------------- ------
<S> <C> <C> <C>
$ 35,650.00 August 1, 1995 through July 31, 2005*
</TABLE>
* See Addendum attached hereto and made a part hereof.
<PAGE> 33
(d) Lender shall deposit any Initial Deposit and each Monthly Deposit,
as received, in an interest-bearing account (the "Replacement Reserve") which
meets the standards for custodial accounts as required by Lender from time to
time. (The Initial Deposit, if any, the Monthly Deposits and all other funds in
the Replacement Reserve are referred to collectively as the "Replacement
Reserve".) Lender or a designated representative of Lender shall have the sole
right to make withdrawals from such account. All interest earned on funds in
the Replacement Reserve shall be added to and become part of the Replacement
Reserve. Lender shall not be responsible for any losses resulting from the
investment of the Replacement Reserve or for obtaining any specific level or
percentage of earnings on such investment. If applicable law requires and
provided that no default exists under any of the Loan Documents, Lender shall
pay to Borrower the interest earned on the Replacement Reserve once each year.
2. Loans with Terms Over 15 Years. If the Loan term exceeds 15 years, then no
earlier than the 6th month and no later than the 9th month of the year which
commenced on the 10th and 20th anniversary of the date of this Agreement, a
physical needs assessment shall be performed on the Property by Lender at the
expense of Borrower, which expense may be paid out of the Replacement Reserve.
If determined necessary by Lender, after review of the physical needs
assessment, Borrower's required Monthly Deposits to the Replacement Reserve set
forth in Section 1(c) shall be adjusted for the 11th through the twentieth and
for the twenty-first through the last year of the Loan term so that the Monthly
Deposits will create a Replacement Reserve that will in Lender's determination,
be sufficient to meet the required Replacements (defined below).
3. Replacement Reserve is Additional Security.
(a) Borrower assigns to Lender the Replacement Reserve as additional
security for all of Borrower's obligations under the Loan Documents; provided,
however, Lender shall make disbursements from the Replacement Reserve in
accordance with the terms of this Agreement.
(b) Except as otherwise provided in Sections 4.2 and 6.1 of this
Agreement, Lender shall make disbursements from the Replacement Reserve to
reimburse Borrower for the costs of those items listed on Exhibit A, and made a
part of this Agreement (the "Replacements") in accordance with the provisions
of Section 4, Lender shall not be obligated to make disbursements from the
Replacement Reserve to reimburse Borrower for the costs of routine maintenance
to the Property or for costs which are to be reimbursed from funds deposited
with Lender pursuant to a Completion/Repair and Security Agreement or any
similar Agreement.
4. Disbursements from Replacement Reserve.
4.1 Request for Disbursement.
(a) Upon written request from Borrower and satisfaction of the
requirements set forth in Section 4 and 5 of this Agreement, Lender shall
disburse to Borrower amounts from the Replacement Reserve necessary to
reimburse Borrower for the actual approved costs of Replacements, upon
completion of such Replacements (or, upon partial completion in the case of
Replacements made pursuant to Section 4.1(e)) as determined by Lender. In no
event shall Lender be obligated to disburse funds from the Replacement Reserve
if a default exists under this Agreement (including but not limited to
Borrower's failure to pay in full any fees, costs and expenses then due and
payable under this Agreement), or a default exists under any of the other Loan
Documents, or if an act, event or condition shall have occurred and then be
existing which with notice and/or the lapse of time would constitute a default
under any of the Loan Documents.
<PAGE> 34
(b) Each request for disbursement from the Replacement Reserve shall
be in a form specified or approved by Lender and shall specify (i) the specific
Replacements for which the disbursement is requested, (ii) the quantity and
price of each item purchased, if the Replacement includes the purchase or
Replacement of specific items (such as appliances), (iii) the price of all
materials (grouped by type or category) used in any Replacement other than the
purchase or Replacement of specific items, and (iv) the cost of all contracted
labor or other services applicable to each Replacement for which such request
for disbursement is made. With each request, Borrower shall certify that all
Replacements have been made in accordance with all applicable laws, ordinances,
and regulations of any governmental office or authority having jurisdiction
over the Property. Each request for disbursement shall include copies of
invoices for all items or materials purchased and all contracted labor or
services provided and, unless Lender has agreed to issue joint checks as
described below in connection with a particular Replacement, each request shall
include evidence satisfactory to Lender of payment of all such amounts.
