<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1997
Registration No. 333-27037
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
AMENDMENT NO. 1
To
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------
UNITED FINANCIAL MORTGAGE CORP.
(Exact name of Registrant as specified in its charter)
Illinois 6162 36-3440533
(State or other
jurisdiction of
incorporation)
(Primary Standard Classification Code Number)
(I.R.S. Employer
Identification No.)
--------------
United Financial Mortgage Corp.
600 Enterprise Drive, Suite 206
Oak Brook, Illinois 60521
(630) 571-7222
(Address including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
JOSEPH KHOSHABE
President and Chief Executive Officer
United Financial Mortgage Corp.
600 Enterprise Drive, Suite 206
Oak Brook, Illinois 60521
(630) 571-7222
(Name, address, handling zip code, and telephone number, including area code
of agent for service)
--------------
Copies to:
Robert S. Luce, Esq.
855 Sterling, Suite 180
Palatine, Illinois 60067
(847) 776-9729
--------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED OFFERING AMOUNT TO BE PROPOSED PROPOSED AGGREGATE AMOUNT OF
PRICE(1) REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(1)......... 920,000 $6.50 $5,980,000 $1,991.34
-----------------------------------------------------------------------------------------
Underwriter's Warrants.. 92,000 $ -- $ 100.00 $
-----------------------------------------------------------------------------------------
Common Stock Within
Underwriter's
Warrant(2).............. 92,000 $7.80 $ 717,600 $ 238.96
-----------------------------------------------------------------------------------------
TOTAL................... $2,230.30
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee.
(2) No portion of the offering price is attributable to the Underwriter's
Warrants.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-B
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS BY CAPTION
--------------------------------- ---------------------------------
<S> <C>
1. Front of Registration Statement Front Cover Page of Registration Statement
and Outside Front Cover Page of and Front Cover Page of the Prospectus
Prospectus.....................
2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages
Cover Pages of the Prospectus..
3. Summary Information and Risk Prospectus Summary; Risk Factors; The
Factors........................ Company and its Business; Selected
Financial Data
4. Use of Proceeds................ Use of Proceeds
5. Determination of Offering Determination of the Offering Price,
Price.......................... Description of Securities; Underwriting;
Risk Factors
6. Dilution....................... Dilution; Risk Factors
8. Plan of Distribution........... Front Cover Page; Underwriting
9. Legal Proceedings.............. Legal Proceedings
10. Directors, Executive Officers, Management; Principal Stockholder
Promoters and Control Persons..
11. Security Ownership of Certain Principal Stockholders, Management
Beneficial Owners and
Management.....................
12. Description of Securities...... Description of Securities; History of
Security Placements
13. Interest of Named Experts and Not Applicable
Counsel........................
14. Disclosure of Commission Disclosure of Commission Position on
Position on Indemnification for Indemnification for Securities Act
Securities Act Liabilities..... Liabilities
15. Organization within Last Five Not Applicable
Years..........................
16. Description of Business........ Prospectus Summary; Rick Factors; Use of
Proceeds; The Company and its Business;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Management; Principal
Stockholders; Financial Statements
17. Management's Discussion and Management's Discussion and Analysis
Analysis.......................
18. Description of Property........ The Company and its Business
19. Certain Relationships and Certain Relationships and Related
Related Transactions........... Transactions
20. Market for Common Equity and Risk Factors; Description of Securities and
Related Stockholder Matters.... Shares Eligible for Future Sales
21. Executive Compensation......... Management
22. Financial Statements........... Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure.......
</TABLE>
-i-
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED
800,000 SHARES
OF
COMMON STOCK
LOGO
OF
UNITED FINANCIAL MORTGAGE CORP.
United Financial Mortgage Corp. (the "Company") hereby offers 800,000 shares
of Common Stock, no par value ("Common Stock" or "Shares"). It is currently
anticipated that the initial offering price of the Common Stock will be between
$5.50 and $6.50 per share. The Company has applied for quotation of the Common
Stock on the Chicago Stock Exchange ("CSE") under the symbol UFM. Prior to this
offering there has been no public market for these securities. No assurance can
be given that a trading market will develop, or, if developed, that it can or
will be maintained for these securities. See "Underwriting" for information
relating to the determination of the offering price. There are certain risk
factors which should be considered before purchasing Shares. See "Risk
Factors."
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION.
SEE "RISK FACTORS" AND "DILUTION."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
NEITHER THE ATTORNEY GENERAL OF THE STATES OF NEW YORK OR NEW JERSEY, THE NEW
JERSEY BUREAU OF SECURITIES NOR THE SECURITIES LAW COMMISSIONER OF ANY OTHER
JURISDICTION HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
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</TABLE>
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(See footnotes on next page)
The Common Stock is offered on a "firm commitment" basis by the underwriter
when, as and if delivered to and accepted by the it, subject to prior sale and
certain other conditions and legal matters. It is expected that delivery of the
Shares will be made against payment in Los Angeles, California, on or about
.
-----------
MILLS FINANCIAL SERVICES, INC.
-----------
The date of this Prospectus is .
<PAGE>
(Footnotes to distribution table)
(1) In addition, the Underwriter will receive: (a) a non-accountable expense
allowance of 3% of the gross proceeds from this offering of the Shares;
(b) an Underwriter's Warrant to purchase 80,000 Shares (92,000 if the
overallotment option is exercised) based upon 10% of the Shares sold in
the public offering at a price of $7.80 per Share (120% of the proposed
maximum public offering price of the Shares); (c) certain other
compensation, all as more particularly described in "Underwriting."
Further, the Company will indemnify the Underwriter against certain civil
liabilities arising under the Act. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $259,000
excluding the Underwriter's non-accountable expense allowance. However,
commissions and the non-accountable expense allowance (aggregating 13.0%
of gross offering proceeds) will be paid from the proceeds of the
offering. See "Underwriting."
(3) The Company has granted to the Underwriter an option, exercisable within
45 days after the date hereof, to purchase up to 120,000 additional shares
of Common Stock solely to cover over-allotment, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company assuming a maximum public offering price of $6.50 per
share would be $ , $ and $ , respectively. See
"Underwriting."
----------------
Prior to this offering, there has been no public market for the securities
of the Company and there can be no assurance that any such market will develop
or be sustained after this offering. The initial public offering price of the
securities has been determined by negotiation between the Company and the
Underwriter and does not necessarily reflect the Company's asset value,
performance or any other established criteria. For information regarding the
factors considered in determining the initial public offering price of the
securities and the terms of the Underwriter's Warrant, see "Underwriting." The
Company has applied to have the Common Stock approved for listing on the
Chicago Stock Exchange under the symbol UFM.
AS OF THE DATE OF THIS PROSPECTUS, THE COMPANY WILL BECOME SUBJECT TO THE
REPORTING REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND IN
ACCORDANCE THEREWITH WILL FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION
WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY INTENDS TO FURNISH
ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS
AND SUCH OTHER PERIODIC REPORTS AS THE COMPANY DEEMS APPROPRIATE OR AS MAY BE
REQUIRED BY LAW.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) found
elsewhere in this Prospectus. All information in this Prospectus unless
otherwise indicated, assumes no exercise of any outstanding warrants. All
references to shares of Common Stock described in this Prospectus have been
adjusted to give effect to a two (2) for three (3) reverse stock split that was
implemented by the Company on May 9, 1995. Prospective investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
United Financial Mortgage Corp. (the "Company") is an Illinois corporation
organized on April 30, 1986 to engage in the residential mortgage banking
business. The Company's primary focus has been the retail and wholesale
origination and the sale of mortgage loans for one-to-four family properties.
The Company is an approved mortgage loan seller/servicer with the Federal Home
Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") and with the Federal
National Mortgage Association ("FNMA" or "Fannie Mae"). In addition, the
Company is an approved mortgagee by the Federal Housing Administration ("FHA")
and the Department of Veteran's Affairs ("VA").
The Company's strategy is to expand retail and wholesale loan origination;
and build a quality servicing business. Increased loan origination will expand
the Company's revenue base and provide select loans for the expansion of its
servicing business. An expanded servicing business base consisting of quality
loans will enhance earnings by providing revenues on a stabilized basis.
Servicing revenues generally are realized on a consistent basis without the
cyclical dynamics generally attributable to the loan origination business.
Expanded servicing also will create an additional corporate asset that
Management believes will increase the Company's value over the long term.
Management believes that the Company's business plan of combining expanded
loan origination with the development of a quality servicing portfolio, along
with the Company's continuing objective of improving operating efficiencies,
strategically will place the Company in a strong competitive position entering
the 21st century.
THE WHOLESALE ORIGINATION DIVISION
Wholesale loan origination involves the purchase of loans from mortgage
brokers. The Company realizes revenues from the sale of such loans to investors
for a price greater than the amount paid to the mortgage broker. The Company
generally sells the loans to investors at pre-approved purchase prices which
serves to reduce the risk of a loss on such sale(s). Wholesale loan origination
tends to generate less revenues on a per transaction basis than retail
origination, but expansion into the wholesale sector is less costly than retail
origination, because wholesale origination does not require the establishment
of costly office space and the related overhead expense. This operating
structure enables the Company to quickly enter new markets.
THE RETAIL ORIGINATION DIVISION
Retail loan origination involves the direct solicitation of realtors,
builders and other end borrowers for the origination of mortgage loans. The
Company derives revenues from the premium that is received from the purchaser
of the loan. Generally, that premium is shared on a negotiated basis with loan
officers who procure the loan and assist in the loan origination process.
The Company sells substantially all of the mortgage loans that it produces.
The Company sells these loans to investors (which may include brokers/dealers,
banks, thrifts, insurance companies, and state and local housing
3
<PAGE>
finance agencies), either as individual loans or pursuant to certain bulk
purchase commitments. The Company also engages in the origination and brokerage
of loans on commercial real estate assets, including shopping centers, office
properties and other commercial loans. The Company either brokers (e.g.
arranges for the loan from third-party lenders) or funds and services
commercial loans.
The Company's loan origination activities are conducted through its corporate
headquarters offices in Oak Brook, Illinois; Creve Coeur, Missouri; Las Vegas,
Nevada and Irvine, California.
THE SERVICING DIVISION
The Company's long term plans include the servicing of select loans that it
originates. Loan servicing consists of collecting principal and interest
payments from borrowers, remitting aggregate principal and interest payments to
investors, making cash advances, when required, accounting for principal and
interest, collecting funds for payment of mortgage-related expenses, such as
taxes and insurance, inspecting the mortgage premises as required, contacting
delinquent mortgagors, conducting foreclosures and property dispositions in the
event of unremedied defaults and generally administering the mortgage loans.
QUALITY CONTROL
In order to ensure that the Company originates high quality mortgage loans,
it has retained the services of a quality control company with an industry wide
reputation to conduct audits of the Company's loan origination activities on a
monthly basis.
The Company's offices are located at 600 Enterprise Drive, Suite #206, Oak
Brook, Illinois 60521 and its telephone number is (630) 571-7222.
THE OFFERING
Securities Offered.................... 800,000 shares of Common Stock to
be issued and sold by the Company
("Common Stock" or "Shares").
Common Stock Outstanding Before
Offering(1)..........................
3,100,029(3)
Common Stock To Be Outstanding After
Offering(2)..........................
3,900,029(3)
Use of Proceeds.......................
For expansion of origination of
mortgage loans, servicing activi-
ties, repayment of debt, purchase
of preferred stock and for working
capital purposes.
Proposed CSE Symbol(2)................ UFM
- --------
(1) Unless otherwise indicated, references in this Prospectus to Common Stock
Outstanding Before and After this offering do not include (i) issuance of
up to 80,000 shares (92,000 shares if the overallotment option is
exercised) of Common Stock issuable upon exercise of the Underwriter's
Warrant; (ii) 500,000 shares reserved for issuance under the Company's Non-
Qualified and Incentive Stock Option Plan (the "Stock Option Plan"); and
(iii) up to 242,000 shares of Common Stock issuable upon exercise of
certain Warrants as described herein. See "Description of Securities" for a
description of securities issued in connection with certain prior
financings of the Company.
4
<PAGE>
(2) CSE symbols do not imply that a meaningful or sustained trading market for
the securities will develop.
(3) As of July 31, 1997.
RISK FACTORS
The securities offered hereby involve a high degree of risk and immediate and
substantial dilution. See "Risk Factors" and "Dilution."
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following financial and operating information of the Company does not
purport to be complete and is qualified in its entirety by reference to the
more detailed financial and operating information contained elsewhere herein.
See "Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDING THREE MONTHS ENDED
APRIL 30, JULY 31,
------------------------ -----------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of earnings data:
Total revenues............. $ 6,442,428 $ 5,696,382 $ 1,630,972 $ 1,521,243
Total expenses............. 6,472,939 6,173,740 1,508,366 1,435,952
Earnings (loss) before
income taxes.............. (30,511) (477,358) 122,606 85,291
Income taxes............... -0- (53,774) 50,953 31,376
Net earnings (loss)........ (30,511) (423,584) 71,653 53,915
Dividends paid on preferred
stock.....................
Net income (loss) applicable
to Common Shareholders...... $ (30,511) $ (423,584) $ 71,653 $ 53,915
Earnings (loss) Per Share:
Earnings (loss) per common
share..................... $ (0.0102) $ (0.1366) $ 0.0234 $ 0.0174
Number of shares outstanding. 3,001,974 3,100,029 3,057,529 3,100,029
Balance Sheet Data:
Total assets............... $19,522,331 $16,272,646 $18,821,521 $16,827,445
Total liabilities.......... $17,870,641 $14,194,511 $16,258,177 $14,695,396
Stockholder's equity....... $ 1,651,690 $ 2,078,135 $ 2,563,344 $ 2,132,050
</TABLE>
5
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk. Prospective
investors should carefully consider, among other things, the following risk
factors before a decision is made to purchase any Shares.
RISKS RELATING TO REGISTRATION RIGHTS OF CERTAIN SHAREHOLDERS AND WARRANT
HOLDERS.
The Company previously issued 567,149 shares of restricted Common Stock and
warrants to purchase 242,000 shares ("Shares"). The impact of the subsequent
sales of these Shares could have a depressive effect upon the public market
price for the Shares held by purchasers of Shares in this offering. See
"Description of Securities" and "Shares Eligible for Future Sale."
RISKS RELATING TO SERVICING OPERATIONS
The Company intends to expand its loan servicing activities and those
operations will be subject to all of the risks inherent in the establishment
of a new business enterprise, including the absence of a substantial operating
history, and if the Company decides to establish an internal servicing
department, the need to assemble an experienced administrative staff.
Additional risks relating to servicing operations include early mortgage loan
prepayments which result from sales of underlying properties and refinancing
transactions. Such prepayments may result in reduced revenues to the Company.
The success of any mortgage servicing operation that may be expanded by the
Company will depend in part on the Company's ability to sell promptly those
mortgage loans to investors, with servicing rights retained. Accordingly,
adverse changes in the secondary market, including the level of activity or
underwriting criteria of FNMA, FHLMC and other investors could have a material
adverse effect on this aspect of the Company's business. See "The Company and
the Business--the Servicing Division."
RISKS RELATING TO CREDIT FACILITIES
The Company has available three (3) credit facilities from three (3) lenders
for up to Twenty Two Million Five Hundred Thousand Dollars ($22,500,000) for
the purpose of funding loans.
One of the Company's credit facilities (not included in the above total) for
up to Ten Million Dollars ($10,000,000) expired on May 1, 1997. The lender
extended the credit facility until September 30, 1997, when the credit
facility will terminate. Upon expiration of the credit facility, the Company
is obligated to repay all amounts extended to it. The Company has available
resources to repay this credit facility. The amounts borrowed on this credit
facility are collateralized with mortgage loans pre-committed for purchase by
investors. As the loans are sold this credit facility will be repaid. The
Company expects this credit facility to be repaid in full on or before
September 30, 1997. The Company has obtained an additional $5.0 million credit
facility from another lender and an increase from $10.0 million to $15.0
million from one of its current lenders as a substitute for the terminated
credit facility. The increased warehouse facility will expire in October of
1998, unless otherwise extended.
Included with the aggregate credit facilities described above, the Company
also has available a commercial credit facility of up to One Million Five
Hundred Thousand Dollars ($1,500,000) for the purpose of originating and
servicing commercial loans and another credit facility for One Million Dollars
($1,000,000) for loan repurchases from investors. There can be no assurance
that these or other credit facilities will continue to be available to the
Company on an indefinite basis. See "The Company and its Business--Loan
Funding and Warehousing."
RISKS RELATING TO AVAILABILITY OF PERSONAL GUARANTIES
Certain of the Company's credit facilities have been personally guarantied
by Mr. Joseph Khoshabe, the Company's President. Mr. Khoshabe does not have
any obligation to make any personal guaranties available to the Company in the
future. The absence of such personal guaranties in the future may adversely
affect the Company's ability to borrow.
6
<PAGE>
GENERAL BUSINESS RISKS
The Company's business is subject to various business risks. The Company's
mortgage banking activities are dependent on the demand for mortgage loans by
potential borrowers and investors. Changes in the level of consumer
confidence, real estate values, prevailing interest rates, and investment
returns expected by the financial community could make mortgage loans of the
type arranged by the Company less attractive to borrowers or investors.
The Company's long-term strategy is to expand its loan servicing division.
Although mortgage servicing fees generally provide more predictable cash flow
as compared with income from mortgage origination, which may fluctuate with
general economic conditions, servicing activities also entail certain risks.
In addition, the Company may be required to advance delinquent loan payments
pursuant to the regulations of FNMA and FHLMC; and the requirements of certain
private investors. Although the Company would be expected to be reimbursed for
all or a portion of such advances, it would not be compensated for the costs
of making such advances.
The risks to which the Company's business is subject becomes more acute in
an economic slowdown or recession. During such periods, foreclosures and
losses to investors generally increase and could result in an increased
incident of claims and legal actions against the Company. In addition, such
conditions could lead to a potential decline in demand for the Company's loan
origination services. Although the Company's retail and wholesale loan
origination activities occur primarily in certain states, it is anticipated
that its loan servicing could include properties in states other than those
where it conducts origination activities. Adverse economic conditions could
result in reduced loan production by the Company and could cause an increase
in delinquencies and foreclosures relating to loans serviced by the Company in
the future.
In addition, the mortgage banking business is highly competitive and price
sensitive, and some of the Company's competitors have greater financial
resources and pricing flexibility than the Company. See "The Company and its
Business."
INTEREST RATE RISKS
Prevailing market interest rates, which have an impact on borrower decisions
to obtain new loans or to refinance existing loans, affect the Company's
ability to originate mortgage loans. When interest rates decrease, the
economic advantages of refinancing mortgage loans increase. However, when
interest rates decrease, increases in the rate of prepayments of mortgage
loans may reduce the period during which the Company earns servicing income
from loan servicing activities. The Company believes that these effects should
be offset by increased loan origination and a related increase in the size of
the Company's servicing portfolio. Furthermore, as a result of the Company's
strategy of maintaining continuing customer relationships, the Company
historically has been able to recapture a substantial amount of refinanced
loans and home purchase mortgages from prior customers. No assurance can be
given that the Company will be able to recapture such loans in the future.
NEED FOR ADDITIONAL CAPITAL TO IMPLEMENT LONG-TERM PLANS
The Company's cash flow requirements are related to its overhead costs, the
cost of funding loans prior to sale, payment of direct and indirect costs of a
closed loan and the costs of expansion. At the current level of operation, the
Company believes its existing capital, the net proceeds of this offering,
existing credit facilities as well as cash flow from operations will meet the
Company's cash flow requirements for at least the next 12 months and,
thereafter, for the foreseeable future. However, as the Company seeks to
materially expand its loan origination business and its servicing business,
and if such expansion is achieved, the Company's cash flow requirements will
increase.
Because the Company's loan origination business requires continued access to
adequate credit facilities, the Company is dependent on the availability of
such credit facilities for the origination of loans prior to their sale. In
addition, the Company may be required to invest capital in establishing or
acquiring a portfolio of loans to
7
<PAGE>
expand its loan servicing business. This capital may be required either to
purchase an existing servicing portfolio or to fund the cost of retaining the
servicing rights on loans which are originated and sold by the Company. In the
event that the proceeds received by the Company from this offering, cash flows
from operations, existing capital and current credit facilities prove to be
insufficient to meet the Company's capital requirements to fund loans prior to
sale and to expand its loan servicing business, the Company may be required to
seek additional financing. There can be no assurance that such financing will
be available on favorable terms, or at all. To the extent that the Company is
not successful in maintaining or replacing existing financing or obtaining
additional financing, it may have to curtail its loan origination activities
and the expansion of its loan servicing business, which could have a material
adverse effect on the Company.
The Company believes that the increase in its equity capital resulting from
the sale of Common Stock offered hereby will enhance the Company's ability to
obtain additional credit. As a result, the Company will continue to employ
substantial leverage in the conduct of its business. The degree to which the
Company is leveraged could have important consequences to holders of the
Common Stock. Such potential consequences include the following: (i) the
Company's ability to grow will depend on its ability to obtain additional
future financing and that ability may be impaired by the extent of leverage
employed by the Company; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing funds available to finance existing
operations or the expansion of the Company's business: and (iii) the extent of
leverage may place the Company at a competitive disadvantage and make it more
vulnerable to economic downturns. See "The Company and its Business."
RISKS ASSOCIATED WITH APPROVAL AS A FHLMC AND A FNMA SERVICER
The Company is an approved seller/servicer of mortgage loans for FHLMC and
FNMA. In addition, the Company is an approved mortgagee by HUD and is
qualified to originate mortgage loans insured by the FHA and VA. If the
Company fails to comply with the seller/servicer guidelines relating to its
loan origination and servicing activities, its approval as a seller/servicer
could be withdrawn and its servicing rights could be transferred to another
servicer without compensation to the Company. See "The Company and its
Business--The Servicing Division."
RISKS ASSOCIATED WITH REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY
When a mortgage loan originator (retail or wholesale) sells a mortgage loan
to FNMA, FHLMC or other investors, it makes certain representations and
warranties as to the compliance by the originator with applicable underwriting
guidelines. A loan originator or the purchaser of loan servicing rights
generally becomes obligated to the investor with respect to the accuracy of
those representations and warranties, and if those representations and
warranties are incorrect, the investor may require the servicer or the lender
who originated the loan to repurchase the mortgage loan. Consequently, any
loss resulting from a material inaccuracy in the representations and
warranties would fall on the servicer or the Company as the originating
seller/servicer of the loan. The Company will attempt to limit its exposure to
repurchase risks through (i) quality control requirements imposed on its
origination staff, both internally and through third party quality control
experts, and (ii) by negotiating appropriate representations and warranties
and indemnification from entities from which it acquires mortgage loans. In
addition, with respect to mortgage loans originated by it, the Company will be
required in the ordinary course of business, to make representations and
warranties to the purchasers of servicing rights, and investors and insurers
of such loans. Losses resulting from a material inaccuracy in those
representations and warranties would fall on the Company. From time to time,
the Company could be obligated to repurchase loans as a result of breach of
such representations and warranties. A breach or breaches of representations
and warranties could have a material adverse affect upon the financial
condition of the Company. See "The Company and its Business."
RISKS ASSOCIATED WITH LACK OF DIVERSIFIED PORTFOLIO
In the event the Company services loans in geographic markets which suffer
from slow growth or poor economic conditions, the Company could experience a
high rate of delinquency and foreclosures. Such
8
<PAGE>
conditions could materially and adversely effect the Company's revenue and net
income. Although the Company might attempt to reduce such risk through the
acquisition of servicing portfolios in diverse geographic regions, there can
be no assurance that such attempts would be successful. See "The Company and
its Business--The Loan Servicing Division."
GREATER RESOURCES OF COMPETITORS
The mortgage banking industry is competitive and competition is based
heavily on price. Many of the Company's competitors have greater financial
resources than the Company and consequently may be able to achieve economies
of scale that are unavailable to the Company.