(c) Unless Lender has agreed to issue joint checks in connection with
a particular Replacement made pursuant to Section 5.1(e) below, Borrower shall
pay all invoices in connection with the Replacements with respect to which a
disbursement is requested prior to submitting such request for disbursement
from the Replacement Reserve. Lender, at its option, may issue joint checks,
payable to Borrower and the supplier, materialman, mechanic, subcontractor or
other party to whom payment is due in connection with a Replacement described
in Section 4.1(e). In the case of all payments made by joint check, the Lender
may require a waiver of liens from each contractor receiving payment prior to
Lender's disbursement of any further disbursements from the Replacement
Reserve.
(d) Except as provided in Section 4.1(e), each request for
disbursement from the Replacement Reserve shall be made only after completion
of the Replacement for which disbursement is requested. Borrower shall provide
Lender evidence satisfactory to Lender in its reasonable judgment, of
completion as provided in Sections 5.1 and 5.2 below.
(e) If (i) the cost of a Replacement exceeds $5,000.00, (ii) the
contractor performing a Replacement requires periodic payments pursuant to
terms of a written contract, and (iii) Lender has approved in writing in
advance such periodic payments, a request for reimbursement from the
Replacement Reserve may be made after completion of a portion of the work under
such contract, provided (v) such contract requires payment upon completion of
such portion of the work, (w) the materials for which the request is made are
on site at the Property and are properly secured or have been installed in the
Property, (x) all other conditions in this Agreement for disbursement have been
satisfied (including but not limited to the limitations in Section 5.1(a)), (y)
funds remaining in the Replacement Reserve are, in Lender's judgment,
sufficient to complete such Replacement and the other replacements when
required and (z) if required by Lender, each contractor of subcontractor
receiving payments under such contract shall provide a waiver of lien with
respect to amounts which have been paid to that contractor or subcontractor.
(f) Borrower shall not make a request for disbursement from the
Replacement Reserve more frequently than once in any month and (except in
connection with the final disbursement) the total cost of all Replacements in
any request shall not be less than $10,000.00.
4.2 Items not Listed on Exhibit A. In the event Borrower requests a
disbursement from the Replacement Reserve to reimburse Borrower for labor or
materials for replacements other than Replacements specified on Exhibit A,
Borrower shall disclose in writing to Lender why funds in the Replacement
Reserve should be used to pay for such replacements not specified on Exhibit A.
If Lender determines that (i) such replacements are of the type intended to be
covered by this Agreement, (ii) costs for such Replacement
<PAGE> 35
are reasonable, and (iii) all other conditions for disbursement under this
Agreement have been met, Lender may disburse funds from the Replacement
Reserve; provided, however, that Lender, in its discretion, may refuse to
disburse funds from the Replacement Reserve for any item other than a
Replacement specified on Exhibit A.
5. Performance of Replacements.
5.1 Workmanlike Completion.
(a) Borrower shall make each Replacement when required in order to
keep the Property in good order and repair and in a good marketable condition
and to keep the Property or any portion thereof from deteriorating. Borrower
shall complete all Replacements in a good and workmanlike manner as soon as
practicable following the commencement of making each such Replacement.
(b) Lender shall have the right to approve all contracts or work
orders with materialmen, mechanics, suppliers, subcontractors, contractors or
other parties providing labor or materials in connection with the Replacements.
Upon Lender's request, Borrower shall assign any contract or subcontract to
Lender.
(c) In the event Lender determines in its sole discretion that any
Replacement is not being performed in a workmanlike or timely manner or that
any Replacement has not been completed in workmanlike manner and timely manner,
Lender shall have the option to withhold disbursement for such unsatisfactory
Replacement and to proceed under existing contracts or to contract with third
parties to complete such Replacement and to apply the Replacement Reserve
toward the labor and materials to complete such Replacement, without providing
any prior notice to Borrower and to exercise any and all other remedies
available to Lender upon a default pursuant to Section 6.2 hereof.