REGULATION
Mortgage banking is a highly regulated industry. The industry is subject to
the rules and regulations of, and examination by, FNMA, FHLMC, FHA, the
Government National Mortgage Association ("GNMA" or "Ginnie Mae"), the
Veteran's Administration ("VA") and state regulatory authorities with respect
to originating, processing, underwriting, selling, securitizing and servicing
residential mortgage loans. In addition, there are other federal and state
statutes and regulations affecting such activities. These rules and
regulations, among other things, govern how mortgage originators originate
loans; and with respect to loan servicing, govern how mortgage servicers
process a mortgagor's payment, require an annual analysis of escrow balances
and also regulate the procedure for making investor payments.
There also are numerous rules and regulations imposed on mortgage loan
originators and servicers. These rules and regulations require originators to
obtain or maintain licenses, establish eligibility criteria for mortgage
loans, prohibit discrimination, provide for inspections and appraisals of
properties, require credit reports on prospective borrowers, regulate payment
features and, in some cases, fix maximum interest rates, fees and loan
amounts. Failure to comply with these requirements could lead to loss of
approved status, termination of servicing contracts without compensation to
the servicer, demands for indemnification or loan repurchases, class action
lawsuits and administrative enforcement actions. There can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future, which could make compliance more difficult and expensive.
DEPENDENCE UPON THE PRESIDENT
The success of the Company generally is dependent upon Mr. Khoshabe, its
president. The loss of the services of Mr. Khoshabe could have an adverse
effect upon the Company if a replacement cannot be quickly retained. No
assurance can be given that a suitable replacement could be attracted to the
Company. The Company does not have "key-man" life insurance on the life of Mr.
Khoshabe. See "Management." The Company also has an employment agreement with
Mr. Khoshabe wherein he has agreed to maintain his employment with the Company
for a term of 5 years commencing from the effective date of the registration
statement relating to this Prospectus. See "Management--Compensation of
Directors and Executive Officers."
DIVIDEND POLICY
The Company has never declared or paid a dividend on its Common Stock, and
management expects that the substantial portion of the Company's future
earnings will be retained for expansion or development of the Company's
business. The decision to pay dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition, and other relevant
factors such as loan covenants or other contractual obligations. See "Dividend
Policy."
CONTROL BY THE PRESIDENT
The Joseph Khoshabe Trust, dated September 22, 1995, ("J.K. Trust") of which
Mr. Joseph Khoshabe is the trustee, currently owns approximately 81.6% of the
outstanding Common Stock of the Company. Upon completion of this offering, the
J.K. Trust will own approximately 64.8% of the outstanding Common Stock of
9
<PAGE>
the Company. Accordingly, the J.K. Trust and indirectly, Mr. Joseph Khoshabe,
the President of the Company, will continue to exercise control over the
Company, including control over the election of directors and the appointment
of officers of the Company, after the completion of this offering. The
practical effect of Mr. Khoshabe's control over the election of the Board of
Directors is that Mr. Khoshabe's employment with the Company cannot be
terminated. For example, if the Board of Directors were to terminate Mr.
Khoshabe's employment contract, then Mr. Khoshabe, as the trustee of the J.K.
Trust could call a special meeting of shareholders. At such special meeting,
the J.K. Trust could vote to remove all directors other than Mr. Khoshabe. The
reconstituted Board of Directors could then reemploy Mr. Khoshabe. See
"Principal Stockholders."
CONFLICTS OF INTEREST
The Board of Directors generally has the responsibility for determining the
compensation of the employees of the Company, including the Company's
officers. Prior to the election of the additional Board members as described
herein, no independent outside authority has reviewed or approved the
decisions of the Board of Directors concerning compensation matters.
Historically, Mr. Joseph Khoshabe, as the sole director, set his own
compensation. Thirty (30) days after the completion of the offering described
in this Prospectus, three (3) non-employee designees have agreed to become
members of the Board. It is contemplated that audit and compensation
committees composed of non-employee members of the Board of Directors will be
established. See "Management."
A potential conflict of interest may exist as a result of Mr. Joseph
Khoshabe's affiliation with the J.K. Trust resulting from his capacity as the
trustee of the J.K. Trust. It is possible that the interests of the J.K. Trust
could conflict with the interests of the Company. Another potential conflict
of interest could arise between the Company and the Underwriter relating to
the current indebtedness of $80,000 owed to the Company by Mr. Joseph
Kurczyodyna, President of the Underwriter. The Company is not aware of any
actual conflicts relating to the above matters. See "Principal Stockholders"
and "Underwriting."
NO PRIOR PUBLIC MARKET FOR SECURITIES; POSSIBLE VOLATILITY OF SECURITIES
PRICES
Prior to this Offering, there has been no public market for the Company's
securities. Concurrently with the Offering, the Company's Common Stock will be
listed on the Chicago Stock Exchange ("CSE"). However, there can be no
assurance that an active trading market will develop after this offering, or
that, if developed, it will be sustained. Recent history relating to the
market prices of newly public companies indicates that, there may be
significant volatility in the market for such securities because of factors
unrelated, as well as related, to such company's operating performance. See
"Underwriting."
ARBITRARY DETERMINATION OF OFFERING PRICE
The public offering price of the Shares has been arbitrarily determined by
negotiations between the Company and the Underwriter. Among the factors
considered in determining the offering price were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the
general condition of the securities market. However, the offering price of the
Shares does not necessarily bear any relationship to the Company's assets,
book value, earnings, or any other established criterion of value. See
"Underwriting."
MARKET OVERHANG FROM WARRANTS
Immediately after the offering, the Company will have outstanding warrants
to purchase 242,000 Shares, including warrants issued in connection with
certain prior financings of the Company. To the extent that such warrants are
exercised, dilution of the interests of the Company's stockholders may occur.
Moreover, the terms upon which the Company would be able to obtain additional
equity capital may be adversely affected since the
10
<PAGE>
holders of the outstanding warrants can be expected to exercise them, to the
extent they are able to, at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company
than those provided in the warrants. Furthermore, the sale of Common Stock or
other securities held by or issuable to the holders, or merely the potential
of such sales, could have an adverse effect on the market price of the
Company's securities. See "Description of Securities" and "Shares Eligible for
Future Sale."
STOCK OPTION PLAN
The Company has reserved 500,000 shares of its Common Stock for issuance
upon exercise of stock options (for which no options have been granted)
pursuant to its Non-Qualified and Incentive Stock Option Plan ("Plan").
Exercise of outstanding stock options will reduce the percentage of Common
Stock held by the public stockholders and dilute the market value for those
shares. Further, the terms on which the Company could obtain additional
capital during the life of the stock options may be adversely affected, and it
might be expected that the holders of the stock options would exercise same at
a time when the Company would be able to obtain equity capital on terms more
favorable than those provided for in the stock options. The Company may file a
registration statement under the Act to register Common Stock to be issued to
employees and others pursuant to the Plan. Exercise of these registration
rights will result in dilution of the interest of the public stockholders and
could involve a substantial expense to the Company and could prove a hindrance
to future financings. See "Management--Stock Option Plan."
POSSIBLE RESALES UNDER RULE 144
After the consummation of the offering, 3,100,029 shares of Common Stock
held by the Company's present stockholders will not have been registered under
the Act, but may, under certain circumstances, be available for public sale by
means of ordinary brokerage transactions in the open market pursuant to Rule
144, promulgated under the Act, subject to certain limitations. In general,
under Rule 144, a person (or persons whose shares are aggregated) who has
satisfied a one-year holding period may, under certain circumstances, sell
within any three-month period the number of securities which does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the
sale of securities, without any limitation, by a person who is not an
affiliate of the Company and who has satisfied a three-year holding period.
The possibility of any such sale may adversely affect the market price of the
Company's securities. In addition, holders of warrants, the holders of Shares
issuable upon exercise of stock options granted pursuant to the Stock Option
Plan and Shares issued with respect to certain prior financings of the
Company, have certain registration rights under the Act, which would permit
the future public sale of the underlying shares of Common Stock. See "Shares
Eligible for Future Sale."
POSSIBLE DELISTING FROM THE CHICAGO STOCK EXCHANGE ("CSE") AND RISKS OF COMMON
STOCK TRADING BELOW $5.00 PER SHARE
The trading of the Company's stock on the CSE is conditioned upon the
Company meeting certain asset, capital and surplus, earnings and stock price
tests. If the Company fails any of these tests, the Common Stock may be
delisted from trading on the CSE. The effects of delisting include the limited
release of the market prices of the Company's securities and limited news
coverage of the Company. Delisting may restrict investors' interest in the
Company's securities and materially adversely affect the trading market and
prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatility of stock prices and possible delisting, low price stocks are
subject to the additional risks of additional federal and state regulatory
requirements and the potential loss of effective trading markets. In
particular, if the Common Stock were delisted from trading on the CSE and the
trading price of the Common Stock was less than $5.00 per share, the Common
Stock could be subject to Rule 15c2-6 under the Securities Exchange Act of
1934, as amended, which, among other things, requires that broker/dealers
satisfy special sales practice requirements, including making individualized
written suitability determinations and receiving any purchaser's written
consent prior to any transaction. If the Company's securities were delisted
and the trading price was less than $5.00 per
11
<PAGE>
share, the Company's securities also could be deemed penny stocks under the
Securities Enforcement and Penny Stock Reform Act of 1990, which would require
additional disclosure in connection with trades in the Company's securities,
including the delivery of a disclosure schedule explaining the nature and
risks of the penny stock market. Such requirements could severely limit the
liquidity of the Company's securities and the ability of purchasers in this
offering to sell their securities in the secondary market.
AFFECT OF FUTURE ISSUANCE OF PREFERRED SHARES
The Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations preferences and
relative participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including dividend rights, terms of
redemption (including sinking fund provisions), conversion rights and
liquidation preferences of the shares constituting any series, without further
vote or action by the shareholders. The issuance of preferred stock by the
Board of Directors could adversely affect the rights and/or voting power of
holders of Common Stock. The authority possessed by the Board of Directors to
issue preferred stock potentially could be used to discourage attempts by
others to obtain control of the Company through merger, tender offer, proxy
contest or otherwise, by making such attempts more difficult to achieve or
more costly. See "Description of Securities."
POTENTIAL EXPENSES ARISING FROM INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation and Bylaws of the Company provide for
indemnification of each director and officer or former director or officer or
any person who may have served at the request of the Company as a director or
officer of another corporation in which the Company owns securities or is a
creditor. Such provisions eliminate, with certain exceptions, the personal
liability of the directors to the Company and the Company's stockholders for
monetary damages as a result of a breach of fiduciary duty, making it more
difficult to assert a claim and obtain damages from a director in the event of
a breach of his or her fiduciary duty. The Company will indemnify against
reasonable costs and expenses incurred in connection with any action, suit or
proceeding to which any of the individuals described above were made a party
by reason of his or her being or having been such a director or officer,
unless such director has been adjudicated to have been liable for negligence
or misconduct in his or her corporate duties. As of the date of this
Prospectus, the Company is not aware of any existing or pending litigation
involving a director that will require indemnification by the Company. To the
extent the Company is required to expend funds to indemnify officers and
directors, there could be a materially adverse effect on the financial
condition of the Company.
Notwithstanding the foregoing indemnification provisions of the Company's
Articles of Incorporation and Bylaws, the Company has been informed that, in
the opinion of the Commission, indemnification for liabilities arising under
the Securities Act is against public policy and is therefore unenforceable.
See "Commission Position on Indemnification for Securities Act Liabilities."
DILUTION AND SHARE PRICE DISPARITY
Assuming a public offering price of $6.50 per share for the sale of the
shares offered hereby, purchasers of the shares will incur immediate dilution
of approximately $5.14 per share in net tangible book value which represents a
percentage dilution of 79.1%. See "Dilution."
Prospective investors also should consider the purchase price disparity
between what current shareholders paid for their shares and the offering price
of $6.50 per share. Current shareholders have paid share prices ranging from
$.05 per share to $2.25 per share and, on average, have paid $.39 per share.
LACK OF UNDERWRITING HISTORY
Mills Financial Services, Inc., the Underwriter, has not previously
participated as an underwriter on a firm commitment basis and has not
previously been an underwriter of an initial public offering. In 1994, Mills
12
<PAGE>
Financial Services, Inc. attempted an initial public offering for the Company
on a best efforts--minimum or none basis. Mills Financial Services, Inc. was
not successful in completing the minimum sales amount and the offering was
withdrawn by the Company. Prospective purchasers of the Common Stock offered
hereby should consider the limited experience of Mills Financial Services,
Inc. in evaluating an investment in the Common Stock. See "Underwriting."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The Company believes that this Prospectus contains forward-looking
statements, including statements regarding, among other items, the Company's
future plans and growth strategies and anticipated trends in the industry in
which the Company operates. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
the factors described herein, including, among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained in this Prospectus
will in fact transpire or prove to be accurate.
RISKS RELATING TO USE OF OFFERING PROCEEDS
Prospective investors are urged to consider management's broad discretion in
allocating a substantial percentage (24.8%) of the net offering proceeds to
working capital. This broad discretion may result in management's application
of working capital in ways not contemplated at the time of this Offering. See
"Use of Proceeds."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, assuming an initial public offering price of $6.50 per share
and after deducting underwriting discounts, the underwriter's non-accountable
expense allowance and other expenses of the offering estimated at an aggregate
of approximately $935,000 (approximately $1,036,400 if the over-allotment
option is exercised in full), will be $4,265,000 (approximately $4,943,600 if
the over-allotment option is exercised in full). The Company intends to use
the net proceeds of this Offering approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
DOLLAR OF NET
DESCRIPTION AMOUNT PROCEEDS
----------- ----------- -----------
<S> <C> <C>
Originate Mortgage Loans.......................... $2,000,000 46.9%
Redemption of a portion of Series A Preferred
Stock(1)......................................... 750,000 17.6%
Retirement of Convertible Debentures(2)........... 425,000 10.0%
General Working Capital and Capital Expenditures
purposes......................................... 1,090,000 24.8%
---------- -----
</TABLE>
- --------
(1) The J.K. Trust is the holder of such shares of Series A Preferred Stock.
Mr. Joseph Khoshabe, the President of the Company, controls the J.K. Trust
in his capacity as trustee of the trust. See "Certain Relationships and
Related Transactions" and "Description of Securities--Series A Preferred
Stock" for additional information regarding the preferred stock held by
the J.K. Trust.
(2) The Convertible Debentures are held by unaffiliated holders who purchased
the debentures pursuant to the 1996 Financing. See "History of Security
Placements--1996 Financing."
The net proceeds from this Offering will not be utilized to make loans to
officers, directors or other affiliates of the Company.
While the foregoing represents the Company's present intention with respect
to the use of the offering proceeds, capital requirements or business
opportunities, none of which are currently anticipated, could cause
13
<PAGE>
management to elect to use proceeds for other general corporate purposes and
for other purposes not contemplated at this time. Pending the use of the net
proceeds, the Company will invest them in money market accounts and short-term
certificates of deposit.
The Company believes that cash flow from operations, together with the net
proceeds of this Offering, will meet the Company's cash requirements for at
least the next twelve (12) months.
DIVIDEND POLICY
The Company has never declared or paid a dividend on its Common Stock, and
management expects that the substantial portion of the Company's earnings, if
any, for the foreseeable future will be used to expand loan origination and
servicing capabilities. The decision to pay dividends, if any, in the future
is within the discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements, financial condition and other
relevant factors such as loan covenants or other contractual obligations. See
"Risk Factors--Dividend Policy."
DETERMINATION OF THE OFFERING PRICE
No market for the Shares has existed prior to this offering, and no
assurance can be made that a viable public market will be developed or be
sustained after the offering. The initial public offering price of the Shares
has been determined by negotiations among the Company and the Underwriter.
Among the factors considered by the Company and representatives of the
Underwriter in determining the initial public offering price of the Shares, in
addition to prevailing market conditions, were the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of
the above factors in relation to market valuations of companies in related
businesses.
DILUTION
At July 31, 1997, the Company had outstanding an aggregate of 3,100,029
shares of Common Stock having an aggregate net tangible book value of
$1,067,049, or approximately $0.34 per share. Net tangible book value per
share consists of total assets less intangible assets and liabilities, divided
by the total number of shares of Common Stock outstanding.
After giving effect to the sale of 800,000 shares of Common Stock and
assuming a maximum public offering price of $6.50 per share, the pro forma net
tangible book value of the Common Stock at July 31, 1997 would be $5,325,264,
or approximately $1.36 per share. This represents an immediate increase in pro
forma net tangible book value of $1.02 per share to the present shareholders
and an immediate dilution of $5.14 per share to the public purchasers. The
following table illustrates the dilution which investors participating in this
offering will incur and the benefit to current shareholders as a result of
this offering:
<TABLE>
<S> <C> <C>
Public offering price per share (1)............................... $6.50
Net tangible book value per share before Offering (2)........... .34
Increase per share attributable to Shares offered hereby........ 1.02
----
Pro forma net tangible book value per Share after offering........ 1.36
-----
Dilution of net tangible book value per Share to purchasers in
this offering.................................................... $5.14
=====
</TABLE>
- --------
(1) Represents the assumed public offering price per share of Common Stock
before deductions of underwriting discounts and commissions and estimated
expenses of the offering.
(2) Assumes no exercise of Warrants or the Underwriters' over-allotment
option. See "Description of Securities" and "Underwriting."
The following table sets forth the number and percentages of shares of
Common Stock issued, and the amount and percentage of consideration and
average price per share paid by existing shareholders of the
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<PAGE>
Company as of July 31, 1997, and to be paid by purchasers pursuant to this
Offering (based upon the anticipated maximum public offering price of $6.50
per Share and before deducting underwriting discounts and commissions and
estimated expenses of this offering).
<TABLE>
<CAPTION>
OWNERSHIP CONSIDERATION
----------------- ------------------ APPROXIMATE
NUMBER OF AVERAGE PRICE
SHARES PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
New Shareholders.......... 800,000 20.5% $5,200,000 81.1% $6.50
Existing Shareholders..... 3,100,029 79.5% $1,215,019 18.9% $ .39
--------- ------ ---------- ------
3,900,029 100.00% $6,415,019 100.00%
========= ====== ========== ======
</TABLE>
The foregoing table gives effect to the sale of the Shares offered hereby
and does not give effect to the exercise of the Underwriters' over-allotment
option or any Warrants.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
July 31, 1997; and (ii) as adjusted as of July 31, 1997 to give effect to the
receipt and anticipated use of the estimated net proceeds of this Offering
based upon an assumed maximum public offering price of $6.50 per share.
<TABLE>
<CAPTION>
JULY 31, 1997
-----------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Notes payable and line of credit....................... $13,832,485 $13,832,485
----------- -----------
1996 Bridge Financing Convertible Debentures........... 418,214 --
Series A Preferred Stock, no par value; no stated value
per share; authorized 213 shares; issued and
outstanding--213 shares actual and 63 shares as
adjusted.............................................. 1,065,000 315,000
Stockholders' Equity
Common Stock, no par value; authorized--20,000,000
shares; issued and outstanding--3,100,029 actual;
and 3,900,029 as adjusted........................... 995,537 5,260,537
Retained Earnings.................................... 71,513 64,727
----------- -----------
Total Stockholders' Equity......................... 1,067,050 5,325,264
----------- -----------
Total Capitalization............................... $16,382,749 $19,472,749
=========== ===========
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company, founded in 1986, operates as a full-service mortgage banking
company engaged in the origination and sale of first mortgage loans secured by
residential real estate. On a limited scale, the Company also originates and
services commercial loans; and services residential mortgage loans.
RESULTS OF OPERATIONS
Two Years Ended April 30, 1997
Commissions and fees decreased from $5,810,360 for the year ended April 30,
1996 to $5,292,856 for the year ended April 30, 1997. This percentage decrease
of approximately 9% is primarily the result of a decrease in the number of
loan originations from 1,656 during the year ended April 30, 1996 to 1,460
during the year ended April 30, 1997. Aggregate loan volume originated
decreased from $200 million to $190 million between the same periods. The
decrease in loan originations was the result of higher interest rates.
Interest income decreased from $632,068 for the year ended April 30, 1996 to
$403,526 for the year ended April 30, 1997. This decrease was attributable to
decreased loan activity.
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<PAGE>
Salary and commission expenses decreased from $4,228,995 for the year ended
April 30, 1996 to $3,731,207 for the year ended April 30, 1997. This decrease
was directly attributable to the decreased number of loan originations, the
investment in the expansion of the Company's sales organization during fiscal
1996 and the Company operating more efficiently in 1997.
Selling and administrative expenses decreased from $1,745,754 for the year
ended April 30, 1996 to $1,437,958 for the year ended April 30, 1997. This
percentage decrease of approximately 17% reflected increased operating
efficiencies of the Company.
Depreciation expense increased slightly, from $32,658 for the year ended
April 30, 1996 to $38,045 for the year ended April 30, 1997 principally as a
result of additional computer equipment acquired in fiscal 1997.
Interest expense decreased from $465,572 for the year ended April 30, 1996
to $232,474 for the year ended April 30, 1997. This approximate 50% decrease
in interest expense was the result of reduced use of lines of credit.
During the fiscal year ending April 30, 1997, the Company recognized a loss
from a judgment rendered against the Company in the United States District
Court regarding past transactions with a title company. Total costs and
expenses including the amount of the judgment and associated legal expenses
totaled approximately $734,000.
As a result of the foregoing, net loss increased from a loss of $30,511 for
the year ended April 30, 1996 to a loss of $423,584 in the year ended April
30, 1997. Without the effect of the aforementioned judgment, net income for
the year ended April 30, 1997 would have been $256,698. The Company made no
provision for income taxes in fiscal 1996 and recorded a deferred tax asset of
$45,763 for fiscal year 1997.
Three Months ended July 31, 1996 and 1997
Commissions and fees decreased from $1,485,372 for the three months ended
July 31, 1996 to $1,422,145 for the comparable period in fiscal 1998. This
percentage decrease of approximately 4% is principally the result of a
decrease in the number of loan originations from period to period.
Interest income decreased from $145,600 for the three months ended July 31,
1996 to $99,098 for the comparable period in fiscal 1998. The decrease in
interest income of approximately 32% between periods was attributable to a
decrease in loan originations.
Salary and commission expenses increased from $950,994 for the three months
ended July 31, 1996 to $957,189 for the three month period ended July 31,
1997. As a result, salary and commission expenses as a percentage of revenues
increased slightly from approximately 58% to 62% between periods. This
increase was attributable to the hiring of additional salaried staff to
position the Company for future growth, and the reduction in revenues.
Selling and administrative expenses decreased from $439,109 for the three
month period ended July 31, 1996 to $341,297 for the three month period ended
July 31, 1997. This percentage decrease of approximately 22% reflects reduced
expenses related to decreased loan originations and the lower costs associated
with a reduction in the sales organization. Selling and administrative
expenses as a percentage of revenues decreased from 26% to 22% in the
corresponding periods.
Depreciation expense increased from $9,808 for the three months ended July
31, 1996 to $10,638 for the three months ended July 31, 1997.
Interest expense increased from $108,455 for the three month period ended
July 31, 1996 to $120,884 for the three month period ended July 31, 1997. This
increase was attributable to higher costs of borrowings.
As a result of the foregoing, net income decreased from $71,653 for the
three months ended July 31, 1996 to $53,915 for the three months ended July
31, 1997.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the years ended April 30, 1996 and April 30, 1997, net cash generated
(used) by operating activities was $324,744 and ($699,942), respectively.
During the three month periods ending July 31, 1996 and July 31, 1997, net
cash generated (used) by operating activities was ($676,262) and $120,591,
respectively. Net cash generated by operating activities decreased from fiscal
year 1996 to fiscal year 1997 primarily because of decreased loan
originations. Net cash generated by operating activities increased from the
three month period ended July 31, 1996 to the three month period ended July 31
primarily because of increased loan origination volume.