(d) If at any time during the term of the Loan, Lender determines that
replacements not listed on Exhibit A are advisable to keep the Property in good
order and repair and in a good marketable condition, or to prevent
deterioration of the Property (the "Additional Replacements") Lender may send
Borrower written notice of the need for making such Additional Replacements.
Borrower shall promptly commence making such Additional Replacements in
accordance with all the requirements of this Agreement, except that Borrower
understands that reimbursement from the Replacement Reserve shall not be made
unless Lender has determined to do so pursuant to Section 4.2. If Borrower
fails to commence such Additional Replacements within 30 days after such notice
and diligently pursue completion of such Additional Replacements, such failure
shall be a default under this Agreement, and, in addition to all other rights
Lender may have under the Loan Documents upon a default (including but not
limited to Lender's rights under Sections 6.2 and 6.3 of this Agreement),
Lender may contract with third parties to make such Additional Replacements and
may at its sole discretion (i) apply the funds in the Replacement Reserve
toward the labor and materials necessary to complete such Additional
Replacements, or (ii) demand payment of such Additional Replacements from
Borrower. Except for Section 4.1, all references in this Agreement to
"Replacements" shall include the "Additional Replacements."
(e) In order to facilitate Lender's completion or making of the
Replacements pursuant to Sections 5.1(c) and (d) above, Lender is granted the
right to enter onto the Property and perform any and all work and labor
necessary to complete or make the Replacements and to employ watchmen to
protect the Property from damage. All sums so expended by Lender shall be
deemed to have been advanced to Borrower and secured by the Security
Instrument. For this purpose Borrower constitutes and appoints
<PAGE> 36
Lender is true and lawful attorney-in-fact with full power of substitution to
complete or undertake the Replacements in the name of Borrower. Borrower
empowers said attorney-in-fact as follows:
(i) to use any funds in the Replacement Reserve for the purpose of
making or completing the Replacements;
(ii) to make such additions, changes and corrections to the
Replacements as shall be necessary or desirable to complete the
Replacements;
(iii) to employ such contractors, subcontractors, agents, architects
and inspectors as shall be required for such purposes;
(iv) to pay, settle or compromise all existing bills and claims which
are or may become liens against the Property, or as may be necessary
or desirable for the completion of the Replacements, or for clearance
of title;
(v) to execute all applications and certificates in the name of
Borrower which may be required by any of the contract Documents;
(vi) to prosecute and defend all actions or proceedings in connection
with the Property or the rehabilitation and repair of the Property;
and
(vii) to do any and every act which Borrower might do in its own
behalf to fulfill the terms of this Agreement.
It is further understood and agreed that this power-of-attorney, which shall be
deemed to be a power coupled with an interest, cannot be revoked. Borrower
specifically agrees that all power granted to Lender under this Agreement may
be assigned by it to its successors or assigns as holder of the Note.
(f) Nothing in this section 5.1 shall:
(i) make Lender responsible for making or completing the Replacements;
(ii) require Lender to expend funds in addition to the Replacement
Reserve to make or complete any Replacement;
(iii) obligate Lender to proceed with Replacements; or
(iv) obligate Lender to demand from Borrower additional sums to make
or complete any Replacement.
5.2 Entry Onto Property; Inspections.
(a) Borrower shall permit Lender or Lender's representatives
(including an independent person such as an engineer, architect, or inspector)
or third parties making Replacements pursuant to Sections 5.1(c) or (d) of this
Agreement to enter onto the Property during normal business hours (subject to
the rights of tenants under their leases) to inspect the progress of any
Replacements and all materials being used in connection therewith, to examine
all plans and shop drawings relating to such Replacements which are or may be
kept at the Property, and to complete any replacements made pursuant to
Sections
<PAGE> 37
5.1(c) or (d). Borrower agrees to cause all contractors and subcontractors
reasonably to cooperate with Lender or Lender's representatives or such other
persons described above in connection with inspections described in this
Section 5.2 or the completion of Replacements pursuant to Sections 5.1(c) or
(d).
(b) Lender may inspect the Property in connection with any Replacement
prior to disbursing funds from the Replacement Reserve for such Replacement.
Lender, at Borrower's expense, also may require an inspection by an appropriate
independent qualified professional selected by Lender and a copy of a
certificate of completion by an independent qualified professional acceptable
to Lender prior to the disbursement of any amounts from the Replacement
Reserve. Borrower shall pay Lender a reasonable inspection fee not exceeding
$1,500.00 for each such inspection.
5.3 Lien-Free Completion.
(a) Borrower covenants and agrees that each of the Replacements and
all materials, equipment, fixtures, or any other item comprising a part of any
Replacement shall be constructed, installed or completed, as applicable, free
and clear of all mechanic's, materialman's or other liens (except for those
liens existing on the date of this Agreement which have been approved in
writing by Lender).
(b) Prior to each disbursement from the Replacement Reserve, Lender
may require Borrower to provide Lender with a search of title to the Property
effective to the date of the release, which search shows that no mechanic's or
materialman's liens or other liens of any nature have been placed against the
Property since the date of recordation of the Security Instrument (other than
liens which Borrower is diligently contesting in good faith and which have been
bonded off to the satisfaction of Lender) and that title to the Property is
free and clear of all liens (other than the lien of the Security Instrument and
any other liens previously approved in writing by the Lender, if any).
(c) In addition, as a condition to any disbursement, Lender may
require Borrower to obtain from each contractor, subcontractor, or materialman
an acknowledgment of payment and release of lien for work performed and
materials supplied. Any such acknowledgment and release shall conform to the
requirements of applicable law and shall cover all work performed and material
supplied (including equipment and fixtures) for the Property by that
contractor, subcontractor or materialman through the date covered by the
current reimbursement request (or, in the event that payment to such
contractor's, subcontractor or materialmen is to be made by a joint check, the
release of lien shall be effective through the date covered by the previous
release of funds request.)
5.4 Compliance with Laws and Insurance Requirements.
(a) All replacements shall comply with all applicable laws,
ordinances, rules and regulations of all governmental authorities having
jurisdiction over the Property and applicable insurance requirements including,
without limitation, applicable building codes, special use permits,
environmental regulations, and requirements of insurance underwriters.
(b) In addition to any insurance required under the Loan Documents,
Borrower shall provide or cause to be provided worker's compensation insurance,
builder's risk, and public liability insurance and other insurance to the
extent required under applicable law in connection with a particular
Replacement. All such policies shall be in form and amount satisfactory to
Lender. All such policies which can be endorsed with standard mortgagee clauses
making loss payable to Lender or its assigns shall be so endorsed. The
originals of such policies shall be delivered to Lender.
<PAGE> 38
6. Default.
6.1 Default Under This Agreement. Borrower shall be in default under this
Agreement if it fails to comply with any provision of this Agreement and such
failure is not cured within 10 days after notice from Lender. Borrower
understands that a default under this Agreement shall be deemed to be a default
under the terms of the Note, the Security Instrument and the other Loan
Documents, and that in addition to the remedies specified in this Agreement,
Lender shall be able to exercise all of its rights and remedies under the Note,
the Security Instrument and the other Loan Documents upon a default.
6.2 Application of Replacement Reserve Upon Default.
(a) If Borrower defaults on any payment due under the Note or under
any covenant in the Security Instrument, or any other term or provision of any
Loan Document (including any default under this Agreement), then, upon any such
default, Borrower shall immediately lose all of its rights to receive
disbursements from the Replacement Reserve unless and until all amounts secured
by the Security Instrument have been paid in full and the lien of the Security
Instrument has been released by Lender. Upon any such default, Lender may in
its sole and absolute discretion, use the Replacement Reserve (or any portion
thereof) for any purpose, including but not limited to (i) repayment of any
indebtedness secured by the Security Instrument, including but not limited to
principal prepayments and the prepayment premium applicable to such full or
partial prepayment (as applicable); provided, however, that such application of
funds shall not cure or be deemed to cure any default; (ii) reimbursement of
Lender for all losses and expenses (including, without limitation, reasonable
legal fees) suffered or incurred by Lender as a result of such default; (iii)
completion of the Replacements as provided in Section 5.1, or for any other
repair or Replacement to the Property; or (iv) payment of any amount expended
in exercising (and exercise) all rights and remedies available to Lender at law
or in equity or under this Agreement or under any of the other Loan Documents.