Capital expenditures for the year ended April 30, 1997 were approximately
$29,618 principally in computer technology and to a lesser extent for the
expansion of sales organization facilities. The Company believes it will
continue to make investments in computer technology in the near future to
upgrade and maintain its product and service offerings. The Company believes
that such investments could aggregate $200,000 to $300,000 over the next two
years, but has no specific plans at present for such expenditures.
The Company may consider acquisitions of other mortgage businesses as part
of implementing its strategies. There are no specific plans at present for
such expenditures.
Cash flow requirements depend on the level and timing of the Company's
activities in loan originations in relation to the timing of the sale of such
loans. In addition, the Company requires cash flow for the payment of
operating expenses, interest expense and capital expenditures. Currently, the
Company's primary sources of funding are borrowings under warehouse lines of
credit, proceeds from the sale of loans in the secondary market and internally
generated funds. Management believes that a larger equity base resulting from
this offering should increase the amount of credit available to the Company.
Historically, the Company has funded its growth, in large part, from its
access to lines of credit and its operating activities. The Company has been
additionally capitalized by its President, Joseph Khoshabe, through various
purchases of Common Stock and Series A Preferred Stock. Further, the Company
has sold Common Stock, debentures and warrants during the past four years at
various times, principally to fund the costs associated with a contemplated,
but uncompleted, public offering in late fiscal 1994 and fiscal 1995. These
transactions are more fully described in the section entitled "Historical
Security Placements."
The Company is obligated to use $750,000 of the proceeds of this Offering to
redeem a portion of the Series A Preferred Shares held by the J.K. Trust, and
$425,000 of the proceeds to retire certain convertible debentures. The Company
anticipates employing the remainder of the net proceeds of this financing as
additional equity to commit to the funding of mortgage loans and for the
purpose of supporting increased lines of credit to be used to fund such loans.
Although the Company cannot be assured of the availability of additional
credit, the Company reasonably anticipates that the availability of the net
proceeds of this Offering will result in an increase in the availability of
credit to the Company.
The commitment of additional capital and an increased credit amount will
permit the Company to fund or purchase a greater number of mortgage loans. The
ability of the Company to profit from such increased funding capability will
depend upon the Company's ability to originate additional loans or purchase
loans which generate fees, commissions and net interest income in the
aggregate which exceeds the Company's expenses. There can be no assurance that
the Company will be able to employ the additional capital and credit resources
to fund transactions which result in a profit to the Company.
The long-term plans of the Company also are to engage in the business of
servicing mortgage loans. In order to engage in this business, the Company
will be required to retain the servicing rights on the loans which it
originates. Such retention will result in a reduction in the revenue available
to the Company upon the sale of such mortgage loans. In such event, the
Company will be required to employ capital to finance the retention of
servicing rights. Such capital principally would be expended to pay the costs
associated with loan origination, such as loan officer compensation and
miscellaneous overhead expenses. However, the retention of servicing rights
also creates an asset on the Company's balance sheet.
17
<PAGE>
The Company will be required to obtain additional capital to achieve its
long-term objectives. The Company has no commitments to obtain such capital
and there can be no assurance that such capital will be available to the
Company in the future or, if available, will be on terms acceptable to the
Company.
The Company's existing capital, the proceeds of this offering and other
financing, its credit facilities, as well as cash flow expected to be
generated from operations, are expected to satisfy the Company's cash
requirements for at least the next twelve (12) months, and principally will be
applied to originate loans. However, management believes that the Company will
require additional credit over the next three (3) years in order to expand its
loan origination capabilities and expand its loan servicing business. The
Company is presently in discussions with various lenders for additional lines
of credit, and management believes that the increase in the Company's equity
as a result of this financing will enhance the Company's ability to obtain the
additional credit it will require to increase its servicing portfolio of
mortgage loans, and reduce borrowing costs. If such additional credit is not
available to the Company, the Company could be required to reduce the scope of
its operations, which could adversely affect the Company's results of
operation.
INDUSTRY TRENDS
The growth in volume that the mortgage industry has seen over the past few
years has resulted from a general downward trend in interest rates. The
Company believes that mortgage volume may tend to decrease on a relative basis
in higher interest environments, but higher interest rates generally result in
smaller mortgage companies leaving the market resulting in potentially larger
market shares for continuing mortgage bankers. The Company believes that
proceeds from the financing will position the Company to realize opportunities
in such an environment, but there can be no assurance that it will be able to
do so.
The Company also believes that the industry will continue to offer broader
and more diversified product offerings and that technology will play an
increasing part in real estate transactions, including expanded use of
Internet capabilities. The Company believes that the proceeds from the
financing will allow the Company to make the necessary investments in these
technologies as part of its working capital requirements.
The Company's business base is concentrated principally in the Midwest and
California and, as such, may be subject to the effects of economic conditions
and real estate markets specific to such locales.
INFLATION AND SEASONALITY
The Company believes the effect on inflation, other than its potential
effect on market interest rates, has been insignificant. Seasonal fluctuations
in mortgage originations generally do not have a material effect on the
financial condition or results of operations of the Company.
ACCOUNTING DEVELOPMENTS
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"). SFAS 125, among other things, provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities. SFAS 125 requires that after a transfer of financial assets,
an entity recognize the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. SFAS 125
also requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at
fair value. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996 and
is to be applied prospectively. The Company expects that the impact of SFAS
125 on the results of operations, financial condition, or liquidity will be
immaterial.
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Board of Directors authorized the issuance of 213 shares of
Series A Non-Voting Preferred Stock ("Preferred Stock"). The outstanding
shares of Preferred Stock were purchased from the Company for total cash
consideration of $1,065,000 or $5,000 per share. The 213 shares of Preferred
Stock includes 113 shares purchased by the J. K. Trust on June 10, 1996 for a
cash payment to the Company of $565,000. The J. K. Trust purchased these
shares of Preferred Stock as a capital infusion to compensate for the $565,000
judgment that was paid in the Lawyers Title Litigation. See "Legal
Proceedings."
Upon consummation of the offering, 150 shares of the Preferred Stock will be
redeemed by the Company for a redemption price of $750,000 and no longer will
be outstanding.
The redemption price for the Preferred Stock represents the original
purchase price for such shares. The decision to redeem the shares by the
Company was made solely by the holder of such shares, namely Mr. Joseph
Khoshabe, the President and then sole director of the Company.
The J. K. Trust for which Mr. Joseph Khoshabe is the trustee will continue
to hold sixty-three (63) shares of Preferred Stock after the redemption
described above.
The Company also has paid variable dividends with respect to the Preferred
Stock as determined by the Board of Directors of the Company on an annual
basis. Once again, the decision to pay variable dividends with respect to the
Preferred Stock historically was made by Mr. Joseph Khoshabe as the sole
director of the board of directors. See "Financial Statements."
The J. K. Trust has agreed with the Underwriter that it will not sell within
twelve (12) months of the effective date of this registration statement more
than 100,000 shares of Common Stock, and that any such sale(s) shall not
commence earlier than six (6) months after such effective date. See
"Underwriting."
As an affiliate of the Company within the meaning of Rule 144(a)(1), J.K.
Trust will be subject to the volume limitations of Rule 144(e) with respect to
any sales by it. Generally, the maximum amount of securities which can be sold
by a control affiliate during a three-month period pursuant to Rule 144 is
limited to the greater of one percent of the outstanding securities of the
Company or the average weekly volume traded for the four week period prior to
the date of filing the required notification of sale.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at the date of
this prospectus, as adjusted to reflect the sale of the Common Stock offered
hereby, by (i) each person known by the Company to beneficially own more than
5% of the Company's Common Stock, (ii) the Company's sole director, and (iii)
the officer and director of the Company beneficially owning such Common Stock.
The Company believes that Mr. Joseph Khoshabe as trustee of the Joseph
Khoshabe Trust, under trust agreement dated September 22, 1995 (the "J.K.
Trust"), has sole investment and voting power with respect to the shares
beneficially owned by him.
<TABLE>
<CAPTION>
PERCENT OWNED(1)
NUMBER OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- ------------------------------------ --------- -------- --------
<S> <C> <C> <C>
J. K. Trust...................................... 2,531,842 81.6% 64.8%
c/o United Financial Mortgage Corp.
600 Enterprise Drive
Suite 206
Oak Brook, IL 60521
Rocco M. Cappiello............................... 211,150(2) 6.4% 5.1%
30 S. Wacker
Suite 1310
Chicago, Illinois 60606
</TABLE>
19
<PAGE>
- --------
(1) The computations include the issuance of 242,000 shares of Common Stock
upon exercise of various outstanding warrants which are exercisable within
60 days of the date of this Prospectus. See "Description of Securities--
Warrants."
(2) Mr. Rocco M. Cappiello has the right to acquire 195,000 of such shares
within sixty (60) days of the effective date of the registration statement
relating to this Prospectus upon exercise of the Advisor Warrant. See
"Description of Securities--Advisor Warrant."
The J. K. Trust is the principal shareholder of the Company. Mr. Khoshabe
originally purchased the shares and then had them reregistered in the name of
the J. K. Trust for estate planning purposes. Mr. Khoshabe as the trustee of
the J. K. Trust is the beneficial owner of 2,531,842 shares of the Common
Stock of the Company. In connection with the organization of the Company and
its initial capitalization, the J. K. Trust paid a total of $130,070 for 100%
of the Company's common stock. Therefore, the J. K. Trust purchased its
ownership interest in the Company for $.051 per share.
The J. K. Trust has agreed with the Underwriter and the Company, with the
exception of 100,000 shares which may be sold six (6) months after the
effective date of this offering, that it will not sell the remainder of the
shares held by it for a period of twelve (12) months after the effective date
of the registration statement relating to this Prospectus.
On December 15, 1993, the Company entered into an agreement with Mr.
Khoshabe, the President of the Company, wherein Mr. Khoshabe's Common Stock
holdings in the Company would not be diluted below 63.3% of the Company's
outstanding Common Stock for a ten (10) year term, without his prior written
consent, subject to adjustment for any sale(s) of shares of Common Stock by
Mr. Khoshabe. On June 10, 1994, the Company and Mr. Khoshabe entered into an
agreement terminating and cancelling the anti-dilution agreement in all
respects.
THE COMPANY AND ITS BUSINESS
MORTGAGE BANKING OPERATIONS
GENERAL
The Company was formed as an Illinois corporation in April of 1986 to engage
in the business of mortgage banking. The Company is licensed as a mortgage
banker in the states of Arkansas, California, Colorado, Delaware, Florida,
Illinois, Indiana, Kentucky, Maryland, Missouri, New Mexico, Oregon, South
Carolina, Utah, Washington, Wisconsin and Texas. The Company also does
business in other states that do not have mortgage banking licensure statutes,
including, Idaho, Kansas, Montana, Ohio, Oklahoma, West Virginia and Wyoming.
The Company's mortgage banking business has principally focused on retail and
wholesale residential mortgage origination activities. The Company intends to
expand its mortgage servicing activities by retaining servicing on selected
loans that it produces. The Company's principal lines of business are
conducted through the Retail Origination Division; the Wholesale Origination
Division and the Servicing Division. The Company's Retail and Wholesale
Origination business is principally conducted in the states of Illinois,
California, Nevada, Missouri, Virginia and Florida.
The loans that the Company originates and expects to service primarily are
first mortgages secured by single (one to four units) family residences,
although the Company also may originate, sell and service loans secured by
first mortgages on multi-family residential properties (more than four units)
and to a lesser extent, other mortgage assets.
The Company's loan production activities generate revenue through (i)
origination fees and gains on the sale of loans to broker-dealers and
institutional investors, and (ii) interest on mortgage loans held, or
"warehoused" from their origination or purchase until their sale to broker-
dealers and institutional investors. The Company's expanded loan servicing
division is expected to produce income from loan servicing fees.
The Company also engages in the brokerage or origination of loans on
commercial real estate, including shopping centers, office properties and
other commercial loans. The Company either brokers (e.g. arranges for
20
<PAGE>
the loan from third-party lenders) or funds and services these commercial
loans. Commercial loans may be brokered to other financial institutions, in
which case, the Company receives a negotiated fee. If the Company originates
and services a commercial loan, then revenues are earned based upon the
difference in the interest rate paid to the issuer of the credit line and the
interest rate paid by the borrower.
At this time, the Company's primary sources of loan originations are its
Wholesale and Retail Divisions. On July 31, 1997, the Company's Retail
Division operated three (3) full service retail origination offices. At such
date, the retail offices were located in three (3) states and were staffed by
approximately 50 employees, including commission-based loan officers. The
retail offices are currently located as follows: Oak Brook, Illinois; Creve
Coeur, Missouri, and Las Vegas, Nevada. Wholesale origination principally is
conducted from the Company's offices in Oak Brook, Illinois and Irvine,
California.
The Company's mortgage banking activities principally focused on retail loan
origination for the period from inception through 1993. During the period from
1994 through 1995, the Company emphasized the wholesale origination. This
emphasis resulted from a general decrease in overall loan origination volume
for this period. The application of additional resources to "wholesale" loan
origination during this period served to increase the Company's loan volume.
During the period from 1996 to date, the Company's focused on retail loan
origination because it is managements' experience that profit margins in
retail origination are generally greater than profits relating to wholesale
activities.
THE WHOLESALE ORIGINATION DIVISION
Wholesale loan origination involves the purchase of loans from mortgage
brokers. The Company realizes revenues from the sale of such loans to
investors for a price greater than the amount paid to the mortgage broker. The
timing of the sale of loans to investors and failure to comply with investor
underwriting guidelines could result in losses on loan sales. Management
believes that substantially all underwriting and related issues generally are
resolved with the investor prior to closing. It is management's experience
that wholesale loan origination tends to be less profitable on a per loan
basis than retail origination, but expansion into the wholesale sector is less
costly than retail origination because wholesale origination does not require
the establishment of costly office space and the related overhead expense. It
is management's experience that wholesale account executives generally work
from their homes or in shared office suites. This operating structure enables
the Company to quickly enter new markets.
The Company's Wholesale Division, which was established in June, 1994
operates from its corporate headquarters in Oak Brook, Illinois and Irvine,
California. Through the Wholesale Division, the Company acquires loans from a
network of mortgage brokers and other financial intermediaries, including
banks, who are screened by the Company.
In addition to loan processing performed by the correspondent, the Wholesale
Division performs its own underwriting prior to committing to acquire such
loans. Correspondents qualify to participate in the Wholesale Division's loan
acquisition program after a review of their reputation, mortgage lending
experience and financial condition, including a review of references and
financial statements. No single correspondent accounts for a significant
portion of the Wholesale Division's mortgage loan production.
THE RETAIL ORIGINATION DIVISION
Retail loan origination involves the direct solicitation of realtors,
builders and other end borrowers for the origination of mortgage loans. The
Company derives revenues from the premium that is received from the purchaser
of the loan. Generally, that premium is shared on a negotiated basis with loan
officers and others who procure the loan and assist in the loan origination
process.
The Company's Retail Origination Division solicits loans directly from
consumers and through real estate brokers, builders and other real estate
professionals. In developing its retail network, the Company has followed a
strategy of establishing offices in areas where its experience indicates
strong loan demand. This gives the Company added flexibility to open and close
offices as dictated by mortgage demand. See "Loan Funding and Warehousing."
21
<PAGE>
Establishing a reputation for prompt and responsive customer service is
another integral component of the Company's marketing strategies. The Company
believes that the ability to process loan applications quickly provides a
distinct advantage over its competitors. It is management's experience that
the average period between receipt of a loan application and the Company's
final lending commitment is generally less than 10 days. The Company endeavors
to process loans quickly, while maintaining comprehensive underwriting
controls through its automated techniques for loan origination, processing,
underwriting and closing. The Company's computer system integrates the
Company's loan origination activities to expedite loan processing, and
enhances its ability to respond to market opportunities.
QUALITY CONTROL OF MORTGAGE ORIGINATION
In order to ensure that the Company originates high quality mortgage loans,
it has retained the services of a quality control company with an industry
wide reputation to conduct audits of the Company's loan origination activities
on a monthly basis. The Quality Control company audits pursuant to contractual
specifications approximately ten (10%) percent of the aggregate retail and
wholesale loans originated by the Company on a monthly basis. The audit
process includes verification of mortgage information, including: employment
status, wages/salaries; credit standing; property appraisal; confirmation of
the borrower's savings and other assets; and compliance with other applicable
underwriting guidelines. The Quality Control company selects loan files on a
random basis. The Company receives a quality control management report from
the Quality Control company at the conclusion of each monthly audit.
LOAN PROCESSING AND UNDERWRITING
Loan applications generally are prepared by Company loan officers and
verified by personnel in the Company's Retail Origination Division.
Verification procedures, include, among other things, obtaining: (i) written
confirmations of the applicant's income and bank deposits, (ii) a formal
credit report on the applicant from a credit reporting agency, (iii) a
preliminary title report, and (iv) a real estate appraisal. Appraisals for
conventional and FHA loans are prepared by third party, unaffiliated
appraisers who are pre-approved based upon their experience, education and
reputation standards. Completed loan applications are then transmitted to the
Company's Underwriting Department or to underwriting sub-contracting companies
who provide underwriting services to the Company. The Underwriting Department
of the Company or its sub-contractors contain experienced staff who verify the
completeness and accuracy of application information, and determine its
compliance with the Company's underwriting criteria and those of applicable
government agencies or other investors.
Underwriting criteria include loan-to-value ratios, borrower income
qualifications, investor requirements, insurance and property appraisal
requirements. The Company's underwriting guidelines for FHA, VA, FNMA and
FHLMC loans comply with the written underwriting guidelines of the relevant
agency.
The Company's underwriting guidelines for "non-conforming" loans are based
upon the underwriting standards required by investors to whom such loans are
sold. "Non-Conforming" loans generally include loan products that do not
comply with the underwriting guidelines of Freddie Mac, Fannie Mae, FHA or VA.
The Company believes that the implementation and enforcement of comprehensive
underwriting guidelines are expected. Non-conforming loans generally are
underwritten by the Company in accordance with the written underwriting
guidelines of the applicable investor who purchases the loans.
Most of the Company's underwriting personnel function independently of the
Company's loan origination personnel and do not report to any individual
directly involved in the loan origination process.
The Company's internal Quality Control Department reviews the Company's
origination activities including approximately one hundred percent (100%) of
all closed loans in order to enhance the ongoing evaluation of the loan
processing function, including employees, credit reporting agencies and
independent appraisers. In conducting such reviews, the Quality Control
Department reviews the loan applications for compliance with federal and state
lending standards, which involves a second verification of employment prior to
loan closing, reconfirming banking information, and obtaining separate credit
reports and property appraisals. The Quality Control Department submits all
review results directly to the president of the Company.
22
<PAGE>
LOAN COMMITMENTS
Subsequent to underwriting approval, prior to loan funding, the Company
issues loan commitments to qualified applicants. Commitments indicate loan
amount, fees, funding conditions, approval expiration dates and interest
rates. Commitments providing for "fixed" interest rates beyond sixty (60) days
generally are not issued, unless the Company receives an appropriate fee
premium based upon the assessment of the risk associated with a longer
commitment period.
TYPES OF LOANS ORIGINATED
The Company makes available on a retail and wholesale basis a wide variety
of mortgage products that are designed, in conjunction with the prospective
purchasers of such loans, to respond to consumer needs and competitive
factors.
Virtually all residential mortgage loans produced by the Company fall into
three (3) categories, which relate to the type of investors that will
subsequently purchase such loans. These categories are (i) loans that comply
with the requirements for sale to, or exchange for securities issued by FNMA
and FHLMC ("conforming conventional loans"); (ii) loans insured by the FHA or
partially guaranteed by the VA (collectively "Government Loans"); and (iii)
loans secured by mortgage liens or trust deeds on single (one to four unit)
family homes, which do not conform to FNMA, FHLMC, FHA or VA requirements
("nonconforming conventional loans") because of certain loan characteristics
and/or non-conforming credit issues.
The following table sets forth the number and dollar amount of the Company's
mortgage loan production on both a retail and wholesale basis for the periods
indicated (differences are due to rounding):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
(APPROXIMATE VOLUME OF LOANS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Residential Loans
Number of loans.. 1,460 1,656 1,049 1,340 952 647
Volume of loans.. $ 190 $ 200 $ 71 $ 153 $ 82 $ 56
</TABLE>
The Company offers 15-year and 30-year conventional mortgages and 15-year
and 30-year FHA and VA mortgages, as well as special products designed to
offer lower rates or lower principal and interest payments to its customers.
The Company offers a wide variety of combinations of interest rates and points
on many of its products so that its customers may elect to pay higher points
at closing and lower interest rates over the life of the loan, or pay a higher
interest rate and reduce or eliminate points payable at closing. The Company
also has "limited document" loan programs which do not require verification of
assets or income, first time home buyer programs and loan programs for sub-par
credits. In addition, the Company offers buydown-type mortgages, which allow
the borrower to make lower monthly payments for the first one, two or three
years of the loan. While the Company offers both fixed rate mortgages and
adjustable rate mortgages ("ARMs") and other residential mortgages, the demand
for fixed rate mortgages tends to increase in low interest rate periods and
decrease when rates are higher on a relative basis. The Company determined
that it would be inappropriate to record an accrual for losses with respect to
"limited document" and "sub-par-credit" loan programs because the Company only
accepts "limited document" loans for low loan to value and strong credit
scoring borrowers. With respect to programs for "sub-par credits", the Company
only participates in such loan programs where there is low loan to value. The
Company believes that these actions serve to substantially eliminate any loss
exposure for such non-conforming loans. Additionally, such "limited document"
and "sub-par credit" loans are sold in the secondary market on a pre-approved
basis. This means that the loan would not be originated unless there is an
investor in place who pre-approved the purchase of the loan.
Conforming conventional loans originated by the Company under FNMA or FHLMC
programs have maximum loan sizes which are larger than those loans qualifying
for the FHA and VA programs. The Company offers to make or purchase loans with
principal balances in excess of the FNMA and FHLMC maximum amounts ("jumbo
loans"), although the Company generally does not make or acquire single family
loans in excess of $1 million.
23
<PAGE>
Mortgage loans originated by the Company are either purchase money loans,
which fund the purchase of primarily owner-occupied residential real property,
or refinance loans, which repay and replace existing mortgage loans. The
volume of refinance loans as a percentage of the Company's total mortgage loan
origination volume for the periods ended April 30, 1997, 1996, 1995, 1994 and
1993 was approximately twenty percent (20%), twenty percent (20%), sixty
percent (60%), fifty percent (50%) and sixty percent (60%) respectively. At
July 31, 1997, approximately twenty percent (20%) of the Company's loan
applications in process were refinance loans. See "The Company and its
Business--Mortgage Banking Operations--Servicing Division" below.
LOAN FUNDING AND WAREHOUSING
The Company's mortgage loans on both a retail and wholesale basis are funded
with available cash resources and borrowings under lines of credit with banks.
See "Risk Factors--Need for Additional Capital to Implement Long Term Plans."
The Company repays borrowings and replenishes its cash resources with the
proceeds from the sale of mortgage loans. Borrowings under the lines of credit
generally are based on the prime rate of the lending bank.
The Company normally "warehouses" or holds, mortgage loans funded as
described above for ten (10) to one hundred eighty (180) days (on average
twenty (20) days during the year ended April 30, 1997), depending upon the
delivery dates negotiated with institutional investors, the volume of loan
origination, the availability of cash resources and the amount available under
warehousing lines of credit. The Company receives, as net interest income, the
difference between the interest received on mortgage loans held prior to sale
and the interest paid by the Company under such lines of credit. The Company
attempts to mitigate interest rate risk by warehousing mortgage loans for
relatively short time periods. This is accomplished by selling the loan to the
preselected investor as soon as possible after the loan closing. As described
above, this "holding" period averaged 20 days during the year ended April 30,
1997. Although this strategy may limit the amount of net interest income,
management believes this strategy is prudent, because it protects the Company
from unexpected interest rate fluctuations.