(b) Nothing in this Agreement shall obligate Lender to apply all or
any portion of the Replacement Reserve on account of any default by Borrower or
to repayment of the indebtedness secured by the Security Instrument or in any
specific order or priority.
6.2 Borrower's Other Obligations. Nothing contained in this Agreement shall
in any manner whatsoever alter, impair or affect the obligations of Borrower,
or relieve Borrower of any of its obligations, to make payments and perform all
of its other obligations required under the Loan Documents.
7. Subsequent Requirement of Monthly Deposits. If Borrower's obligation to
make Monthly Deposits under this Agreement has been deferred or waived, upon
the earlier of (i) the first day of the first calendar month after any default
under any of the Loan Documents (including any default under this Agreement),
or (ii) the date specified by Lender in written notice given to Borrower if
Lender shall determine at any time during the Loan term that the Property is
not being maintained in accordance with the requirements set forth in the
Security Instrument, Borrower shall commence making the Monthly Deposits
specified in this Agreement or in such written notice, beginning on such date
and continuing on the first day of each calendar month thereafter during the
remaining term of the Loan.
8. Remedies Cumulative. None of the rights and remedies conferred upon or
reserved to Lender under this Agreement is intended to be exclusive of any
other rights, and each and every right shall be cumulative and concurrent, and
may be enforced separately, successively or together, and may be exercised from
time to time as often as may be deemed necessary by Lender.
<PAGE> 39
9. Enforcement of Agreement. This Agreement is executed by Borrower and
Lender for the benefit of Lender.
10. Balance in the Replacement Reserve. The insufficiency of any balance in
the Replacement Reserve shall not abrogate the Borrower's Agreement to fulfill
all preservation and maintenance covenants in the Loan Documents. In the event
that the balance of the Replacement Reserve is less than the current estimated
cost to make the Replacement required by the Lender, Borrower shall deposit the
shortage within 10 days of request by Lender. In the event Lender determines
from time to time based on Lender's inspections that the amount of the Monthly
Deposit is insufficient to fund the cost of likely Replacements and related
contingencies that may arise during the remaining term of the Loan, Lender may
require and increase in the amount of the Monthly Deposits upon 30 days prior
written notice to Borrower.
11. Indemnification. Borrower agrees to indemnify Lender and to hold Lender
harmless from and against any and all actions, suits, claims, demands,
liabilities, losses, damages, obligations and costs and expenses (including
litigation costs and reasonable attorneys' fees and expenses) arising from or
in any way connected with the performance of the Replacements or the holding or
investment of the Replacement Reserve. Borrower assigns to Lender all rights
and claims Borrower may have against all persons or entities supplying labor or
materials in connection with the Replacements; provided, however, that Lender
may not pursue any such right or claim unless Borrower is in default under this
Agreement or the Loan Documents.
12. Determination by Lender. In any instance in this Agreement where the
consent or approval of Lender may be given or is required, or where any
determination, judgment or decision is to be rendered by Lender under this
Agreement, the granting, withholding or denial of such consent or approval and
the rendering of such determination, judgment or decision shall be made or
exercised by Lender (or its designated representative) at its sole and
exclusive option and in its sole and absolute discretion.
13. Borrower's Records. Borrower shall furnish such financial statements,
invoices, records, papers and Documents relating to the Property as Lender may
reasonably require from time to time to make the determinations permitted or
required to be made by Lender under this Agreement.
14. Fees and Expenses.
(a) In addition to any other fees payable by Borrower to Lender in
connection with the Loan, Borrower shall pay RLM as servicer a monthly fee of
one percent (1%) per annum of the average amount invested under this Agreement
for its services in administering the Replacement Reserve and investing the
Replacement Reserve. This fee shall be due and payable by Borrower on the date
specified in a statement to Borrower regarding such fee.