SALE OF LOANS
Mortgage loans originated by the Company on both a retail and wholesale
basis are sold to investors in the secondary market. In the future, the
Company expects to retain the right to service such loans on a selected basis
to build a high quality servicing portfolio. Conventional conforming loans
generally are sold for cash as individual whole loans to investors. The
Company is an approved seller/servicer with FNMA and FHLMC. The Company
expects to sell loans to FNMA and to FHLMC for cash or in exchange for
securities issued by FNMA and FHLMC which are then sold to securities dealers.
In connection with such exchanges, the Company will be required to pay a fee
for agency guarantees of principal and interest payments to holders of the
securities backed by the mortgage loans. The Company generally sells its
conventional non-conforming loans to institutional investors in privately
negotiated transactions. During fiscal 1997, virtually all of the Company's
mortgage loans were sold to non-agency investors. Loans generally are sold
pursuant to commitments negotiated with institutional investors to purchase
loans meeting defined criteria. The Company expects to enter into new
commitments with these investors in the ordinary course of its business.
In the ordinary course of business, the Company makes representations and
warranties to the purchasers and insurers of mortgage loans and remains liable
on VA loans in excess of the amounts guaranteed by the VA. Losses relating to
such representations and warranties and contingent VA loan exposures have been
immaterial.
In connection with loan exchanges and sales, the Company makes
representations and warranties which it believes are customary in the industry
relating to, among other things, compliance with laws, regulations, program
standards and information accuracy. In the event of a breach of these
representations and warranties, the Company could be required to repurchase
such loans. In fiscal years 1997, 1996, 1995, 1994, 1993 and 1992, the Company
has not experienced any losses relating to such representations and warranties
or to its contingent VA loan exposure.
24
<PAGE>
THE SERVICING DIVISION
The Company's long term strategy is to expand its loan servicing division.
Loan servicing includes collecting and remitting loan payments, accounting for
principal and interest, holding escrow funds for payment of mortgage related
expenses such as taxes and insurance, making advances to cover delinquent
payments, making inspections as required of the mortgaged premises, contacting
delinquent mortgagors, supervising foreclosures and property dispositions in
the event of unremedied defaults and generally administering the loans.
Servicing compensation (based upon FNMA guidelines) generally ranges from .25%
to .50% per annum on the outstanding principal balances of the loans.
Servicing fees would be collected from monthly mortgage payments. Other
sources of loan servicing revenues may include late charges and use of funds
benefits.
As a servicer of mortgage loans underlying mortgage backed securities issued
by FNMA, FHLMC, GNMA or other investors, the Company will be obligated to make
timely payments of principal and interest to security holders, whether or not
such payments have been made by borrowers on the underlying mortgage loans.
With respect to mortgage loans securitized through GNMA programs, the Company
will be fully insured by FHA against foreclosure loss on FHA loans, and the VA
would guarantee against foreclosure loss on VA loans, subject to a limitation
of the lesser of 25% of the loan amount and $46,000. Although FNMA, FHLMC and
GNMA would be obligated to reimburse the Company for principal and interest
payments advanced by the Company as a servicer, the funding of delinquent
payments or the exercise of foreclosure rights involves prospective costs to
the Company.
The Company expects that an important source for its loan servicing
portfolio will be selected loans produced by the Company. The servicing rights
for selected loans will be retained by the Company after such loans are sold
to investors. In addition, the Company intends to supplement its servicing
portfolio by purchasing mortgage servicing rights relating to loans originated
by other lenders. Such purchases will be made only after the Company has
conducted a due diligence analysis of the loan portfolio.
The Company intends to provide low cost and flexible servicing that is
responsive to the needs and requirements of its customers and investors.
SEASONALITY
It is management's experience that the mortgage loan origination business is
generally subject to seasonal trends. These trends reflect the general pattern
of sale and resale of homes. It is management's experience that loan
origination typically peaks during the spring and summer seasons, and declines
to lower levels from mid-November through January. The mortgage servicing
business is generally not subject to seasonal trends.
COMPETITION
The mortgage banking industry is highly competitive. The Company competes
with other financial institutions, such as mortgage banks, state and national
banks, savings and loan associations, savings banks, credit unions and
insurance companies and mortgage bankers. Some of the Company's competitors
have financial resources that are substantially greater than those of the
Company, including some competitors which have a significant number of offices
in areas where the Company conducts its business. The Company competes
principally by offering loans with competitive features, by emphasizing the
quality of its service and by pricing its range of products at competitive
rates.
Information published by the Mortgage Bankers Association of America ("MBA")
indicates that although the mortgage business is competitive, it is also
fragmented in that no single lender has a significant market share of total
origination volume. MBA data indicates that overall mortgage origination
volume is shared in varying percentages among commercial banks, savings and
loan and mortgage banking companies. MBA data also indicates that
historically, mortgage banks have had an estimated twenty-thirty percent (20-
30%) share of total origination volume. Commercial banks, savings banks,
savings and loan associations and mortgage banking companies service the bulk
of residential mortgages. It is management's belief that market share among
competitors generally shifts more slowly in servicing than in origination.
Management of the Company does not anticipate any significant changes in the
market share described above in the near term.
25
<PAGE>
REGULATION
The Company's mortgage banking business is subject to the rules and
regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating,
processing, selling and servicing mortgage loans. Those rules and regulations,
among other things, prohibit discrimination and establish underwriting
guidelines which include provisions for inspections and appraisals, require
credit reports on prospective borrowers and fix maximum interest rates.
Moreover, lenders are subject to FNMA, FHA, FHLMC, GNMA and VA examinations at
any times to assure compliance with the applicable regulations, policies and
procedures.
The Company's mortgage loan production activities are subject to the Truth-
in-Lending Act and Regulation Z promulgated thereunder. The Truth-in-Lending
Act contains disclosure requirements designed to provide consumers with
uniform, understandable information with respect to the terms and conditions
of loans and credit transactions in order to give them the ability to compare
credit terms. The Truth-in-Lending Act also guarantees consumers a three day
right to cancel certain credit transactions, including any refinance mortgage
or junior mortgage loan on a consumer's primary residence. The Company
believes that it is in substantial compliance in all material respects with
the Truth-in-Lending Act.
The Company also is required to comply with the Equal Credit Opportunity Act
of 1974, as amended ("ECOA"), which prohibits creditors from discriminating
against applicants on the basis of race, color, sex, age or marital status.
Regulation B promulgated under ECOA restricts creditors from obtaining certain
types of information from loan applicants. It also requires certain
disclosures by lenders regarding consumer rights and requires lenders to
advise applicants of the reasons for any credit denial. In instances where the
applicant is denied credit or the rate or charge for loans increases as a
result of information obtained from a consumer credit agency, another statute,
the Fair Credit Reporting Act of 1970, as amended, requires the lenders to
supply the applicant with a name and address of the reporting agency.
The Federal Real Estate Settlement Procedure Act ("RESPA") imposes, among
other things, limits on the amount of funds a borrower can be required to
deposit with the Company in an escrow account for the payment of taxes,
insurance premiums or other charges. The Company has policies, procedures and
systems in place to ensure compliance with RESPA.
The Company believes it is in possession of all licenses in those states in
which it does business that require such licenses, except where the absence of
such licenses is not material to the business and operations of the Company as
a whole. Conventional mortgage operations also may be subject to state usury
statutes. FHA and VA loans are exempt from the effect of such statutes.
EMPLOYEES
As of April 30, 1997, the Company had approximately 50 employees,
substantially all of whom were full-time employees. Of these, approximately 21
were employed at the Company's Oak Brook, Illinois headquarters and the
remainder were employed at the branch offices, including employees who are
commission-based loan officers. None of the Company's employees is represented
by a union. The Company considers its relations with its employees to be good.
PROPERTIES
The Company's corporate and administrative headquarters are located in
leased facilities in Oak Brook, Illinois. These facilities comprise 4,807
square feet of space in a building leased by the Company for a ten year term
at annual rate of approximately $9.50 to $15.63 per square foot, triple net,
which lease expires in 2003. In addition, at April 30, 1997, the Company
leased an aggregate of approximately 1,146 square feet in Las Vegas, Nevada;
1,475 square feet in Irvine, California; and 900 square feet in St. Louis,
Missouri. The leases for Las Vegas, Nevada and Irvine California are on a
month to month basis. The Company has no liability with respect to the lease
at Creve Coeur, Missouri. The aggregate annual lease payments on properties
leased by the Company as of April 30, 1997 was $172,963.00. The Company
believes that its present facilities are adequate for its current level of
operations. None of the Company's leased facilities are leased from affiliates
of the Company.
26
<PAGE>
Lease commitments for the five (5) years following April 30, 1997 are as
follows:
<TABLE>
<S> <C>
April 30, 1998................................................ $144,076
April 30, 1999................................................ $122,050
April 30, 2000................................................ $111,898
April 30, 2001................................................ $ 84,213
April 30, 2002................................................ $ 81,876
</TABLE>
The Company's corporate headquarters are located at 600 Enterprise Drive,
Suite #206, Oak Brook, Illinois 60521 and its telephone number is (630) 571-
7222.
LEGAL PROCEEDINGS
Discussed below are various legal proceedings relating to the Company. The
Company does not believe that any one or all of these cases in the aggregate
represent material litigation to the Company. Further, management is not aware
of any threat of material litigation.
Lawyers Title Insurance Corporation v. Dearborn Corporation
In June, 1995, Lawyers Title initiated a non-wage garnishment proceeding
against the Company and its bank which resulted in a lien being placed upon
the Company's bank account in the amount of $565,649.26 ("Lawyers Title
Litigation"). Lawyers Title had previously obtained a judgment by default
against Dearborn Title Corporation and its president, Eileen Rasulis, in the
amount of $5,931,494.59. Lawyers Title claimed entitlement to monies
purportedly held by the Company on the grounds that the money was tendered to
the Company by Dearborn Title in the mistaken belief that this money was owed
to the Company as a replacement for a funding check relating to a particular
real estate refinancing transaction which had previously been returned to
Dearborn for insufficient funds.
The Company has vigorously denied that Lawyers Title is entitled to these
funds and has claimed that Dearborn Title owed to the Company sums in excess
of the judgment and that the Company is entitled to retain these funds.
On October 10, 1996, the United States District Court entered judgment in
favor of Lawyers Title and against the Company in the amount of $583,049.26.
On November 6, 1996, the Company appealed the October 10, 1996 judgment order
to the United States Court of Appeals for the Seventh Circuit.
On July 1, 1997, the United States Court of Appeals for the Seventh Circuit
issued its opinion and order affirming in part and reversing in part the
District Court's judgment. The matter has been remanded to the District Court
with directions.
On July 15, 1997, the Company filed a Petition for Rehearing with the Court
of Appeals.
Jeske and Levin v. United Financial Mortgage
In February, 1996, Keith Jeske and Mark Levin filed a complaint against the
Company and Joseph Khoshabe in the United States District Court for the
District of Nevada. The complaint alleges breach of oral and written
agreements, fraudulent inducement, unjust enrichment and other charges
relating to the purported breach of a branch office agreement entered into
between the Company and Levin and Jeske regarding the operation of a Las Vegas
branch office. Levin and Jeske alleged that the Company, among other things,
refused to pay payroll expenses and other fees incurred by the branch office
and misrepresented that the Company was VA approved and could provide VA loans
through the branch office. The complaint seeks an unspecified amount of
damages in excess of $50,000. The Company denies that any liability is owing
to either Jeske or Levin, intends to vigorously defend against the allegations
and has filed counterclaims alleging damages in excess of $100,000.
The litigation is in the discovery stage.
27
<PAGE>
Creed v. United Financial Mortgage Corp.
In March of 1996, David Creed filed a complaint in the State court for Clark
County, Nevada, alleging that the Company, Jeske and Levin breached an
agreement with him to pay certain compensation of approximately $100,000.
Jeske and Levin filed a cross-claim against the Company and Joseph Khoshabe,
alleging claims for breach of oral and written agreements, fraudulent
inducement, unjust enrichment and other charges relating to the purported
breach of a branch office agreement entered into between the Company and Levin
and Jeske regarding the operation of the Las Vegas branch office. Levin and
Jeske alleged that the Company, among other things, refused to pay payroll
expenses and other fees incurred by the branch office and misrepresented that
the Company was V.A. approved and could provide loans through the branch
office. The complaint seeks an unspecified amount of damages in excess of
$50,000. The Company and Joseph Khoshabe have answered both the complaint and
cross-claims, denying any liability to Creed, Jeske or Levin. In addition, a
motion to dismiss will be filed after discovery on behalf of Joseph Khoshabe
on the grounds that he is not party to any of the agreements and is not the
alter-ego for the Company. The Company intends to vigorously defend against
the allegations, and has also filed counter-claims against Creed, Levin and
Jeske alleging that these individuals breached the branch office agreement and
also alleging that Levin and Jeske unlawfully converted monies belonging to
the Company.
State of Nevada Office of Labor Commissioner
In October, 1995, the Company was notified by the State of Nevada's Office
of Labor Commissioner that certain wage claims had been filed by 18
individuals, including Jeske and Levin relating to unpaid wages totaling
approximately $32,000. The Company has denied responsibility for these claims
and affirmatively stated that pursuant to the branch office agreement, Jeske
and Levin are solely and exclusively responsible for these claims.
The Company has retained Nevada counsel to assist on these Nevada litigation
matters.
Schweigert v. United Financial Mortgage Corp.
This action was filed in the Circuit Court of the 18th Judicial District
Circuit, DuPage County, Illinois. The plaintiff in this action alleges
wrongful termination of employment from the Company and damages relating
thereto in excess of $50,000. The Company intends to vigorously defend this
litigation, does not believe that it has any liability with respect to this
claim and has filed counterclaims against the plaintiff and another party
alleging damages in excess of plaintiff's claim.
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Joseph Khoshabe 52 President, Chief Executive Officer,
and Sole Director
Steve Y. Khoshabe 25 Executive Vice President and Chief Financial Offi-
cer
Glen H. Schap 49 Vice President and Secretary
John A. Clark 49 Nominee Director
David B. Mirza 58 Nominee Director
Robert S. Luce 50 Assistant Secretary and Nominee Director
</TABLE>
The Company has nominated Dr. David B. Mirza, Mr. John A. Clark and Mr.
Robert S. Luce to become directors of the Company. Messrs. Mirza, Clark and
Luce have agreed to become directors of the Company thirty (30) days after the
closing of the transactions contemplated in this prospectus. No assurance can
be given that any such director might change his decision to become a director
at some later date.
JOSEPH KHOSHABE has been President and Chief Executive Officer of the
Company since its formation in 1986. Mr. Khoshabe is responsible for the day-
to-day administration of all operating activities at the Company, including
the supervision of all loan origination activities; personnel management and
financial matters affecting the Company. Prior to formation of the Company,
Mr. Khoshabe was an executive with the Cracker Jack
28
<PAGE>
Division of Borden, Inc., where he was employed for approximately 19 years.
Mr. Khoshabe holds a Bachelor of Arts Degree in Business
Administrative/Economics from Governors State University and a Bachelor of
Science/Accounting from Tehran University.
STEVE Y. KHOSHABE joined the Company in December 1994 and became Executive
Vice President and Chief Financial Officer of the Company on June 3, 1996. Mr.
Khoshabe is the son of Mr. Joseph Khoshabe. Mr. Khoshabe was a student at the
Loyola University of Chicago, Graduate School of Business prior to joining the
Company. Mr. Khoshabe holds a Bachelor of Science degree in
Marketing/Economics from Bradley University and a Masters of Business
Administration/Finance from Loyola University of Chicago. Mr. Steve Khoshabe's
principal responsibilities include the monitoring of interest rates on the
Company's numerous loan products, quality control and managing the Company's
secondary marketing activities.
GLEN A. SCHAP joined the Company in 1992 as Vice President and Secretary.
Mr. Schap manages the Company's loan origination activities. Mr. Schap's
responsibilities include loan closing and the packaging and delivery of closed
loans to investors. Mr. Schap was associated with commercial and residential
loan departments of various banks and financial services companies for 15
years prior to joining the Company. Mr. Schap holds a degree in Economics from
Northeastern Illinois University.
JOHN A. CLARK retired as President and Chief Executive Officer of a Chicago
area banking group with $1.2 billion in assets in April of 1997. Mr. Clark
received a B.S. degree from the University of Wisconsin at Stevens Point,
Wisconsin.
DR. DAVID B. MIRZA has been employed at Loyola University, Chicago School of
Business Administration as an Associate Professor and Chair of the Economics
Department for the past five years. Prior to joining the faculty at Loyola
University, Mr. Mirza taught at Kalamazoo College and Dartmouth College. Dr.
Mirza holds a B.A. degree from Earlham College and a Ph.D. degree in Economics
from Northwestern University
ROBERT S. LUCE is an attorney who has been practicing financial services law
for 25 years, and provides legal services to the Company on certain matters
from time to time.
Directors are elected at each annual meeting of stockholders and serve until
the next annual meeting. Executive officers are elected at each annual meeting
of the Board of Directors and, subject to individual contractual arrangements,
serve at the pleasure of the Board of Directors. For a further description of
the employment agreement between the Company and its President, see
"Management--Employment Agreement."
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION(1)(2)(3)(4)(6)
------------------ ---- ------ ----- ---------------------------
<S> <C> <C> <C> <C>
Joseph Khoshabe, Presi-
dent 1997 $180,000 -0- $3,161
1996 -0- -0- $3,161
1995 $160,000 -0- $3,161
1994 $162,352 -0- $3,161
Steve Y. Khoshabe, Exec-
utive Vice President(5) 1997 $ 46,093 -0- $2,210
1996 $ 40,393 -0- $2,210
Glen A. Schap 1997 $ 30,677 -0- $8,780
1996 $ 25,333 -0- $8,780
1995 $ 28,754 -0- $8,780
1994 $ 26,083 -0- $8,780
</TABLE>
- --------
(1)Includes: $1,980 for annual disability premiums; and $1,181 for annual
health insurance premiums for Mr. Khoshabe and his dependents.
(2) None of the Nominee Directors have received any director
compensation from the company
29
<PAGE>
(3) Does not include a $25,000 annual car allowance payable to Mr.
Joseph Khoshabe
(4) Does not include a $7,200 annual car allowance payable to Steve
Khoshabe and $2,210 of annualized health plan premiums.
(5) Effective as of the closing of the proposed public offering, Mr.
Steve Khoshabe's annual base salary will be increased to $90,000.
This increase is attributable to an anticipated significant
increase in his responsibilities as a consequence of the public
offering by the Company.
EMPLOYMENT AGREEMENT FOR JOSEPH KHOSHABE
The Company has entered into an Employment Agreement with Mr. Joseph
Khoshabe to retain his services to the Company as President and Chief
Executive Officer. The Employment Agreement contains the following important
terms:
<TABLE>
<CAPTION>
Term Five (5) Years(1)
<S> <C>
Annual Salary $250,000
Annual Increases 10%
Health Insurance for Mr. Khoshabe
and his family $ 5,000 (Annual Estimated Premium)(2)
Car Allowance $ 25,000 (Per Annum)
Long Term Disability Insurance $ 1,980 (Annual Premium)(2)
</TABLE>
Incentive Compensation:
Additional cash compensation in the amount of ten
percent (10%) of any increase in the Company's net
income before income taxes as compared to the
preceding fiscal year.
- --------
(1) Commencing from the effective date of the registration statement relating
to this Prospectus.
(2) These items may increase in the future subject to premium costs.
The Employment Agreement may be terminated by the Board of Directors only by
unanimous vote and Mr. Khoshabe will be a member of the Board of Directors
after the three (3) additional nominees assume their directorships.
STOCK OPTION PLAN
On December 15, 1993 the Company adopted a Non-Qualified and Incentive Stock
Option Plan (the "Stock Option Plan" or "Plan") which provides for the grant
of non-qualified stock options ("Non-Qualified Options"), and incentive stock
options ("Incentive Options"). 500,000 shares of Common Stock have been
reserved for issuance under the Plan. The Plan is administered by a Stock
Option Committee appointed by the Board of Directors. Members of the Stock
Option Committee may not participate in the Plan. No options have been granted
under the Plan.
All salaried officers and key employees of the Company and any subsidiaries
are eligible to receive options under the Plan. The total amount of Common
Stock for which options may be granted to any one person may not exceed 10% of
the total shares reserved for issuance under the Plan. The Plan will terminate
by its terms on December 31, 2003 and also may be terminated at any time by
the exercise of all outstanding options.
Options granted may be exercisable for up to ten years. If any options
granted under the Plan expire, terminate or are canceled for any reason
without having been exercised in full, the corresponding number of unpurchased
shares reserved for issuance upon exercise thereof will again be available for
the purposes of the Plan. The purchase price of the Common Stock under each
option shall not be less than the fair market value of the Common Stock on the
date on which the option is granted. The option price is payable either in
cash, by the delivery of shares of the Company's common stock, or a
combination of cash and shares.
30
<PAGE>
Options will be exercisable immediately, after a period of time or in
installments. Options will terminate not later than the expiration of ten
years from the date of grant, subject to earlier termination due to
termination of service. Except under certain circumstances where termination
of service is due to retirement or death, in which event options may be
exercised for an additional period of time following such termination of
service, the option may be exercised only while the optionee remains in the
employ of the Company or one of its subsidiaries.
UNITED FINANCIAL MORTGAGE CORP. 401(K) PLAN
The Company has adopted a 401(K) plan ("401(K) Plan") which became effective
on May 1, 1995. The 401(K) Plan provides for employee pre-tax contributions
from one percent (1%) to fifteen percent (15%) of salary. The Plan provides
for discretionary employee matching and employee discretionary contributions
to be determined by the employee each plan year. Company contributions, if
any, to the 401K Plan are made in the exercise of the Company's sole
discretion. The Plan covers all employees who satisfy eligibility
requirements.
COMPANY POLICY ON AFFILIATE TRANSACTIONS
All affiliate transactions are or will be on terms no less favorable to the
Company than those generally available from unaffiliated third parties and are
or will be ratified by a majority of independent outside disinterested members
of the Company's Board of Directors not having any interest in the
transactions. Mr. Khoshabe's Employment Agreement and the Company's Stock
Option Plan were entered into by the Company prior to the adoption of the
Company's Policy on Affiliate Transactions.
HISTORY OF SECURITY PLACEMENTS
2 FOR 3 REVERSE STOCK SPLIT
On May 9, 1995, the Company implemented a reverse stock split on the basis
that each outstanding three (3) shares of common stock, no par value, were
converted to two (2) shares of common stock, no par value. The reverse stock
split reduced the Company's outstanding shares of Common Stock at that date to
3,002,000 shares from approximately 4,530,000 shares. All share information
has been restated for the reverse stock split.
HISTORICAL STOCK ISSUANCES
All of Mr. Khoshabe's shares of common stock have been reregistered in the
name of the J. K. Trust. Prior to transfer to the J. K. Trust, Mr. Khoshabe
paid $130,070 for his shares of Common Stock, or $.051 per share. See
"Principal Stockholder."
1993 PRIVATE PLACEMENT
During the period from September 8, 1993 to December 14, 1993 ("1993 Private
Placement"), the Company engaged in an offering of 268,000 shares of its
Common Stock for $400,000.
PRIOR REGISTRATION STATEMENT
The Prior Registration Statement which was declared effective on June 14,
1994 registered 900,000 Units of the Company. Each Unit consisted of one (1)
share of Common Stock; and one (1) Class A Redeemable Stock Purchase Warrant.
The Prior Registration Statement also registered 90,000 Underwriter's
Warrants, the securities included in such Warrants and 128,460 shares of
Common Stock held by the Non-Affiliated Shareholders. The public offering
contemplated in the Prior Registration Statement failed to close on a "best
efforts" basis because, in part, of changes in the capital markets, and, at
that time, the Company's inability to attract a securities underwriting
firm(s) to conclude a firm commitment underwriting. No securities were sold by
the Company pursuant to the prior Registration Statement. The SEC consented to
the withdrawal of the Prior Registration Statement effective as of October 25,
1994.
31
<PAGE>
1994 PRIVATE PLACEMENT
Under the terms of the November 15, 1994 private placement ("1994 Private
Placement"), the Company sold 220,000 shares of Common Stock for $2.25 per
Share. Gross proceeds from the 1994 Private Placement were $495,000. The net
proceeds of that offering were applied to (i) repurchase shares of Common
Stock from certain shareholders in the 1993 Private Placement who elected to
sell their shares to the Company; (ii) expand loan origination and servicing
activities and (iii) provide working capital to the Company.
Pursuant to the terms of the 1994 Private Placement, the Company offered
shareholders in the 1993 Private Placement the opportunity to either: (i)
retain some or all of their Shares and, with respect to the retained Shares,
granted to such shareholders registration rights entitling them to sell all of
such shares pursuant to a registration statement filed by the Company within
six (6) months of the effective date of the then proposed registration
statement, subject to state securities law regulations or underwriting
constraints; or (ii) sell some or all of their Shares back to the Company at
the original subscription price for the Shares, plus annual compounded
interest at ten percent (10%) of the subscription price for the Shares for the
period that the subscription proceeds were held by the Company. The Company
purchased 73,461 shares from such holders for $126,371.
1995 BRIDGE FINANCING
Pursuant to the terms of the May 15, 1995 private placement regarding a
certain bridge financing ("1995 Bridge Financing"), the Company offered and
sold two and one-half (2 1/2) units ("Units") each consisting of one (1)
$100,000, ten percent (10%) convertible debenture ("Debenture") and 22,000
shares of no par value common stock ("1995 Unit Shares"). Gross proceeds from
the 1995 Bridge Financing were $250,000.
The Debenture component of the Units provided for a maturity of twelve (12)
months commencing from the expiration date of the 1995 Bridge Financing
("Redemption Date"). The Debentures also provided for the payment of accrued
interest at an annual rate of ten percent (10%), commencing from the
expiration date of the offering through the Redemption Date. The Debentures
also provided for redemption and payment by the Company, in full, including
both principal and accrued interest, upon the completion of the then proposed
registration statement contemplated by the Company. The Debentures were not
redeemed on the Redemption Date, and pursuant to their terms, were
automatically converted into 55,555 Shares ("1995 Conversion Shares"). The
1995 Unit Shares and the 1995 Conversion Shares are not subject to redemption.
The Unit Shares and the Conversion Shares previously had been accorded
certain registration rights which provided that the Company within six (6)
months of the effective date of the then proposed registration statement,
would file another registration statement, at its expense, to register such
shares.
EXPIRATION OF REGISTRATION RIGHTS RELATING TO THE 1993, 1994 AND 1995 PRIVATE
PLACEMENTS
The registration rights granted by the Company in connection with the 1993
Private Placement, the 1994 Private Placement and the 1995 Bridge Financing
have expired by their terms. Therefore, with respect to the common stock
issued by the Company in connection with these offerings, the Company is under
no contractual obligation to file a registration statement for such shares or
include them in any registration statement otherwise filed by the Company.
1996 FINANCING
Pursuant to the terms of the November 1, 1996 private placement ("1996
Financing"), the Company offered and sold seventeen (17) units ("Units") for
aggregate offering proceeds of $425,000. The Units consist of one (1) $25,000,
ten percent (10%) convertible debenture ("1996 Debenture") and 2,500 shares of
no par value common stock ("1996 Unit Shares").
The 1996 Debenture component of the Units provides for a term of up to
twelve (12) months commencing from the expiration date of the 1996 Financing
("Redemption Date"). The 1996 Debenture also provides for the payment of
accrued interest at an annual rate of ten percent (10%), commencing from the
date of subscription
32
<PAGE>
through the Redemption Date. The 1996 Debenture provides for mandatory
redemption and payment by the Company, in full, including both principal and
accrued interest, upon the completion of this offering. If the 1996 Debentures
are not redeemed, then the 1996 Debentures automatically convert to an
additional 85,000 shares of Common Stock (5,000 shares for each $25,000 1996
Debenture) ("1996 Conversion Shares"). The 1996 Conversion Shares and the 1996
Unit Shares are not subject to mandatory redemption.
The 1996 Unit Shares and the 1996 Conversion Shares have been accorded
certain registration rights which provide that the Company, within six (6)
months of the effective date of the registration statement relating to this
Prospectus will file another registration statement, at its sole expense, to
register such shares.
Prospective investors in this offering should understand that the sale of
Shares by holders in the 1993 Private Placement, the 1994 Private Placement,
the 1995 Bridge Financing, the 1996 Financing and the shares relating to the
Warrants, as described herein, could have an adverse affect on the market
price of the Company's common stock at the time such sales are made.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 20,000,000 shares of Common stock, no par
value, and 5,000,000 shares of serial preferred stock. As of the date hereof,
and before consummation of this offering, 3,100,029 shares of Common Stock
were issued and outstanding. The outstanding Common Stock is fully paid and
non-assessable. The Company has one series of preferred stock, the Series A
Preferred Stock, of which 213 shares were purchased for a cash subscription
price of $1,065,000. All shares of Series A Preferred Stock are registered in
the name of the J.K. Trust.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share. No
cumulative voting is required or permitted. Therefore, the holders of a
majority of shares voting for the election of directors can elect all
directors, and the remaining holders will not be able to elect any directors.
Holders of Common Stock are entitled to receive such dividends, if any, as
the Board of Directors may from time to time declare out of funds the Company
has legally available for the payment of dividends. Holders of the Common
Stock are entitled to share pro rata in any dividends declared. It is not
anticipated that dividends will be paid in the near future. Future dividend
policy will depend upon conditions existing at that time, including the
Company's earnings and financial condition.
Upon liquidation, dissolution or winding-up of the Company, Common Stock
stockholders are entitled to receive pro rata all of the assets of the Company
available for distribution to stockholders. Stockholders of the Company do not
have preemptive rights or other rights to subscribe for or purchase any stock,
options, warrants or other securities offered by the Company.
PREFERRED STOCK
The Articles of Incorporation of the Company authorizes its Board of
Directors to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the designations, preferences, powers and relative
participating, optional and other rights, qualifications, limitations and
restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption rights and liquidation preference, and to fix the number of
shares to be included in any such series. The Preferred Stock may rank
superior to the Common Stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding-up, or both. In addition, any
such shares of Preferred Stock may have class or series voting rights.
33
<PAGE>
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company
may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of the Company's Common Stock.
SERIES A PREFERRED STOCK
In 1988, 1992 and 1996 the Company's Board of Directors authorized the
issuance of an aggregate of 213 shares of Series A Non-Voting Preferred Stock
("Preferred Stock"), all of which shares were purchased by Mr. Joseph
Khoshabe, the Company's president. As described elsewhere herein, all such
shares of Preferred Stock were registered in the name of the J. K. Trust. The
shares of Preferred Stock were purchased for a total consideration of
$1,065,000, or $5,000 per share. The holders of Preferred Stock are entitled
to receive variable dividends as determined by the Board of Directors from
time to time; and do not have voting rights. The amount of the variable
dividend is determined solely at the discretion of the Company's Board of
Directors. Such variable dividends were declared for the years ended April 30,
1994, April 30, 1995, April 30, 1996 and April 30, 1997 in the amounts of
$19,000, $25,515, $-0-, and $-0- respectively.
The terms of the Preferred Stock additionally provide that upon any
liquidation, dissolution or winding-up of the affairs of the Company, whether
voluntarily or involuntarily, after payment or provision for payment of debts
and other liabilities of the Company, the holder(s) of shares of Preferred
Stock shall be entitled to receive from the Company $5,000 per share, from the
remaining net assets of the Corporation before any distribution is made with
respect to the Common Stock. The liquidation value for the Preferred Stock is
$5,000 per share.
WARRANTS
1994 Warrant
In connection with the 1994 Private Placement, the Company issued 22,000
warrants ("the 1994 Warrants") to Mills Financial Services, Inc., the
placement agent, on the basis of one (1) warrant for each ten (10) shares of
common stock sold in the 1994 Private Placement. The 1994 warrants were issued
for consideration of $100.00 and are exercisable for a period of five (5)
years from the date of issuance. Each 1994 Warrant is exercisable to purchase
one (1) share of common stock at $1.65 per share. The 1994 Warrants provide
for a single demand right of registration for the shares underlying the
warrants exercisable by a majority of the holders thereof, which right of
demand may not be exercised until six months after the effective date of the
registration statement for this Prospectus. In addition, the 1994 Warrants
provide for additional rights to "piggy-back" the underlying shares on other
registration statements filed by the Company.
1995 Bridge Finance Warrants
In connection with the 1995 Bridge Financing, the Company has issued 25,000
warrants ("the 1995 Bridge Finance Warrants") to the placement agents or
associates of the placement agents on the basis of 10,000 warrants for each
Unit ($100,000) sold in the offering. The 1995 Bridge Finance Warrants were
issued for nominal consideration and are exercisable for a period of five (5)
years from the date of issuance. Each 1995 Bridge Finance Warrant is
exercisable to purchase one (1) share of common stock at $4.505 per share.
Each of the 1995 Bridge Finance Warrants provide for a single demand right of
registration for the shares underlying the warrants. In addition, the 1995
Bridge Finance Warrants provide for additional rights to "piggy-back" the
underlying shares on registration statements filed by the Company, including
the registration statement of which this Prospectus is a part. Mills Financial
Services, Inc. was issued 5,000 of the 1995 Bridge Finance Warrants for its
participation in the 1995 Bridge Financing. Mills Financial Services, Inc. has
agreed to a waiver of its "piggy-back" registration rights with respect to the
registration statement relating to this Prospectus.
34
<PAGE>
Advisor Warrant
Effective as of November 15, 1995, the Company issued for $100, a warrant to
purchase 195,000 shares of common stock of the Company to an advisor of the
Company who provided, from time to time since 1994, advice and consulting
services to the Company. The warrant is exercisable at $0.50 per share through
April 30, 1999. The warrant contains customary "piggyback" registration
rights, one demand registration right at the Company's expense and one
registration right paid for by the holder(s) of such warrant with respect to
both the warrant and the underlying shares of common stock. The demand
registration right and the "piggy-back" registration rights are not available
to the holders of the Advisor Warrant(s) until six (6) months after the
effective date of the registration statement relating to this Prospectus.
Underwriter's Warrant
The Company has agreed to issue for $100.00 an Underwriter's Warrant
entitling the Underwriter to purchase Shares of the Company's common stock in
an amount equal to ten percent (10%) of the Shares sold in this offering
(including any Shares sold pursuant to the over-allotment options), at an
exercise price of one hundred twenty percent (120%) of the Public Offering
price exercisable any time, in whole or in part, between the first and fifth
anniversary dates of the effective date of this offering. At any time during
the exercise term, the holders of a majority of these securities shall have
the right to require the Company to prepare and file one (1) post-effective
amendment to the registration statement relating to this offering, or a
separate registration statement, if then required under applicable law,
covering all or any portion of the securities. In addition, for a period of
seven (7) years after the effective date of the registration statement
relating to this offering, the holders of these securities shall have
unlimited "piggyback" registration rights.
TRANSFER AGENT AND WARRANT AGENT
Corporate Stock Transfer, Inc. has been appointed registrar and transfer
agent for the Common Stock and the warrant agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the offering, the Company will have 3,900,029 shares of
Common Stock outstanding (4,020,029 if the over-allotment option is exercised
in full). Of these shares, 800,000 (920,000 if the over-allotment option is
exercised in full) will be freely tradeable without restriction or
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless held by affiliates of the Company. All of the remaining
3,100,029 shares will be "restricted securities" as that term is defined in
Rule 144 promulgated under the Securities Act and may only be sold in the
public market if such shares are registered under the Securities Act or sold
in accordance with Rule 144 promulgated thereunder.
In general, under Rule 144 a person (or persons whose shares are aggregated)
including an affiliate, who has beneficially owned his shares for one year,
may sell in the open market within any three-month period a number of shares
that does not exceed the greater of (i) 1% of the outstanding shares of the
Company's Common Stock (approximately 39,000 shares or approximately 41,200
shares if the over-allotment option is exercised in full), or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
limitations on the manner of sale, notice requirements and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is deemed not to be an "affiliate" or a recent
"affiliate" of the Company and who has beneficially owned his shares for at
least three years, may sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, notice
requirements or availability of current information provisions referred to
above. Restricted shares properly sold in reliance upon Rule 144 are
thereafter freely tradeable without restrictions or registration under the
Act, unless thereafter held by an "affiliate" of the Company.
35
<PAGE>
Of the 3,100,029 restricted shares currently outstanding, a total of
2,531,842 shares are held by J.K. Trust, an affiliate of the Company. J.K.
Trust has entered into an agreement not to sell any shares for a period of 6
months following the date of this Prospectus and thereafter for an additional
period of 6 months to limit sales, if any, to not more than 100,000 shares. As
an affiliate of the Company, J.K. Trust will be further subject to the volume
limitations of Rule 144(e)(1) with respect to any such sales. A total of
219,026 of the restricted shares were acquired from the Company by non-
affiliates more than three (3) years prior to the date of this Prospectus and
are therefore eligible for sale under Rule 144k without volume limitation
commencing 90 days after the completion of this offering. The Company has
obtained agreements from shareholders owning 94,045 of the 219,026 shares not
to sell any shares for a period of 6 months following the date of this
Prospectus. A total of 251,106 of the restricted shares were acquired from the
Company by non-affiliates more than 1 year ago and less than 3 years ago and
are therefore eligible for sale under Rule 144(e)(2) subject to certain volume
restrictions commencing 90 days from the completion of this offering. The
Company has obtained agreements from shareholders owning 124,082 of the
251,106 shares not to sell any shares for a period of 6 months following the
date of this Prospectus. The Underwriter has no plans, proposals, arrangements
or understanding regarding waiver of the lock up agreements. The balance of
98,055 of the restricted shares will not be eligible for sale under Rule 144
until one (1) year from the date of their issuance. Additionally, 500,000
shares of the Company's common stock are reserved for issuance under the
Company's Stock Option Plan.
Future sales of substantial amounts of Common Stock in the public market, or
the availability of such shares for future sale, could impair the Company's
ability to raise capital through an offering of securities and may adversely
affect the then-prevailing market prices for the Company's stock.
UNDERWRITING
The Underwriter named below (the "Underwriter") has agreed, subject to the
terms and conditions of the Underwriting Agreement (the form of which has been
filed as an exhibit to the Registration Statement), to purchase from the
Company the following respective number of shares of Common Stock at the
public offering price less the underwriting discounts and additional
compensation set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
------------ -------
<S> <C>
Mills Financial Services, Inc.................................... 800,000
-------
Total........................................................ 800,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent. The nature of the Underwriter's
obligation is that it is committed to purchase all the Shares offered if any
of such Shares are purchased.
The Company has been advised, that the Underwriter proposes to offer the
Shares directly to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at this price less a
concession not in excess of $ per Share. The Underwriters may allow and
such dealers may reallow a concession not in excess of $ per share to
certain other dealers. After commencement of the public offering, the offering
price and other selling terms may be changed by the Underwriter.
The Company has granted to the Underwriter a 45-day option to purchase up to
120,000 additional shares of Common Stock at the public offering price, less
the underwriting discounts and other compensation, set forth on the cover page
of this Prospectus. The Underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of the Shares of
Common Stock offered hereby. To the extent that the Underwriter exercises such
option, the Company will be obligated, pursuant to such option, to sell such
shares to the Underwriter to the extent such option is exercised.
36
<PAGE>
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriter may be required to make in respect thereof. It is
the opinion of the Securities and Exchange Commission that such
indemnification is contrary to public policy and unenforceable.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price of the Common Stock offered
hereby (including any shares of Common Stock purchased pursuant to the
Underwriter's overallotment option). No portion of the non-accountable expense
allowance has been paid to the Underwriter to date.
The Company has also agreed to sell to the Underwriter, the Underwriter's
Warrant to purchase 80,000 (up to 92,000 if the over-allotment option is
exercised) at a price of $.001 per warrant. The Underwriter's Warrant will be
exercisable for a period of five years, commencing upon the date of the
Prospectus, at an initial per share exercise price equal to 120% of the
initial public offering price. The Underwriter's Warrants are not redeemable
by the Company under any circumstances. Neither the Underwriter's Warrants nor
the shares of Common Stock issuable upon exercise thereof may be transferred,
assigned or hypothecated until one year from the date of issuance of the
Underwriter's Warrants, except they may be assigned, in whole or in part, to
any successor or officer of the Underwriter. The Underwriter's Warrant will
contain anti-dilution provisions for appropriate adjustment of the exercise
price and number of shares which may be purchased upon exercise upon the
occurrence of certain events.
The holders of a majority of the Underwriter's Warrants and/or underlying
securities shall have the right, during the four-year period commencing one
year from the date of this Prospectus, on one occasion (which shall be at the
Company's sole expense) to require the Company to register the Common Stock
underlying the Underwriter's Warrants (the "Registrable Securities") by means
of a registration statement pursuant to the Securities Act, or a post-
effective amendment thereto, as appropriate, so as to enable such holders to
publicly offer the Registrable Securities. Moreover, if during the six-year
period commencing one year following the date of this Prospectus the Company
shall register any of its securities for sale pursuant to a post-effective
amendment or new registration statement (with the exception of Form S-8 or
other inappropriate form), upon request by any of the holders of the
outstanding Registrable Securities, the Company shall be required to include
such securities as a part of the registration statement.
The holders of the Underwriter's Warrants shall have no voting, dividend or
other rights as shareholders of the Company unless and until the exercise of
such Warrants. The number of securities deliverable upon any exercise of the
Underwriter's Warrants and the exercise price of such Warrants are subject to
adjustment to protect against any dilution upon the occurrence of certain
events including sales of shares at less than the market price (or, if no
market price exists, at less than fair market value), issuance of stock
dividends, stock splits, subdivision or combination of outstanding stock and
reclassification of stock.
During the exercise period, the Underwriter is given, at nominal cost, the
opportunity to profit from a rise in the market price for the Company's Common
Stock, if any, at the expense of the Company's then shareholders. For the life
of the Underwriter's Warrant, the Company may be deprived of favorable
opportunities to procure additional equity capital, if it should be needed for
the business of the Company, and the holders of the Underwriter's Warrants may
be expected to exercise such Warrants at a time when the Company would, in all
likelihood, be able to obtain equity capital, if then needed, by the sale of
additional shares on terms more favorable than those provided by the
Underwriter's Warrants.
The Company has also agreed that the Underwriter shall have the right of
first refusal for three years to manage, underwrite or purchase for its own
account any sale by the Company of debt or equity securities of the Company,
any subsidiary or successor of the Company or, subject to certain exceptions,
by any shareholder of the Company owning in excess of ten percent of the
outstanding Common Stock.
The Company (with certain exceptions) and J.K. Trust, the sole shareholder
owning in excess of 10% of the Common Stock of the Company have agreed
pursuant to Lock-up Agreements not to sell or grant any option for
37
<PAGE>
sale or otherwise dispose of, directly or indirectly, any shares of the Common
Stock of the Company for a period of six-months after the date of consummation
of this Offering, without the prior written consent of the Underwriter other
than, in the case of the Company, the shares of Common Stock to be sold to the
Underwriter in this Offering and the grant of Options to purchase shares of
Common Stock pursuant to the Company's Stock Plan and the issuance of shares
under such Options. In addition, J.K. Trust has agreed that after the
expiration of the six-month lock-up period, it will not sell more than 100,000
shares of the Company's Common Stock for a period of six-months thereafter.
The Company has also agreed, for the three-year period commencing upon
consummation of this Offering, at the request of the Underwriter, to nominate
and use its best efforts (including solicitation of proxies) to elect a
designee of the Underwriter to the Board of Directors of the Company or,
alternatively, to permit a designee of the Underwriter to receive notice of
and attend all special and regular meetings of the board of directors of the
Company. No designee has been chosen as of the date hereof.
The foregoing does not purport to be a complete statements of the terms and
conditions of the Underwriting Agreement and related documents, copies of
which are on file at the offices of the Underwriter, the Company and the
Securities and Exchange Commission, forms of which have been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the offering price has been determined through
negotiation between the Company and the Underwriter. Such price was based on a
number of factors, including, but not limited to the following: estimates of
the business potential and earnings prospects of the Company, the present
state of the Company's development, an assessment of the Company's management,
the consideration of these factors in relation to market valuations of
companies engaged in the same or similar business, and the current condition
of the mortgage industry and the economy as a whole.
The Underwriter has advised the Company that the Underwriter does not intend
to confirm sales to any account over which it exercises discretionary
authority without the prior, specific written approval of the customer.
The Underwriter has not previously participated as an underwriter in an
underwriting on a firm-commitment basis and has not previously been an
underwriter of an initial public offering. In 1994, the Underwriter attempted
an initial public offering for the Company on a best efforts--minimum or none
basis. The Underwriter was not successful in completing the minimum sales
amount and the offering was withdrawn by the Company. Prospective purchasers
of the Common Stock offered hereby should consider this limited experience in
evaluating the securities offered hereby. See "Risk Factors--Lack of
Underwriting History."
In connection with the 1993 Private Placement, the Underwriter received
$40,000 in commissions, and no other expense reimbursement or compensation. In
connection with the 1994 Private Placement, the Underwriter received (i)
$32,850 in commissions, (ii) no reimbursement of expenses and (iii) a warrant
to purchase 22,000 shares of the Common Stock of the Company at an exercise
price of $1.65 per share. In connection with the 1995 Bridge Financing, the
Underwriter received (i) $5,000 in commissions, (ii) no reimbursement of
expenses and (iii) a warrant to purchase 5,000 shares of Common Stock of the
Company at an exercise price of $4.505 per share. In connection with the 1996
Bridge Financing, the Underwriter received (i) $16,250 in commissions, (ii) no
reimbursement of expenses and no warrants. In addition, in connection with a
1993 Consulting Agreement, the Underwriter received $30,000 as compensation
for the provision of investment banking services to the Company.
The Company has loaned an aggregate principal amount of $62,500 to Mr.
Joseph E. Kurczodyna, the President of the Underwriter. $50,000 of the
principal balance was loaned in 1994. The remainder of the principal balance
was loaned in November 1996 ($2,500) and February 1997 ($10,000). On September
5, 1997, the principal and accrued interest of $17,500 were consolidated into
a single, demand promissory note of $80,000 bearing interest at 9%.
38
<PAGE>
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company by Robert S. Luce, Esq. Mr. Luce is the Assistant Secretary of the
Company. Mr. Luce has no ownership interest in the Company. Certain legal
matters will be passed upon for the Underwriter by Peter B. Shaeffer, Esq.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Craig Shaffer and Associates, Ltd., independent accountants,
to the extent and for the periods indicated in their report appearing
elsewhere herein, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 with the
Washington Office of the Commission in accordance with the provisions of the
Securities Act with respect to the securities offered hereby. The Prospectus
does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the securities offered hereby, reference is made to the
Registration Statement and the exhibits filed as a part thereof. Statements
herein contained concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. The Registration Statement
and the exhibits may be inspected, without charge at, or copies thereof
obtained at prescribed rates from, the Public Reference Section of the
Commission at Room 1024 at its principal office, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549; or the Public Reference Section of the
Midwest Regional Office at Room 1400, 500 West Madison Avenue, Chicago,
Illinois 60661-2511.