(b) Borrower shall pay within 10 days of request from RLM as servicer
(i) all reasonable costs and expenses incurred by RLM as servicer in connection
with collecting, holding and disbursing the Replacement Reserve pursuant to
this Agreement, and (ii) all reasonable fees, charges, costs and expenses
incurred by RLM as servicer in connection with inspections made by RLM as
servicer or RLM as servicer's representatives in carrying out RLM as servicer's
responsibility to make certain determinations under this Agreement.
15. Successors and Assigns Bound. This Agreement shall be binding upon
Borrower and Lender and their respective successors and assigns, and shall
inure to the benefit of any may be enforced by the
<PAGE> 40
Lender and its successors, transferees and assigns. Borrower shall not assign
any of its rights and obligations under this Agreement without the prior
written consent of Lender.
16. No Third Party Beneficiary. This Agreement is intended solely for the
benefit of Borrower and Lender and their respective successors and assigns, and
no third party shall have any rights or interest in the Replacement Reserve,
this Agreement, or any of the other Loan Documents. Nothing contained in this
Agreement shall be deemed or construed to create an obligation on the part of
Lender to any third party, nor shall any third party have a right to enforce
against Lender any right that Borrower may have under this Agreement.
Notwithstanding any other provision of this Agreement, Fannie Mae shall be a
third party beneficiary of this Agreement.
17. Completion of Replacements. Lender's approval of any plans for any
Replacement, release of funds from the Replacement Reserve, inspection of the
Property by Lender or Lender's agents, or other acknowledgment of completion of
any Replacement in a manner satisfactory to Lender shall not be deemed an
acknowledgment or warranty to any person that the Replacement has been
completed in accordance with applicable building, zoning or other codes,
ordinances, statutes, laws, regulations or requirements of any governmental
agency.
18. No Agency or Partnership. Nothing contained in this Agreement shall
constitute Lender as a joint venturer, partner or agent of Borrower, or render
Lender liable for any debts, obligations, acts, omissions, representations, or
contracts of Borrower.
19. Assumption of Loan/Transfer of Ownership Interests in
Borrower/Subordinate Liens; Subsequent Requirement of Monthly Deposits.
If a Transfer (as defined in Uniform Covenant 19 of the Security Instrument)
of all or part of the property or a direct or indirect ownership interest in
the Borrower shall occur or be contemplated, which Transfer pursuant to the
terms of the Security Instrument, requires the prior written consent of Lender.
Lender may review the amount of the Replacement Reserve, the amount of the
Monthly Deposits and the likely repairs and replacements required by the
property and the related contingencies which may arise during the remaining
term of the Loan. Based upon that review, Lender may require an additional
deposit to the Replacement Reserve, a resumption of the Borrower's obligation
to make Monthly Deposits (if previously waived or deferred) and an increase in
the amount of the Monthly Deposits as a condition to Lender's consent to such
Transfer. In addition, the transferee(s) shall be required to assume Borrower's
duties and obligations under this Agreement and shall be required to execute
and deliver to Lender such Documents as Lender requires to effectuate such
assumption of duties and obligations. No transfer and assumption shall relieve
the transferor of its obligations under this Agreement or any of the other Loan
Documents, unless the Borrower has obtained the prior written consent of
Lender.
20. Termination of Replacement Reserve. After payment in full of all sums
secured by the Security Instrument and release by Lender of the lien of the
Security Instrument, Lender shall disburse to Borrower all amounts remaining in
the Replacement Reserve.
21. Entire Agreement; Amendment and Waiver. This Agreement contains the
complete and entire understanding of the parties with respect to the matters
covered and no change or amendment shall be valid unless it is made in writing
and executed by the parties to this Agreement. No specific waiver or
forbearance for any breach of any of the terms of this Agreement shall be
considered as a general waiver of that or any other term of this Agreement. If
any provision of this Agreement is in conflict with any provision of the
Security Instrument regarding the Replacement Reserve, the provision contained
in this
<PAGE> 41
Agreement shall control.
22. Notices. All notices under this Agreement shall be given in writing to
the other party at the address, and in the manner, provided in the Security
Instrument.
23. Severability. The invalidity, illegality, or unenforceability of any
provision of this Agreement pursuant to judicial decree shall not affect the
validity or enforceability of any other provision of this Agreement, all of
which shall remain in full force and effect.
24. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the jurisdiction in which the Property is located.
25. Non-Recourse. This Agreement is being executed in connection with the
making of the Loan pursuant to the terms of the Note. Borrower's liability
hereunder shall be limited to the extent provided in the Note and Security
Instrument.
Borrower:
SOMERSET VILLAGE PARTNERS, L.P.,
a Texas limited partnership
By: BH Corporation V,
a Michigan Corporation,
its Managing Partner
By: /s/
-------------------------------
Name: Mandell L. Berman
Title: Vice President
LENDER:
TARRANT COUNTY HOUSING FINANCE
CORPORATION
By: /s/
-------------------------------
Name: Bob Hampton
Title: President
<PAGE> 42
EXHIBIT A
TO THE REPLACEMENT RESERVE AND SECURITY AGREEMENT
Roadways/Paving
Exterior Walls (siding)
Exterior Walls (painting)
Roofs
HVAC (condensing units)
Carpeting (without regard to age)
Resilient Flooring
Range and Hood
Refrigerator
Disposal
Dishwasher
Washer and Dryer
Boilers
Ceiling Fan
Countertops and Sinks
Window Covering (not restricted to age)
Screens
Retaining Walls
Sprinkler Systems
Swimming Pools, Filters and Equipment
Structural (Fascia, soffits, stairways, landings)
Major Plumbing (repairs to mainlines and hydrojet lines)
Light Fixtures (exterior)
Sidewalks
Drainage and Guttering
Cabinets
Doors (replace hollow)
Deadbolt Locks and other devices required by the Texas Property Code as of the
date hereof
Landscaping (as part of erosion control only)
<PAGE> 43
ADDENDUM TO
REPLACEMENT RESERVE AND SECURITY AGREEMENT
(Somerset Village Apartments, Hurst/Euless, Texas)
The following provision is hereby inserted at the end of Paragraph
1(c) of the Replacement Reserve and Security Agreement:
The amount of the Monthly Deposit thereafter shall be
determined by the Lender, or its successor or assign, based upon a
periodic reevaluation of the Replacement needs of the Property. Such
reevaluation and the resulting adjustment in the amount of the Monthly
Deposit shall be made during the 10th and 20th years of the term of
the Loan as measured from the date of this Agreement. Such adjustments
shall become effective as of August 1 the years 2005 and 2015. The
Monthly Deposit, as adjusted commencing as of August 1, 2015, shall be
payable through the date that all amounts due and payable under the
Note and Security Instrument have been paid in full.
Lender intends to sell, transfer and deliver the Note and assign the
Security Instrument to Reinlein/Lieser/McGee ("Servicer" or "RLM"). Servicer
intends to sell, transfer and deliver the Note and assign the Security
Instrument to Bank One Texas, N.A., Trustee ("Trustee") for the benefit of the
Federal National Mortgage Association ("Fannie Mae"), as owner and holder of
the Bonds, as defined in the Note. When Servicer, Trustee, or such other person
shall automatically become the Lender under this Agreement. Fannie Mae shall
have the right to approve all actions taken by Lender under this Agreement.
Servicer shall hold the Replacement Reserve and shall take all actions required
or permitted to be performed by Lender under Paragraphs 4 and 5 of this
Agreement. Fannie Mae shall have the right to replace RLM as Servicer at its
sole discretion by written notice to Servicer and Lender.
<PAGE> 1
Exhibit 12
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 17, 1996, with respect to the
1995 and 1994 financial statements of Merchants Mortgage Corporation, at
December 31, 1995 and 1994 and for each of the two years then ended, included
in the Form 8-K/A of Crown Northcorp, Inc., amending Crown Northcorp's current
Report on Form 8-K, dated December 30, 1996 filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
March 24, 1997
Indianapolis, Indiana