No dealer, salesman or any other person has been authorized to give any
information which is not contained in this Prospectus or to make any
representation in connection with this offering other than those which are
contained in the Prospectus, and if given or made, such information or
representation must be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities which are offered hereby to any person in
any jurisdiction where such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implications that there has been no change in the
affairs of the Company or the facts which are herein set forth since the date
hereof.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The historical financial statements of United Financial Mortgage Corp. are
included herein as listed below:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Certified Public Accountants................ F-3
Balance Sheet at April 30, 1996 and 1997 and at July 31, 1996 and
July 31, 1997 (unaudited) ....................................... F-4 & F-5
Statement of Income for the Years Ended April 30, 1996 and 1997
and for the three (3) months ended July 31, 1996 and July 31,
1997 (unaudited)................................................. F-6
Statement of Stockholders' Equity for the Years Ended April 30,
1996 and 1997 and for the three (3) months ended July 31, 1996
and July 31, 1997 (unaudited).................................... F-7
Statement of Cash Flow for the Years Ended April 30, 1996 and 1997
and for the three (3) months ended July 31, 1996 and July 31,
1997 (unaudited)................................................. F-8
Notes to Financial Statements..................................... F-9 to F-14
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
United Financial Mortgage Corp.
Financial Statements as of April 30, 1996 and 1997 together with Independent
Auditors' Report
To the Board of Directors and Stockholders of
United Financial Mortgage Corporation
We have audited the accompanying balance sheets of United Financial Mortgage
Corp. as of April 30, 1996 and 1997, and the related statements of income,
stockholders' 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 United Financial Mortgage
Corp. as of April 30, 1996 and 1997 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Craig Shaffer and Associates, Ltd.,
C.P.A.
Des Plaines, Illinois
June 11, 1997
F-3
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
THREE THREE
YEAR YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, JULY 31, JULY 31,
ASSETS 1996 1997 1996 1997
------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash.................... $ 1,960,759 $2,018,211 $ 1,873,405 $ 2,105,631
Mortgage Loan........... 938,209 566,536 15,344,628 13,570,784
Loans held for sale..... 16,294,332 13,090,077 774,276 505,860
Accounts Receivable..... 66,017 124,735 33,393 172,256
Due from Officers....... 0 35,027 0 45,134
Deferred Tax Asset...... 0 45,763 0 14,387
U.S. Savings Bonds...... 2,000 2,000 2,000 2,000
Note Receivable......... 21,000 111,763 21,000 102,450
----------- ----------- ----------- -----------
Total current assets.. 19,282,317 15,994,112 18,048,702 16,518,502
Furniture, Fixtures &
Equipment
Cost.................... 279,152 308,770 280,874 307,764
Accumulated
Depreciation........... (116,634) (154,678) (126,441) (165,316)
----------- ----------- ----------- -----------
162,518 154,092 154,433 142,448
Other assets:
Investments............. 5,750
Escrow Deposits......... 71,353 24,066 612,243 49,519
Deferred Organization
Costs.................. 0 94,233 0 105,083
Security Deposits....... 6,143 6,143 6,143 6,143
----------- ----------- ----------- -----------
Total other assets.... 77,496 124,442 618,386 166,495
----------- ----------- ----------- -----------
$19,522,331 $16,272,646 $18,821,521 $16,827,445
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
LIABILITIES AND APRIL 30, APRIL 30, JULY 31, JULY 31,
STOCKHOLDERS' EQUITY 1996 1997 1996 1997
-------------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable............. $ 214,967 $ 179,983 $ 151,890 $ 255,001
Deferred Income.............. 6,000 6,000 6,000 0
Accrued Expenses............. 121,888 102,455 98,230 139,157
Taxes Payable................ 26,495 29,088 77,448 1,019
Deferred Income Taxes........ 8,011 0 8,011 0
Escrow Payable............... 71,353 24,066 47,243 49,519
Notes Payable--Current....... 17,150,171 13,417,922 15,846,969 13,832,485
----------- ----------- ----------- -----------
Total current liabilities.. 17,598,885 13,759,514 16,235,791 14,277,181
Non-Current Notes Payable...... 271,756 434,997 22,386 418,214
----------- ----------- ----------- -----------
Total liabilities.......... 17,870,641 14,194,511 16,258,177 14,695,395
Commitments
Preferred Shares, 5,000,000
authorized, No Par Value, 100
Series A Redeemable Shares
Issued and Outstanding;
liquidation value $1,065,000
at April 30, 1997; $500,000 at
April 30, 1996; and $1,065,000
at July 31, 1996 and 1997..... 500,000 1,065,000 1,065,000 1,065,000
----------- ----------- ----------- -----------
Stockholders' equity
Common Shares, 20,000,000
Authorized, No Par Value,
Shares Issued and
Outstanding; 3,100,029 at
April 30, 1997 and 3,001,974
at April 30, 1996; 3,100,029
at July 31, 1997 and
3,057,529 at July 31, 1996.. 710,508 995,537 985,508 995,537
Retained Earnings............ 441,182 17,598 512,836 71,513
----------- ----------- ----------- -----------
Total stockholders' equity. 1,651,690 2,078,135 2,563,344 2,132,050
----------- ----------- ----------- -----------
$19,522,331 $16,272,646 $18,821,521 $16,827,445
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
APRIL 30, APRIL 30, JULY 31, JULY 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Commissions and Fees....... $5,810,360 $5,292,856 $1,485,372 $1,422,145
Interest Income............ 632,068 403,526 145,600 99,098
---------- ---------- ---------- ----------
6,442,428 5,696,382 1,630,972 1,521,243
Expenses:
Salaries & Commissions..... 4,228,955 3,731,207 950,994 957,189
Selling & Administrative... 1,745,754 1,437,958 439,109 341,297
Depreciation............... 32,658 38,045 9,808 10,638
Interest Expense........... 465,572 232,474 108,455 120,884
Costs and Expense of
Litigation................ 734,056 5,944
---------- ---------- ---------- ----------
6,472,939 6,173,740 1,508,366 1,435,952
Income (loss) Before Income
Taxes....................... (30,511) (477,358) 122,606 85,291
Income Tax Provision......... 0 (53,774) 50,953 31,376
---------- ---------- ---------- ----------
Net Income (loss)............ $ (30,511) $ (423,584) $ 71,653 $ 53,915
Less Dividends Paid on
Preferred Stock............. 0 0 0 0
Net Income (loss) Applicable
to Common Shareholders...... (30,511) (423,584) 71,653 53,915
Earnings (loss) Per Common
Share....................... $ (0.0102) $ (0.1366) $ 0.0234 $ 0.0174
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
-------- -------- ----------
<S> <C> <C> <C>
Balance, April 30, 1995........................ $821,768 $471,693 $1,293,461
Issuance of 55,555 shares in connection with
1995 Bridge Financing......................... 15,111 15,111
Repurchase of 73,451 subscribed shares from
1994 Private Placement........................ (126,371) (126,371)
Net loss for the year.......................... (30,511) (30,511)
-------- -------- ----------
Balance, April 30, 1996........................ $710,508 $441,182 $1,151,690
Issuance of 55,555 shares upon conversion of
1995 Bridge Financing Debentures.............. 275,000 275,000
Issuance of 42,500 shares in connection with
1996 Bridge Financing......................... 10,029 10,029
Net loss for the year.......................... (423,584) (423,584)
-------- -------- ----------
Balance, April 30, 1997........................ $995,537 $ 17,598 $1,013,135
Net income for the three months ended July 31,
1997.......................................... 53,915 53,915
-------- -------- ----------
Balance, July 31, 1997 (unaudited)............. $995,537 $ 71,513 $1,067,050
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, JULY 31, JULY 31,
1996 1997 1996 1997
----------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net Income or (Loss)........ $ (30,511) $ (423,584) $ 71,653 $ 53,915
Adjustments to Reconcile Net
Income to Net
Cash Provided by Operating
Activities
Depreciation................ 32,658 38,045 9,808 10,638
Changes In
Prepaid Expenses & Other
Current Assets......... 178,899 68,522 32,624 (16,145)
Accrued Expenses & Other
Current Liabilities.... 13,886 (71,507) 3,185 28,086
Accounts Payable........ 89,162 (34,984) (63,077) 75,018
Deposits................ (2,029) 47,287 (540,890) (25,453)
Mortgage Loans Made..... (11,635,920) 3,402,925 1,113,637 (420,031)
Changes In Bank Line of
Credit................. 11,678,599 (3,726,646) (1,303,202) 414,563
----------- ---------- ---------- ----------
Net Cash Provided by
Operating Activities....... 324,744 (699,942) (676,262) 120,591
----------- ---------- ---------- ----------
Cash Flows from Investing
Activities
Investments............... (5,750)
Purchase of Fixed Assets.. (66,288) (29,618) (1,722) 1,006
----------- ---------- ---------- ----------
Net Cash provided from
Investing Activities....... (66,288) (29,618) (1,722) (4,744)
----------- ---------- ---------- ----------
Cash Flows From Financing
Activities
Notes Receivable.......... (21,000) (90,764) 9,313
Changes in Long Term Debt. 12,009 (5,604) (249,370) (16,783)
Changes in Short Term
Debt..................... 625 (5,604) 0
Officers Loans............ (948) (35,027) 0 (10,107)
Proceeds from Preferred
Stock Sales.............. 0 565,000 565,000
Common Stock Proceeds..... 15,111 10,029 275,000
Bond Proceeds net......... 249,370 168,215 0 0
Deferred Offering
Expenses................. 0 (94,233) (10,850)
Common stock on
conversion............... 275,000
Stock Purchase............ (126,371)
----------- ---------- ---------- ----------
Cash Provided (Used) by
Financing Activities....... 128,796 787,012 590,630 (28,427)
----------- ---------- ---------- ----------
Increase (Decrease) in Cash. 387,252 57,452 (87,354) 87,420
Cash at Beginning of Period. 1,573,507 1,960,759 1,960,759 2,018,211
----------- ---------- ---------- ----------
Cash at End of Period....... $ 1,960,759 $2,018,211 $1,873,405 $2,105,631
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement
F-8
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS
ORGANIZATION AND BUSINESS OF THE COMPANY
United Financial Mortgage Corporation, is an Illinois Corporation organized
on April 30, 1986 to engage in the residential mortgage banking business. The
Company is a licensed mortgage banker in the states of Illinois, Wisconsin,
Missouri, Arkansas, California, Colorado, Connecticut, Delaware, Florida,
Kentucky, Maryland, Nevada, North Carolina, Oregon, South Carolina, Texas,
Utah, Virginia, Washington and Indiana. The Company is an approved mortgagee
by the Department of Housing and Urban Development and is qualified to
originate mortgage loans insured by the Federal Housing Administration as well
as service for Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation.
REVERSE SHARE SPLIT
In 1995, the Company's shareholders approved a reverse split of the
Company's common shares pursuant to which each three outstanding common shares
became two common shares. The reverse split was effective May 9, 1995. The
accompanying financial statements reflect this reverse split as of May 1,
1995.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles 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.
Revenue Recognition
Revenue is recognized when loans are sold after closings. Interest income
from mortgages held by the Company and from short term cash investments is
recognized as earned.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
original maturity of three months or less.
Accounts Receivable
Accounts receivable consist of advances made in connection with loan
origination activities as well as advances made to branch offices.
Concentration of Credit Risk
Credit risk with respect to mortgage loan receivables and accounts
receivable is generally diversified due to the large number of customers and
the timely sale of the loans to investors, usually within one (1) month. The
Company performs extensive credit investigation and verification procedures on
loan applicants before loans are approved and fund disbursed. In addition,
each loan is secured by the underlying real estate property. As a result, the
Company has not deemed it necessary to provide reserves for the ultimate
realization of the mortgage loan receivable.
Fixed Assets
Fixed assets consist of furniture, fixtures, equipment and leasehold
improvements and are recorded at cost and are depreciated using the straight
line method over their estimated useful lives. Furniture, fixtures and
equipment are depreciated over 5-7 years and leasehold improvements over the
shorter of the lease term or the
F-9
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
estimated useful life of the asset. Upon asset retirement or other
disposition, cost and the related allowance for depreciation are removed from
the accounts, and gain or loss is included in the statement of income. Amounts
expended as repairs and maintenance are charged to operations.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents, mortgage receivables, accounts receivables, accounts
payable and notes payable, as reported in the accompanying balance sheet,
approximates fair value.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." The liability
method provides that deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Earnings (Loss) per Common Share
Earnings (loss) per common share is calculated on net income (loss) after
deduction for dividends paid on the Series A Preferred Shares. The number of
common shares used in the computation is based upon the number of shares
outstanding at the end of the period.
NOTES PAYABLE
The Company has mortgage warehouse credit facilities aggregating $22.5
million with several commercial banks and other financial institutions. These
credit facilities are used to fund approved mortgage loans and are
collateralized by mortgage loans. The Company is not required to maintain
compensating balances.
Amounts outstanding under the various credit facilities consist of the
following:
<TABLE>
<CAPTION>
APRIL 30, 1997
--------------
<S> <C>
$11 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 10/28/97..... $ 6,913,312
$1.5 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 2/14/98...... 566,536
Mortgage warehouse credit facility for the amount shown at
a commercial bank; interest at the Federal Funds rate
plus 2.25%; this loan will be paid off when the related
loan is sold............................................. 199,750
$10 million mortgage warehouse credit facility at a
financial institution; interest at the Libor rate plus
2.25%-2.75%; expires 9/30/97............................. 5,738,324
-----------
Total................................................... $13,417,922
===========
</TABLE>
CONVERTIBLE DEBENTURES
In connection with the 1995 Bridge Financing, in May, 1995 the Company
issued $250,000 of convertible debentures with an interest rate of 10% and a
maturity of one year and convertible into 55,555 shares of Common Stock if not
repaid. The debentures were not repaid and thereby converted to Common Stock
in May, 1996.
F-10
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
In connection with the 1996 Bridge financing during the period November,
1996 to March, 1997 the Company issued $425,000 of convertible debentures with
an interest rate of 10% and a maturity of one year. The debentures are to be
paid upon the completion of an initial public offering before maturity. If not
repaid by maturity, the debentures convert into 85,000 shares of Common Stock.
LEASE COMMITMENTS
The Company conducts its operations from leased premises and with equipment
under several operating leases. Total rent expense under these leases was
approximately $177,612 and $172,963 for the years ended April 30, 1996 and
1997.
Future minimum rental payments for the next five years at April 30, 1998 are
as follows:
<TABLE>
<CAPTION>
Year Ending April 30, Operating Leases
<S> <C>
1998.................. $144,076
1999.................. 122,050
2000.................. 111,898
2001.................. 84,213
2002.................. 81,876
--------
$544,113
========
</TABLE>
INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
----------------
1996 1997
------ --------
<S> <C> <C>
Current:
Federal............................................... $3,683 $ 0
State................................................. 1,054 0
------ --------
4,737 0
------ --------
Deferred:
Federal............................................... (2,605) (40,330)
State................................................. (2,132) (13,444)
------ --------
0 0
------ --------
Total................................................... $ 0 $(53,774)
====== ========
</TABLE>
RECENT FINANCING
1994 Private Placement
In November, 1994 the Company sold 220,000 shares of Common Stock for an
aggregate price of $2.25 per share. The net proceeds from this financing were
applied in part to offer purchasers in the 1993 Private Placement the option
of selling back some or all of their shares to the Company at the original
subscription price, plus annual compounded interest of 10% for the period
held. The Company repurchased 73,461 shares for an aggregate price of $126,371
in year ending April 30, 1996.
In connection with the placement, the placement agent was issued, for
nominal consideration, warrants to purchase 22,000 shares of the Company's
Common Stock at an exercise price of $1.65 per share. The warrants were
exercisable for a period of five years, subject to customary anti-dilution
provisions and contain certain registration rights.
F-11
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
1995 Bridge Financing
In May, 1995, the Company sold two and one-half (2 1/2) units of a bridge
financing with aggregate proceeds to the Company of $250,000. Each unit
consisted of a convertible debenture with face value of $100,000 and 22,000
shares of Common Stock. The debentures carried an interest rate of 10% and
matured in 12 months and were to be paid upon the effectiveness of a
registration statement. If not paid by maturity, the debentures were
convertible, in the aggregate, into 55,555 shares of Common Stock. The
conversion shares were granted certain registration rights.
The debentures were not paid at maturity and converted in their entirety to
Common Stock in May, 1996.
In connection with the bridge financing, the placement agent was issued, for
nominal consideration, warrants to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $4.505 per share. The warrants are
exercisable for a period of five years and contain certain registration
rights.
1996 Financing
Beginning in November, 1996 the Company offered for sale twenty-two (22)
units of another financing. Each unit consists of a convertible debenture with
face value of $25,000 and 2,500 shares of Common Stock. The debentures carry
an interest rate of 10% and mature in 12 months, or paid in full upon the
effectiveness of a registration statement. If not paid by maturity, the
debentures convert to an additional aggregate 110,000 shares of Common Stock.
The conversion shares would be granted certain registration rights.
The Company has reserved 110,000 shares of Common Stock for the conversion
of the debentures.
As of April 30, 1997, seventeen (17) units had been sold for aggregate gross
proceeds of $425,000. Debentures totaling $425,000 and 42,500 shares of Common
Stock were issued in conjunction with the sales.
SERIES A PREFERRED STOCK
The Series A Preferred Stock is non-voting, nonparticipating and has a
liquidation preference upon dissolution of the Company of $5,000 per share.
The holders of the Preferred Stock are entitled to a variable dividend only at
the discretion of and determination by the Board of Directors. No dividends
were declared for the years ended April 30, 1996 and 1997.
STOCKHOLDERS' EQUITY
Common Stock
In the period ended April 30, 1996 pursuant to the terms of the sale of
Common Stock in the 1994 Private Placement, the Company repurchased 73,461
shares of Common Stock for an aggregate price of $126,371. The Company has
retired these shares.
Warrants
At April 30, 1997, the Company had total warrants outstanding to purchase
242,000 shares of the Company's Common Stock. The exercise price of the
warrants range between $0.50 and $4.505 per share. Warrants for 47,000 shares
expire on the fifth anniversary of their issuance. Warrants for 195,000 shares
expire on April 30, 1999. In certain circumstances, the warrants have certain
"piggy back" or other registration rights. At April 30, 1997, all warrants
outstanding were exercisable.
F-12
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
As of November 15, 1995 an advisor to the Company was issued warrants to
purchase 195,000 shares of the Company's Common Stock at an exercise price of
$0.50 per share. The warrants are exercisable until April 30, 1999 and contain
certain registration rights.
The Company has reserved 242,000 common shares for issuance upon exercise of
all warrants.
Stock Option Plan
In December, 1993 the Company adopted the Non-Qualified and Incentive Stock
Option Plan and established the number of common shares issuable under the
plan at 500,000 shares. The exercise price for shares under the plan is the
fair market value of the Common Stock on the date on which the option is
granted. The option price is payable either in cash, by the surrender of
common shares in the Company, or a combination of both. The aggregate number
of options granted in any one year cannot exceed 10% of the total shares
reserved for issuance under the plan. Options will be exercisable immediately,
after a period of time or in installments, and expire on the tenth anniversary
of the grant. The plan will terminate in December, 2003.
At April 30, 1997, the Company had not granted any options under the Plan.
At April 30, 1997, the Company has reserved 500,000 common shares for
issuance upon exercise of all options.
CONTINGENCIES
The Company is defendant in a series of complaints relating to the operation
of a branch office in Nevada. The complaints are for $182,000. The Company
also is a defendant in another action alleging wrongful termination where the
plaintiff is seeking damages of $50,000. The Company denies any liability
regarding these matters; intends to vigorously defend against the allegations
and has filed counterclaims in certain of these suits. Management believes
that resolution of these matters will not have a material impact on the
Company's financial statements.
In October, 1996 the United States District Court entered into a judgment in
favor of Lawyers Title Insurance Company against the Company in the amount of
$583,049 relating to a dispute over certain cash transfers made in the year
ending April 30, 1994. There can be no assurance that the judgment will be
reversed on appeal or otherwise. The Company has recorded expenses of
approximately $734,000, including the judgment and related attorney's fees, as
of April 30, 1997.
EMPLOYEE BENEFIT PLANS
Effective May 1, 1995, the employees of the Company who meet certain
eligibility requirements can participate in the Company's 401(k) plan. Under
the plan, the Company may, at its discretion, contribute to the plan. The
Company has made no contributions to the plan.
RELATED PARTY TRANSACTIONS
In June, 1996, the J.K. Trust purchased 113 shares of Series A Preferred
Stock for a cash payment of $565,000. The President, Chief Executive and
Chairman of the Board of the Company is the trustee of the J.K. Trust. The
trust is the majority shareholder of the Company.
F-13
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONCLUDED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTES PAYABLE
The Company has mortgage warehouse credit facilities aggregating $22.5
million with several commercial banks and other financial institutions. These
credit facilities are used to fund approved mortgage loans and are
collateralized by mortgage loans. The Company is not required to maintain
compensating balances.
Amounts outstanding under the various credit facilities consist of the
following:
<TABLE>
<CAPTION>
JULY 31, 1997
(UNAUDITED)
-------------
<S> <C>
$10 million mortgage warehouse credit facility at a
commercial bank; interest at prime, expires 10/28/97.... $10,033,758
$1.5 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 2/14/98..... 437,573
$5.0 million mortgage credit facility at a commercial
bank; with interest at 1.1% over open maturity.......... 1,748,416
Mortgage warehouse credit facility for the amount shown
at a commercial bank; interest at the Federal funds rate
plus 2.25%; this loan will be paid off when the related
loan is sold............................................ 199,750
$10 million mortgage warehouse credit facility at a
financial institution, interest at the Libor rate plus
2.25%-2.75%; expires 9/30/97............................ 1,412,988
-----------
Total.................................................. $13,832,485
===========
</TABLE>
PENDING PUBLIC OFFERING OF COMMON STOCK
In September, 1997, the Company intends to file an amendment to a
registration statement with the Securities and Exchange Commission for an
underwritten initial public offering of the Company's Common Stock. Upon the
effectiveness of the registration statement, and receipt of funds from the
offering, the Company is obligated to retire all convertible debentures
outstanding and accrued interest thereon from the 1996 Bridge Financing and to
redeem 150 shares of the Series A Preferred Stock (aggregating $750,000).
In addition, upon the effectiveness of the above offering, the Company will
enter into a five year employment agreement with the President and Chief
Executive Officer. The agreement provides for a base salary of $250,000 per
year, certain health, disability and allowance benefits and an annual
incentive compensation payment equal to 10% of the increase in the Company's
pre-tax income from the prior year.
INCOME TAXES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
-------------------
1996 1997
--------- ---------
<S> <C> <C>
Current:
Federal............................................. $ 47,793 $ 27,111
State............................................... 6,130 4,265
--------- ---------
53,923 31,376
--------- ---------
Deferred:
Federal............................................. 0 0
State............................................... 0 0
--------- ---------
0 0
--------- ---------
Total................................................. $53,923 $ 31,376
========= =========
</TABLE>
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN GIVEN OR MADE
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL, OR THE SOLICITATION OF ANY OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON TO WHOM, OR IN ANY JURISDICTION IN WHICH SUCH OF-
FER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 14
Determination of the Offering Price....................................... 14
Dilution.................................................................. 14
Capitalization............................................................ 15
Management Discussion and Analysis of Results of Operations and Financial
Condition................................................................ 15
Certain Relationships and Related Transactions............................ 19
Principal Stockholders.................................................... 19
The Company and its Business.............................................. 20
Legal Proceedings......................................................... 27
Management................................................................ 28
Historical of Security Placements......................................... 31
Description of Securities................................................. 33
Shares Eligible for Future Sale........................................... 35
Underwriting.............................................................. 36
Commission Position on Indemnification for Securities Act Liabilities..... 39
Legal Matters............................................................. 39
Experts................................................................... 39
Additional Information.................................................... 39
Index to Financial Statements ............................................ F-1
</TABLE>
----------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGIS-
TERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
800,000 SHARES
OF
COMMON STOCK
LOGO
UNITED FINANCIAL
MORTGAGE CORP.
----------------
PROSPECTUS
----------------
MILLS FINANCIAL SERVICES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws ("Bylaws") and the Illinois Business Corporation Act
(the "Corporation Act") provides, in general, that the Company shall indemnify
an individual made a party to a proceeding because he is or was an officer or
director, against liability incurred in the proceeding (other than a
proceeding by or in the right of the corporation in which the officer or
director was adjudged liable to the corporation or in connection with any
other proceeding charging improper personal benefit to him whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him) if such
officer or director conducted himself in good faith and he believed, in the
case of conduct in his official capacity with the corporation, that his
conduct was in its best interest of the Corporation, and, in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful.
The Company believes that the indemnification provided to officers and
directors of the Company may increase the likelihood of liability claims being
asserted against such persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee...... $ 2,230.00
NASD filing fee........... 3,000.00*
Chicago Stock Exchange
Filing Fees.............. 15,000.00*
Accounting fees and
expenses................. 30,000.00*
Legal fees and expenses... 125,000.00*
Blue sky fees and
expenses................. 5,505.00*
Cost of printing and
engraving................ 60,000.00*
Transfer Agent Fees....... 2,000.00*
Miscellaneous............. 16,000.00
-----------
Total................. $258,735.00(1)
===========
</TABLE>
- --------
*Estimated
(1) Excludes a Non-Accountable Expense Allowance of $156,000 payable to the
Underwriter from the proceeds of the offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On April 16, 1986, the Company sold 100 shares of its Common Stock to Mr.
Joseph Khoshabe, the Company's president and sole shareholder, for an
aggregate purchase price of $25,000. In 1990, the Company sold an additional
100 shares of its Common Stock to Mr. Khoshabe for additional consideration of
$105,070. These transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) thereof. After
December 16, 1993, the Company issued and Mr. Khoshabe received 2,531,642,
thus bringing the total shares issued to him to 2,531,842.
In 1988, 1992 and 1996, the Company effected private placements of 213
shares of its Series A Non-Voting Preferred Stock, no par value, to Joseph
Khoshabe and the Joseph Khoshabe Trust for an aggregate consideration of
$1,065,000. These transactions were private transactions not involving a
public offering and were exempt from the registration provisions of the Act,
pursuant to Section 4(2) thereof. All shares of common and preferred stock
previously held by Mr. Joseph Khoshabe have been registered in the name of the
J.K. Trust.
II-1
<PAGE>
1993 Private Placement
During the period from September 8, 1993 to December 14, 1993, the Company
engaged in a private offering of its Common Stock. As a result of the private
offering, the Company offered for sale a total of 268,000 shares of Common
Stock for $400,000. The net proceeds of the private offering were applied to
pay the costs and expenses of that offering and the Prior Registration
Statement, provide up to $45,000 to the Company to open one or more branch
offices, with the remainder to the Company's working capital. This transaction
was a private transaction not involving a public offering and was exempt from
the registration provisions of the Act, pursuant to Section 4(2) and Rules 505
and 506 promulgated thereunder. Mills Financial Services, Inc. of Des Plaines,
Illinois ("Placement Agent") acted as the placement agent for the private
placement of these shares. The Placement Agent was paid a commission of ten
percent (10%) of the securities sold.
1994 Private Placement
Pursuant to the 1994 Private Placement, the Company sold 220,000 Shares for
$2.25 per Share. The net proceeds of the offering were applied to offer
shareholders in the 1993 Private Placement the opportunity to sell their
Shares to the Company for an amount equal to the original subscription price,
plus annual compounded interest at ten percent (10%). This transaction was a
private transaction not involving a public offering, and was exempt from the
registration provisions of the Act, pursuant to Section 4(2) and Rules 505 and
506 promulgated thereunder. Mills Financial Services, Inc. and
Neidiger/Tucker/Bruner, Inc. acted as the placement agents for the private
placement of these Shares. The placement agents were paid a commission of
thirteen percent (13%) of the securities sold, and were issued warrants to
purchase 22,000 Shares ("1994 Warrants"). The 1994 Warrants are exercisable
for a period of five (5) years from the date of issuance and are exercisable
to purchase one (1) share of common stock at $1.65 per share.
1995 Bridge Financing
Pursuant to the terms of the May 15, 1995 Private Placement regarding a
certain 1995 Bridge Financing, the Company offered and sold two and one-half
(2 1/2) units ("Units"), each consisting of one (1) $100,000 ten percent (10%)
convertible debenture ("Debenture") and 22,222 shares of no par value common
stock. The net proceeds of that offering were applied to provide capital for
expansion of the Company's loan origination and servicing activities and for
general working capital purposes.
This offering was a private transaction not involving a public offering and
was exempt from the registration provisions of the Act pursuant to Section
4(2) and Rules 505 and 506 promulgated thereunder. Neidiger/Tucker/Bruner,
Inc. and Mills Financial Services, Inc. acted as the placement agents for the
private placement of the Units. The placement agents were paid a commission of
ten percent (10%) of the securities sold, and were issued warrants to purchase
25,000 Shares ("1995 Warrants"). The 1995 Warrants are exercisable for a
period of five (5) years from the date of issuance and are exercisable to
purchase one (1) Share at $4.505 per Share.
1996 Bridge Financing
Pursuant to the terms of the November 1, 1996 Private Placement, regarding a
certain 1996 Bridge Financing, the Company offered and sold seventeen (17)
units ("Units"), each consisting of one (1) $25,000 ten percent (10%)
convertible debenture ("1996 Debenture") and 2,500 shares of no par value
common stock. The net proceeds of the offering will be applied to finance the
cost of this offering and for general working capital purposes.
This offering was a private transaction not involving a public offering and
was exempt from the registration provisions of the Act pursuant to Section
4(2) and Rules 505 and 506 promulgated thereunder. Mills Financial Services,
Inc. acted as the placement agent of the Units. The placement agent was paid a
commission of ten percent (10%) of the securities sold.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
and
(2) That for the purposes of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(b) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF OAK BROOK, STATE OF ILLINOIS ON THIS
TH DAY OF , 1997.
United Financial Mortgage Corp.
/s/ Joseph Khoshabe
By: _________________________________
Joseph Khoshabe, President
/s/ Steve Khoshabe
By: _________________________________
Steve Khoshabe, Executive Vice
President
Mr. Steve Khoshabe has executed this signature page on behalf of the
Registrant in his capacity as the principal financial officer of the
Registrant.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE
CAPACITIES AND ON THE DATE STATED ABOVE:
<TABLE>
<CAPTION>
SIGNATURE
---------
<S> <C>
/s/ Joseph Khoshabe
- -------------------------------------------
Joseph Khoshabe
</TABLE>
Mr. Joseph Khoshabe has executed this signature page on behalf of the
Registrant in his separate capacities as the principal executive officer of
the Registrant and in his capacity as the sole director of the Board of
Directors of the Registrant.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1. Form of Underwriting Agreement, Underwriter's Warrant and
Underwriter's Warrant Purchase Agreement
2. Not Applicable
3(i) Articles of Incorporation*
3(ii) By-laws of the Registrant*
4. Not Applicable
5. Opinion regarding Legality*
6. Not Applicable
7. Removed and Reserved
8. Not Applicable
9. Not Applicable
10(i) Form of Employment Agreement between the Registrant and Joseph
Khoshabe*
10(ii) Form of Transfer Agent and Registrar Agreement*
10(iii) Tena Companies, Inc., Quality Control Agreement
10(iv) PaineWebber Loan Purchase Agreement and Mortgage Loan Custodial
Agreement
10(v) West Suburban Bank, $15,000,000 Promissory Note; Mortgage
Warehouse Line of Credit and Security Agreement; and Guaranty
10(vi) Corporate Headquarters Real Property Lease, and amendments
10(vii) Advisor Warrant
10(viii) Form of Lock Up Agreement (To be filed by amendment)
10(ix) Form of Consolidated Promissory Note of Joseph E. Kurczodyna
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Not Applicable
19. Not Applicable
20. Not Applicable
21. Not Applicable
22. Not Applicable
23(i) Consent of Independent Public Accountants
23(ii) Consent of Issuer's Counsel
24. Power of Attorney
25. Not Applicable
25/A. Not Applicable
26. Not Applicable
27. Not Applicable
28. Not Applicable
99. Non-qualified and Incentive Stock Option Plan*
</TABLE>
- --------
*Represents previously filed Exhibits.
<PAGE>
EXHIBIT 1
800,000 Shares
UNITED FINANCIAL MORTGAGE CORP.
Common Stock
UNDERWRITING AGREEMENT
August ____, 1997
MILLS FINANCIAL SERVICES, INC.
20 N. Clark Street, Ste. 2411
Chicago, Illinois 60602
Dear Sirs:
Section 1. Introductory.
------------
UNITED FINANCIAL MORTGAGE CORP., an Illinois corporation (the "Company"),
proposes to issue and sell 800,000 shares of its authorized but unissued Common
Stock, no par value (the "Firm Common Stock") to you, or if there be any so
named, to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as representative. In addition, the
Company proposes to grant to you or to the Underwriters, as the case may be, an
option to purchase up to an aggregate of 120,000 additional shares of Common
Stock (the "Optional Common Shares"), as provided in Section 5 hereof. The Firm
Common Shares and, to the extent such option is exercised, the Optional Common
Shares are hereinafter collectively referred to as the "Common Shares."
In addition, the Company proposes to sell to Mills Financial Services, Inc.
warrants ("Underwriter's Warrants") to purchase 80,000 (up-to 92,000 if the
over-allotment option is exercised) pursuant to an Underwriter's Warrant
Purchase Agreement between the Company and Mills Financial Services, Inc.
You have advised the Company that you or the Underwriters, as the case may
be, propose to make a public offering of their respective portions of the Common
Shares on the effective date of the registration statement hereinafter referred
to, or as soon thereafter as in your judgment is advisable.
The Company hereby confirms its agreements with respect to the purchase of
the Common Shares by you or the Underwriters, as the case may be, as follows.
Section 2. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to the several Underwriters that:
<PAGE>
(a) A registration statement on Form SB-2 (File No. 333-27037) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. If the Company prepares and files prior to the effective date of
such registration statement an amendment or amendments to such registration
statement, such amendment or amendments will have been similarly prepared. There
have been delivered to you two signed copies of such registration statement and
all amendments, if any, together with two copies of each exhibit filed
therewith. Conformed copies of such registration statement and amendments, if
any, (but without exhibits) and of any related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for you and
for each of the Underwriters, as the case may be. The Company will next file
with the Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, or (ii) a final prospectus in accordance with Rules 430A and 424(b)
of the Rules and Regulations. As filed, such amendment and form of final
prospectus, or such final prospectus, shall include all Rule 430A Information
and, except to the extent that you shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior to the
date and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall contain
only such specific substantive changes (beyond that contained in the latest
Preliminary Prospectus) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term shall
also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Common Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no filing pursuant
to Rule 424(b) of the
2
<PAGE>
Rules and Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430(A) Information" means information with
respect to the Common Shares and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to Rule
430(A) of the Rules and Regulations. Any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Form SB-2 under the Act,
as of the date of such Preliminary Prospectus or Prospectus, as the case may be.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and at the time the Registration Statement
becomes effective, and at all times subsequent thereto up to and including each
Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will contain all material
statements and information required to be included therein by the Act and the
Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information contained
in or omitted from the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by you or by or on behalf of any
Underwriter, directly or through the Representative, specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full power and authority (corporate and
other) to own and lease its properties and conduct its business as described in
the Prospectus; the Company is in possession of and operating in compliance with
all authorizations, licenses, permits, consents, certificates and orders
material to the conduct of its business, all of which are valid and in full
force and effect; the Company is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the ownership or
leasing of properties or the conduct of its business requires such qualification
except for jurisdictions in which the Company has no place of business and in
which the failure to so qualify would not have a material adverse effect upon
the Company; and no proceeding has been instituted in any
3
<PAGE>
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus and has outstanding
3,100,029 shares of Common Stock and 213 shares of Class A Preferred stock; the
issued and outstanding shares of Common Stock and Preferred Stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description thereof
contained in the Prospectus. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock purchase and other stock plans or arrangements,
and the options or other rights granted and exercised thereunder, set forth
under the heading "Stock Option Plan" in Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this
4
<PAGE>
Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provisions of the Company's Articles of
Incorporation or Bylaws and will not conflict with, result in the breach or
violation of, or constitute, either by itself or upon notice or the passage of
time or both, a default under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
is a party or by which the Company or any of its properties may be bound or
affected, any statute or any authorization judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its properties. No
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the Blue Sky
laws applicable to the public offering of the Common Shares by you or the
several Underwriters, as the case may be, the rules and regulations of the
Chicago Stock Exchange, Inc. and the clearance of such offering with the
National Association of Securities Dealers, Inc. (the "NASD").
(g) The financial statements and schedules of the Company, and the related
notes thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates of such
financial statements and schedules, and the results of operations and changes in
financial position of the Company for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis as
certified by Craig Shaffer and Associates, Ltd., C.P.A.
(h) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company is or may be a party or of which property owned or leased by the Company
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company; and no
labor disturbance by the employees of the Company exists or is imminent which
might be expected to affect adversely such condition, properties, business,
results of operations or prospects. The Company is not a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulator body, administrative agency or other governmental body.
5
<PAGE>
(i) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (1) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material agreement or other transaction which is not in the
ordinary course of business; (2) the Company has not sustained any material loss
or interference with its business or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance; (3) the Company
has not paid or declared any dividends or other distributions with respect to
its capital stock and the Company is not in default in the payment of principal
or interest on any outstanding debt obligations; (4) there has not been any
change in the capital stock (other than upon the sale of the Common Shares
hereunder and upon the exercise of options or pursuant to other employee benefit
plans described in the Registration Statement) or indebtedness material to the
Company (other than in the ordinary course of business); and (5) there has not
been any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company.
(j) The Company has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company which could materially and adversely
affect the business, operations or properties of the Company.
Section 4. Representations and Warranties of the Underwriters.
--------------------------------------------------
Mills Financial Services, Inc., for itself or as the Representative, on
behalf of the several Underwriters, as the case may be, represents and warrants
to the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was the only
information furnished to the Company by it or on behalf of the Underwriters, as
the case may be, for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. If
applicable, the Representative represents and warrants that it has been
authorized by each of the other Underwriters as the Representative to enter into
this Agreement on its behalf and to act for it in the manner herein provided
6
<PAGE>
Section 5. Purchase, Sale and Delivery of Underwritten Shares and
------------------------------------------------------
Underwriter's Warrants
- ----------------------
(a) Firm Common Shares. On the basis of the representations, warranties
------------------
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to issue and sell to you or to the Underwriters,
as the case may be, the Firm Common Shares which are in the amount of 800,000
shares. You or, if applicable, you on behalf of the Underwriters agree,
severally and not jointly, as the case may be, to purchase from the Company the
number of Firm Common Shares described below which are in the aggregate equal to
800,000 shares. The purchase price per share to be paid by you or the several
Underwriters, as the case may be, to the Company shall be $_______ per share
The obligation of you or, if applicable, each Underwriter to the Company
shall be to purchase from the Company that number of Firm Common Shares which is
equal to the number of shares set forth opposite the name of you or such
Underwriter, as the case may be, in Schedule A hereto.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Mills
Financial Services, Inc., 20 N. Clark Street, Suite 2411, Chicago, Illinois (or
such other place as may be agreed upon by the Company and you) at such time and
date, not later than the fifth full business day following the effective date of
the Registration Statement, as you shall designate by at least 48 hours prior
notice to the Company (or at such other time and date, not later than one week
after such fifth full business day as may be agreed upon by the Company and you)
(the "First Closing Date").
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company to you, for your account or for the respective accounts of
the Underwriters, as the case may be, with respect to the Firm Common Shares to
be sold by the Company against payment by you, for your account or for the
accounts of the several Underwriters, as the case may be, of the purchase price
therefor by certified or official bank checks payable in Chicago Clearing House
(next day) funds to the order of the Company. The certificates for the Firm
Common Shares shall be registered in such names and denominations as you shall
have requested at least two full business days prior to the First Closing Date,
and shall be made available for checking and packaging on the business day
preceding the First Closing Date at a location in Chicago, Illinois as may be
designated by you. Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to your obligations or
the obligations of the Underwriters, as the case may be.
7
<PAGE>
(b) Optional Common Shares. In addition, on the basis of the
----------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
you or to the several Underwriters, as the case may be, to purchase, in the case
of the several Underwriters severally and not jointly, up to 120,000 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for your
account or for the account of the Underwriters, as the case may be, in the sale
and distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 45 days after the first
date that any of the Common Shares are released by you for sale to the public,
upon notice by you to the Company setting forth the aggregate number of Optional
Common Shares as to which you or the Underwriters, as the case may be, are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates are to be delivered. Such time of delivery (which may not be
earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If applicable, the
number of Optional Common Shares to be purchased by each Underwriter shall be
the same percentage of the total number of Optional Common Shares to be sold by
the Company as such Underwriter is purchasing of the Firm Common Shares (subject
to such adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in Chicago, Illinois as may be designated by you. The
manner of payment for and delivery of the Optional Common Shares shall be the
same as for the Firm Common Shares purchased from the Company. At any time
before lapse of the option, you may cancel such option by giving written notice
of such cancellation to the Company. If the option is cancelled or expires
unexercised in whole or in part, the Company will deregister under the Act the
number of Optional Common Shares as to which the option has not been exercised.
(c) Acceptance of Delivery and Payment. If applicable, you have advised
----------------------------------
the Company that each Underwriter has authorized you to accept delivery of its
Common Shares, to make payment and to receipt therefor. If applicable, you,
individually and not as the Representative of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not
8
<PAGE>
relieve such Underwriter from any of its obligations under this Agreement.
(d) Public Offering. Subject to the terms and conditions hereof, you or
---------------
the Underwriters, as the case may be, propose to make a public offering of your
or their respective portions of the Common Shares as soon after the effective
date of the Registration Statement as in your judgment is advisable and at the
public offering price set forth on the cover page of and on the terms set forth
in the Prospectus.
(e) Underwriter's Warrants. On the basis of the representations,
----------------------
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to Mills Financial
Services, Inc., and Mills Financial Services, Inc. agrees to purchase, the
Underwriter's Warrants at a purchase price of $.001 per Underwriter's Warrant.
The Underwriter's Warrant shall be substantially in the form contained in the
Underwriter's Warrant Purchase Agreement filed as Exhibit ____ to the
Registration Statement, with such changes therein, if any, as may be agreed upon
by the Company and Mills Financial Services, Inc., shall be dated the Closing
Date, and shall evidence the right of Mills Financial Services, Inc. to purchase
from the Company up to 92,000 shares of Common Stock (subject to adjustment as
provided in the Underwriter's Warrants) at the price per share and upon the
terms and conditions provided in the Underwriter's Warrants and the
Underwriter's Warrant Purchase Agreement.
Section 5. Covenants of the Company.
------------------------
The Company covenants and agrees that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement to become effective and will advise you immediately, and
confirm the advice in writing, (i) of the receipt of any comments of the
Commission, (ii) of any request of the Commission for amendment of or supplement
to the Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information, (iii)
when the Registration Statement shall have become effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose. If the Commission shall enter any such stop order at any time, the
Company will use its reasonable best efforts to obtain the lifting of such order
at the earliest possible moment. The Company will not file any amendment or
supplement to the Registration Statement (either before or after it becomes
effective), any Preliminary Prospectus or the Prospectus of which you have not
been furnished with a copy a reasonable time prior to such filing or to which
you reasonably object or
9
<PAGE>
which is not in compliance in all material respects with the Act and the Rules
and Regulations.
(b) If at any time within nine months of the effectiveness of the
Registration Statement when a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, including any amendments or supplements, would include an unture
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case you or any Underwriter, as the case may be, is
required to deliver a prospectus nine months or more after the effective date of
the Registration Statement, the Company upon request, but at your expense or the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a) (3) of the
Act.
(c) Prior to the Second Closing Date, the Company will not repurchase or
otherwise acquire any of the Company's Common Stock or declare or pay any
dividend or made any other distribution upon its Common Stock.
(d) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the effective date of the
Registration Statement, the Company will make generally available to its
security holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last paragraph
of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer, the Company, at its
expense, but only for the first nine months after the effective date of the
Registration Statement, will furnish to you or mail to your order copies of the
Registration Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as you may request, for the purposes
contemplated by the Act.
10
<PAGE>
(f) The Company shall cooperate with you and your counsel in order to list
the Common Shares for trading on the Chicago Stock Exchange and qualify or
register the Common Shares for sale under (or obtain exemptions from the
application of) the Blue Sky laws of such jurisdictions as you designate, will
use its best efforts to comply with such laws and use its best efforts to
continue such listing, qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise you promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Common
Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company, with your cooperation, will use its reasonable best efforts to obtain
the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish to
you or upon your request as Representative of the Underwriters, to each of the
other Underwriters, as the case may be: (i) as soon as practicable after the end
of each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and statements
of income, stockholders' equity and changes in financial position for the year
then ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-KSB, Quarterly Report on Form
10-QSB, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as available,
copies of any report or communication of the Company mailed generally to holders
of its Common Stock.
(h) During the period of 180 days after the date hereof, without your
prior written consent, individually or as Representative of the Underwriters,
the Company will not other than pursuant to outstanding stock options and the
terms of other employee benefit plans disclosed in the Prospectus issue, offer,
sell, grant options to purchase or otherwise dispose of any of the Company's
equity securities or any other securities convertible into or exchangeable for
its Common Stock or other equity security under circumstances where such
securities may be sold into the public market during such period.
You, individually or on behalf of the Underwriters, as the case may be,
may, in your sole discretion, waive in
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<PAGE>
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
Section 6. Non-Accountable Allowance; Payment of Expenses.
----------------------------------------------
(a) Non-Accountable Allowance. Upon the consummation of the transactions
-------------------------
contemplated hereunder and, in any event, not later than the date of the First
Closing and, if applicable, again on the date of the Second Closing, the Company
shall reimburse Mills Financial Services, Inc. for its expenses on a
non-accountable basis in the amount of $ , which amount shall not exceed
three percent (3%) of the gross proceeds to the Company from the transactions
contemplated herein.
(b) Other Expenses. Whether or not the transactions contemplated hereunder
--------------
are consummated or this Agreement becomes effective or is terminated, the
Company agrees to pay all costs, fees and expenses (excluding any legal fees,
costs or expenses of counsel to the Underwriters) incurred in connection with
the performance of its obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) the cost of preparation, printing and filing of the
Registration and exhibits and all amendments and supplements thereto with the
Securities and Exchange Commission, (ii) the cost of printing and delivering to
the Underwriters all copies of the preliminary prospectus and final prospectus
reasonably requested by the Underwriters, (iii) all filing fees and costs (other
than legal fees of counsel to the Underwriters) connected with the Securities
and Exchange Commission, National Association of Securities Dealers, Inc., the
Chicago Stock Exchange and the "blue sky" commissions of those states in which
the offering is to be made, and (iv) the costs and expenses of tombstone
advertisements and those associated with a series of presentations in various
financial centers.
Section 7. Conditions of the Obligations of the Underwriters.
-------------------------------------------------
The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company herein set forth as of the date hereof
and as of the First Closing Date or the Second Closing Date, as the case may be,
to the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
12
<PAGE>
(a) The Registration Statement shall have become effective not later than
5:00 P.M., Washington, D.C. Time, on the date of this Agreement, or at such
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424 (b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424 (b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or,
to the Knowledge of the Company shall be contemplated by the Commission; and any
request of the Commission for inclusion of additional information in the
Registration Statement, or otherwise, shall have been complied with to your
satisfaction.
(b) The legality and sufficiency of the authorization, issuance and sale
of the Common Shares being sold by the Company, the validity and form of the
certificates representing the Common Shares, the execution and delivery of this
Agreement and all corporate proceedings and other legal matters incident
thereto, and the form of the Registration Statement and the Prospectus (except
financial statements and numerical data) shall have been approved by counsel for
you or the Underwriters, as the case may be.
(c) You shall not have advised the Company that the Registration Statement
or Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact, which, in the opinion of counsel for you or the Underwriters,
as the case may be , is or may be material or omits to state a fact which, in
the opinion of such counsel, is or may be material and is or maybe required to
be stated therein or necessary to make the statements therein not misleading.
(d) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock other than pursuant to the
exercise of outstanding options and other employee benefit plans disclosed in
the Prospectus of the Company or any material change in the indebtedness (other
than in the ordinary courses of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the Registration
Statement or the Prospectus, no material agreement or other transaction shall
have been entered into by the Company which is not in the ordinary course of
business, (iii) no loss or damage (whether or not insured) to the property of
the Company shall have been sustained which materially and adversely affects the
condition (financial or otherwise), business, results of operations or prospects
of the Company, (iv) no legal or governmental action, suit or proceeding
affecting the Company which is material to the
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<PAGE>
Company or which affects or may affect the transactions contemplated by this
Agreement shall have been instituted or threatened and (v) there shall not have
been any material adverse change in the condition (financial or otherwise),
business, management, results of operations or prospects of the Company which
makes it impractical or inadvisable in your reasonable judgment to proceed
with the public offering or purchase the Common Shares as contemplated hereby.
(e) There shall have been furnished to you, individually or as
Representative of the Underwriters, as the case may be, on each Closing Date, in
form and substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Robert S. Luce, Esq., counsel for the Company addressed
to you or to you as Representative of the several Underwriters, as the
case may be, and dated the First Closing Date or the Second Closing
Date as the case may be, to the effect that:
(1) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction
of incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions
where the ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company, and has full corporate
power and authority to own its properties and conduct its
business as described in the Registration Statement;
(2) The authorized capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus and has
outstanding 3,100,029 shares of Common Stock and 213 shares of
Class A Preferred Stock; all necessary and proper corporate
proceedings have been taken in order to authorize validly such
authorized Common Stock; all outstanding shares of Common Stock
(including the Firm Common Shares and any Optional Common Shares)
and all outstanding shares of Class A Preferred Stock have been
duly and validly issued, are fully paid and nonassessable, not
issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase any securities and
conform to the description thereof contained in the Prospectus;
without limiting the foregoing, there are no preemptive or other
rights to subscribe for or purchase
14
<PAGE>
any of the Common Shares to be sold by the Company hereunder;
(3) Except as disclosed in or specifically contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling for the
issuance of, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the
Company;
(4) (a) The Registration Statement has become effective under the
Act, and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending
or contemplated by the Commission;
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial
statements and schedules included therein as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the Rules
and Regulations, and nothing has come to such counsel's attention
that would lead such counsel to believe that either at the
effective date of the Registration Statement or at the applicable
Closing Date the Registration Statement or the Prospectus, or
any such amendment or supplement, contains any untrue statement
of a material fact or omits to state a material fact required to
be stated therin or necessary to make the statements therein not
misleading;
(c) To the best of such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents required
to be disclosed in the Registration Statement or Prospectus or
to be filed as exhibits to the Registration Statement which are
not disclosed or filed, as required;
(d) The descriptions in the Registration Statement and the
Prospectus of franchises, leases, contracts, agreements and other
documents are accurate in all material respects
15
<PAGE>
and such descriptions fairly present in all material respects the
information required to be shown;
(e) The description of the Company's stock option, stock
purchase and other stock plans and arrangements, and the options
or other rights granted and exercised thereunder, set forth in
the Prospectus accurately and fairly presents the information
required to be shown with respect to said plans, arrangements,
options and rights;
(f) To the best of such counsel's knowledge, there are no legal
or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described
in the Prospectus which are not described as required; and
(g) The documents incorporated by reference in the Prospectus
(except for any financial statements and schedules included in
such documents as to which such counsel need express no opinion),
when they were filed with the Commission, complied as to form in
all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder; and
such counsel has no reason to believe that any of such documents
(except for any financial statements and schedules included in
such documents as to which such counsel need express no opinion),
when they were so filed, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such documents were
so filed, not misleading.
(5) The Company has full right and authority to enter into this
Agreement and to sell and deliver the Common Shares to be sold by
it to you or the several Underwriters, as the case may be; this
Agreement has been duly and validly authorized by all necessary
corporate action by the Company, has been duly and validly
executed and delivered by and on behalf of the Company, and is
valid and binding agreement of the Company in accordance with its
terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other
16
<PAGE>
laws affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed;
and no approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required
for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
applicable Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriter or the
several Underwriters, as the case may be, and the clearance of
such offering with the NASD;
(6) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company is a party or by which the Company
or any of its property may be bound or affected which is material
to the Company, or violate any of the provisions of the Articles
of Incorporation or Bylaws of the Company or, so far as is known
to such counsel, violate any statute, judgment, decree,
order,rule or regulation of any court or governmental body having
jurisdiction over the Company or any of its property;
(7) The Company is not in violation of its Articles of Incorporation
or Bylaws, or, to the best of such counsel's knowledge (such
counsel having made reasonable investigation with respect
thereto) in material breach of or default with respect to any
provision of any material agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument
known to such counsel to which the Company is a party or by which
it or any of its properties may be bound or affected, except
where such default would not materially adversely affect the
Company; and, to the best of such counsel's knowledge, the
Company is in compliance with all laws, rules, regulations,
17
<PAGE>
judgments, decrees, orders and statutes of any court or
jurisdiction to which it is subject, except where noncompliance
would not materially adversely affect the Company;
(8) To the best of such counsel's knowledge, no holders of securities
of the Company have rights which have not been waived to the
registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the
Company or the offering contemplated hereby.
In rendering such opinion, such counsel may rely as to matters of local law, on
opinions of local counsel, as to matters of fact, on certificates of the
officers of the Company and of governmental officials, and as to matters set
forth in Section 3(f) and in the last phrase of paragraph (7) of this Section 7,
such counsel may rely in part on opinions of other counsel retained by the
Company, in which their opinion is to state that they are so doing and that the
Underwriter or the several Underwriters, as the case may be, are justified in
relying on such opinions or certificates and copies of said opinions or
certificates are to be attached to the opinion.
(ii) Such opinion or opinions of Peter B. Shaeffer, Attorney-at-law,
counsel for you or the Underwriters, as the case may be, dated the First Closing
Date or the Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the sufficiency of all corporate proceedings and
other legal matters relating to this Agreement, the validity of the Common
Shares, the Registration Statement and the Prospectus and other related matters
as you may reasonably require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to him such papers and records
as he may reasonably request for the purpose of enabling him to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials.
(iii) A certificate of the Company executed by the President and such
other officer or key employees of the Company as may reasonably be designated by
you, dated the First Closing Date or the Second Closing Date, as the case may
be, to the effect that, and you shall be reasonably satisfied that:
(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing Date,
as the case may be, and the Company has complied with all
18
<PAGE>
the agreements and satisfied all the conditions on its part to be performed
or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus filed as
a part of the Registration Statement or any amendment thereto; no stop
order suspending the effectiveness of the Registration Statement has been
issued, and to the best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act;
(3) Each of the respective signers of the certificate has carefully
examined the Registration Statement and the Prospectus; in his opinion and
to the best of his knowledge, the Registration Statement and the Prospectus
and any amendments or supplements thereto contain all statements required
to be stated therein regarding the Company; and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the Registration Statement was
filed, no agreement, written or oral, transaction or event has occurred
which should have been set forth in an amendment to the Registration
Statement or in a supplement to or amendment of any prospectus which has
not been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as disclosed in
or contemplated by the Prospectus, there has not been any material adverse
change or a development involving a material adverse change in the
condition (financial or otherwise), business, properties, results of
operations, management or prospects of the Company; and no legal or
governmental action, suit or proceeding is pending or threatened against
the Company which is material to the Company, whether or not arising from
transactions in the ordinary course of business, or which may adversely
affect the transactions contemplated by this Agreement; since such dates
and except as so disclosed, the Company has not entered into any agreement
or other transaction which is not in the ordinary course of business or
incurred any material liability or obligation, direct, contingent or
indirect, made any change in its capital stock, made any material change in
its short-term debt or
19
<PAGE>
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the First Closing Date or Second
Closing Date; and
(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as disclosed in
or contemplated by the Prospectus, the Company has not sustained a material
loss or damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(iv) On the day before the date of the Registration Statement and also on
the First Closing Date and the Second Closing Date a letter addressed to you or
to you as Representative of the Underwriters, as the case may be, from Craig
Shaffer and Associates, ltd., C.P.A., independent accountants, the first one to
be dated the day before the date of this Agreement, the second one to be dated
the First Closing Date and the third one (in the event of a Second Closing) to
be dated the Second Closing Date, in form and substance satisfactory to you.
(v) Such assurances as you may require that on the First Closing Date
and the Second Closing Date the Common Shares are qualified for public offering
and sale by registered dealers or exempt from the necessity of qualifications or
registrations for such public offering and sale in such jurisdictions as you
have theretofore specified; that the Registration Statement has been declared
effective under the Act; and that there is no stop order or similar proceeding
in effect, pending or contemplated with respect to any such qualification,
exemption, effectiveness or approval.
(vi) On or before the First Closing Date, such letters from the
shareholders of the Company as the Company, with our assistance, shall have
obtained after using the Company's best efforts, in form and substance
satisfactory to you, confirming that for a period of 180 days after the date of
the Prospectus such person will not directly or indirectly sell or offer to sell
or otherwise dispose of any shares of Common Stock or any right to acquire such
shares without your prior, written consent.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Peter B. Shaeffer, counsel for you or the Underwriters, as the case may be.
The Company shall furnish you with such manually signed or conformed copies of
such opinions, certificates, letters and documents as you request. Any
certificates signed by any officer or key employee
20
<PAGE>
of the Company and delivered to you or to counsel for you or the Underwriters,
as the case may be, shall be deemed to be a representation and warranty by the
Company to you or the Underwriters, as the case may be, as to the statements
made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you to the Company without
liability on the part of any Underwriter or the Company except for the expenses
to be paid or reimbursed by the Company pursuant to Sections 6(b) and 8 hereof
and except to the extent provided in Section 10 hereof.
Section 8. No Reimbursement of Costs or Expenses.
-------------------------------------
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 7 or by you or the Company pursuant to
Section 14, or if the sale to you or the Underwriters, as the case may be, of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provisions hereof, neither you or the
Underwriter, as the case may be, nor the Company shall be required to reimburse
the other or others, as the case may be, for any costs or expenses incurred by
you or them or incurred by the Company. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 6(b) and Section 10 shall at all times be effective and shall
apply.
Section 9. Effectiveness of Registration Statement.
---------------------------------------
The Company will use its best efforts to cause the Registration Statement
to become effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
Section 10. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless you or each
Underwriter and each person, if any, who controls you or any such Underwriter,
as the case may be, within the meaning of the Act against any losses, claims,
damages, liabilities or expenses, joint or several, to which you or such
Underwriter, as the case may be, or such controlling person may become subject,
under the Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written
21
<PAGE>
consent to the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or necessary
to make the statements in any of them not misleading; and will reimburse you or
each Underwriter, as the case may be, and each such controlling person for any
legal and other expenses reasonably incurred by you or such Underwriter or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by you or by or on behalf of any
Underwriter through the Representative, as the case may be, specifically for use
therein; and provided further, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Preliminary
Prospectus, the indemnity agreement contained in this paragraph shall not inure
to the benefit of you or any Underwriter, as the case may be, from whom the
person asserting any such losses, claims, damages, liabilities or expenses
purchased the Common Shares concerned (or to the benefit of any person
controlling you or such Underwriter, as the case may be) to the extent that any
such loss, claim, damage, liability or expense of you or such Underwriter, as
the case may be, or controlling person results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of sale of such Common Shares to such person as required by the
Act, and if the untrue statement or omission has been corrected in the
Prospectus unless such failure to deliver the Prospectus was a result of
noncompliance by the Company with its obligations under Section 5(e) hereof; and
provided further, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in the Registration Statement, the
Prospectus, or any amendment or supplement thereto.
(b) You or each Underwriter severally, as the case may be, will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer or
controlling person may become subject, under the Act, the Exchange Act, or other
federal or
22
<PAGE>
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
Section 4 of this Agreement or any other written information furnished to the
Company by you or such Underwriter through the Representative, as the case may
be, specifically for use in the preparation thereof; and will reimburse the
Company, or any such director, officer or controlling person for any legal and
other expense reasonably incurred by the Company, or any such director, officer
or controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. This indemnity agreement will be in addition to any liability which you
or such Underwriter, as the case may be, may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and counsel for the indemnified
party shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the
23
<PAGE>
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence or (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 10 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then such applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and you or the Underwriters, as the case may be, from the offering of
the Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and you or the Underwriters, as the case may be,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Company and you or the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or you or the Underwriters, as the case may
be, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in subparagraph (c) of this Section 10, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or
24
<PAGE>
claim. The provisions set forth in subparagraph (c) of this Section 10 with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this subparagraph (d); provided, however, that
no additional notice shall be required with respect to any action for which
notice has been given under subparagraph (c) for purposes of indemnification.
The Company and you or the Underwriters, as the case may be, agree that it would
not be just and equitable if contribution pursuant to this Section 10 were
determined solely by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
10, neither you nor any Underwriter, as the case may be, shall be required to
contribute any amount in excess of the amount by which the total underwriting
discount received by you or such Underwriter, as the case may be, in connection
with the Common Shares underwritten by it and distributed to the public exceeds
the amount of any damages which you or such Underwriter has otherwise been
required to pay by reason of such untrue alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. If applicable,
the Underwriters' obligations to contribute pursuant to this Section 10 are
several in proportion to their respective underwriting commitments and not
joint.
(e) In addition to and without in any way limiting the other obligations
of the parties under this Section 10, the Company hereby further agrees to
reimburse you or each Underwriter, as the case may be, and each person who
controls you or any such Underwriter within the meaning of Section 15 of the Act
on a quarterly basis for one-half of all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of this Section 10, notwithstanding the possibility that such
payments might later be held to be improper, but only under circumstances where
you or such Underwriter has selected separate counsel or elected to participate
in the defense of the action as permitted by the proviso of the second sentence
of Section 10(c) hereof. To the extent that any payment is ultimately held to be
improper, you or each Underwriter, as the case may be, shall promptly refund
such payment.
Section 11. Default of the Underwriters.
---------------------------
It shall be a condition to this Agreement and the Obligation of the
Company to sell and deliver the Common Shares hereunder, and a condition of your
obligation, or the
25
<PAGE>
obligations of each Underwriter, as the case may be, to purchase the Common
Shares in the manner as described herein, that, except as hereinafter in this
paragraph provided, you or each of the Underwriters, as the case may be, shall
purchase and pay for all the Common Shares agreed to be purchased by you or such
Underwriter hereunder upon tender to you individually or as the Representative
of the several Underwriters, as the case may be, of all such shares in
accordance with the terms hereof. If applicable, if any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to you and the Company for the purchase
of such Common Shares by other persons are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company except for the expenses to be paid by
the Company pursuant to Section 6(b) hereof and except to the extent provided in
Section 10 hereof.
If applicable, in the event that Common Shares to which a default relates
are to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representative or the Company shall have the right to postpone the
First or Second Closing Date as the case may be, for not more than five business
days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
Section 12. Effective Date.
--------------
This Agreement shall become effective immediately as to Sections 6(b), 8,
10, 14 and 15 and, as to all other provisions, (i) if at the time of execution
of this Agreement the Registration Statement has not become effective, at 4:00
P.M., Chicago time, on the first full business day following the effectiveness
of the Registration Statement, or (ii) if at the time of execution of this
Agreement the Registration Statement has been declared effective, at 4:00 P.M.,
Chicago time, on the first full business day following the date of
26
<PAGE>
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Common Shares for sale to the public. For the purposes of this
Section 12, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
Section 13. Right of First Refusal/Right to Designee
----------------------------------------
(a) For a period of three (3) years from the date of this Agreement, the
Company will not enter into an agreement for a public or private offering for
cash (other than to employees) of any securities of the Company or any affiliate
of the Company or any securities offered by the Company or any affiliate for
cash to or through any person, firm or corporation other than Mills Financial
Services, Inc. unless and until the Company shall have first negotiated for the
sale of such securities with or through or offered to sell such securities to
Mills Financial Securities, Inc. The Company shall notify Mills Financial
Services, Inc. in writing of the Company's intention to offer such securities in
an offering covered by this right of first refusal and the terms (including the
price or other method of determining the underwriting or placement discount or
fee) and the conditions of the proposed offering. Mills Financial Services, Inc.
shall then have 10 days from the date of receipt of such written notice to
decide whether to participate in such proposed offering. If Mills Financial
Services, Inc. determines that it does not wish to participate in the proposed
offering, then it shall so notify the Company of its intention in writing not
later than 30 days from the receipt of notice from the Company of such proposed
offering. If Mills Financial Services, Inc. determines not to participate in
such offering, then the Company may, within a period of 90 days from the date of
receipt of notice from Mills Financial Services, Inc. of its intention not to
participate, enter into a letter of intent for the public sale or, as
appropriate, a contract for the private sale, of any of such securities through
any other person, firm or corporation on the same general terms and conditions
as those which were tendered by the Company to Mills Financial Services, Inc.
Provided, however, as to a public offering, it a definitive underwriting
agreement with a firm commitment is not executed by the Company with such third
party within 180 days thereafter, all the rights of Mills Financial Services,
Inc. hereunder with respect to such offering shall be reinstated. Nothing in
this Agreement shall be construed as granting the continuation of such
preferential right on the part of Mills Financial
27
<PAGE>
Services, Inc. beyond such three-year period.
(b) For a period of three (3) years from the date of this Agreement, at
the request of Mills Financial Services, Inc., the Company shall nominate and
use its best efforts (including solicitation of proxies) to elect a designee of
Mills Financial Services, Inc. to the Board of Directors of the Company or,
alternatively, at the exclusive option of Mills Financial Services, Inc., to
permit a designee of Mills Financial Services, Inc. to receive notice of and
attend all special and regular meetings of the Board of Directors of the
Company. The designation by Mills Financial Services, Inc. of a designee
hereunder shall be in writing.
Section 14. Termination.
-----------
Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
or by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to you or
any Underwriter, as the case may be (except for the expenses to be paid or
reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to
the extent provided in Section 10 hereof) or of any Underwriter to the
Company (except to the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you, individually or as
Representative of the several Underwriters, as the case may be, prior to
the First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange, the American Stock Exchange, the Chicago Stock Exchange or in the
over the counter market by the NASD, or trading in securities generally
shall have been suspended on any such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or Illinois authorities or (ii) if an
outbreak of major hostilities or other national or international calamity
or any substantial change in political, financial or economic conditions
shall have occurred or shall have accelerated to such an extent, as, in
your judgment, to affect adversely the marketability of the Common Shares.
Any termination pursuant to this subsection (b) shall be without liability
on your part or on the part of any Underwriter,
28
<PAGE>
as the case may be, to the Company or on the part of the Company to you or
any Underwriter, as the case may be (except to the extent provided in
Section 10 hereof).
Section 15. Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers or key employees and of you or
the Underwriters, as the case may be, set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by you individually or on behalf of any Underwriter, as the case may be, or
the Company or any of its or their partners, officers or directors or any
controlling person, and will survive delivery of and payment for the Common
Shares sold hereunder and any termination of this Agreement.
Section 16. Notices.
-------
All communications hereunder shall be in writing and, if sent to you
individually or on behalf of the several Underwriters, shall be mailed,
delivered, telefaxed or telegraphed and confirmed to you at 20 N. Clark Street,
Suite 2411, Chicago, Illinois 60602, Attention: Joseph Kurczodyna; and if sent
to the Company shall be mailed, delivered, telefaxed or telegraphed and
confirmed to the Company at 600 Enterprise Drive, Suite 206, Oak Brook,
Illinois 60521, Attention: Joseph Khoshabe. The Company, or you may change the
address for receipt of communications hereunder by giving notice to the other.
Section 17. Successors.
----------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 12
hereof, and to the benefit of the officers and directors and controlling persons
referred to in Section 10, and in each case their respective successors,
personal representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from you or any of the Underwriters merely by reason
of such purchase.
Section 18. Representative of Underwriters.
------------------------------
If applicable, you will act as Representative for the several Underwriters
in connection with all dealings hereunder, and any action under or in respect of
this
29
<PAGE>
Agreement taken by the Underwriters jointly or by Mills Financial Services,
Inc., as Representative, will be binding upon all the Underwriters.
Section 19. Partial Unenforceability.
------------------------
The invalidity or unenforceability of any Section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
Section 20. Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State
of Illinois.
Section 21. General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and you, individually or on behalf of
the several Underwriters, as the case may be.
Balance of Page Left Blank, Intentionally)
30
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company and Mills Financial Services, Inc.
or the several Underwriters including you, as the case may be, all in
accordance with its terms.
Very truly yours,
UNITED FINANCIAL MORTGAGE CORP.
By: _____________________________
Joseph Khoshabe, President
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
Chicago, Illinois as of the date first above written.
MILLS FINANCIAL SERVICES, INC.
If applicable, acting as Representative of the several Underwriters named in the
attached Schedule A.
By MILLS FINANCIAL SERVICES, INC.
By: _______________________________
Joseph Kurczodyna, President
31
<PAGE>
SCHEDULE A
Number of Firm Common
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
Mill Financial Services, Inc.
32
<PAGE>
UNDERWRITER'S WARRANT PURCHASE AGREEMENT
August ___, 1997
Mills Financial Services, Inc.
Attn: Joseph Kurczodyna, President
20 North Clark Street
Suite 2411
Chicago, IL 60602
Dear Mr. Kurczodyna:
United Financial Mortgage Corp., an Illinois corporation (the "Company"),
hereby agrees with you as follows:
1. Concurrently with the execution of the Warrant Purchase Agreement (the
"Agreement"), the Company is entering into an Underwriting Agreement (the
"Underwriting Agreement"), dated the same date as this Agreement, with you as
Underwriter.
2. Subject to and concurrent with the closing of the public offering by
the Company of 800,000 shares of the Company's common stock (not including up to
120,000 shares of the Company's Common Stock which the Underwriter may purchase
to cover over-allotments) pursuant to the Underwriting Agreement (which event is
called the "Closing"), the Company will sell and deliver to you for a cost of
$.001 per Warrant, a Warrant in the form of Exhibit A hereto, to purchase up to
eighty thousand (80,000), or up to ninety-two thousand (92,000) depending on the
exercise of the over-allotment option, shares of common stock of the Company at
an exercise price of 120% of the price at which the Common Stock sold pursuant
to the Underwriting Agreement is offered to the public (the "Warrant").
3. The Company covenants that all shares that may be issued upon the
exercise of the Warrant will, upon issuance, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof. The Company further covenants that during the period within
which the Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of common stock to permit
the exercise of the Warrant.
4. Neither the Warrant nor your right under this Agreement shall be
transferable for a period of twelve months after the Closing, except to a
transferee under (i), (ii), (iii), or (iv) below, and thereafter to any of the
following:
(i) A co-underwriter for which the Underwriter is acting as
Representative and with respect to such co-underwriter only
transferable according to this Section 4;
(ii) a successor by merger or consolidation;
(iii) a purchaser of substantially all your assets; and
<PAGE>
(iv) among your officers, but only if such persons are shareholders of
you or of your successor in interest, or
(v) one or more underwriters for the purpose of immediately
exercising the Warrant and making a public distribution of the
underlying shares.
The provisions of this Section 4 shall be binding upon any transferee of the
Warrant.
5. (a) The provisions of this Section 5 shall be binding upon any
transferee of the Warrant and upon each holder of shares of common stock or
other Company securities issued upon exercise of the Warrant (the "Shares")
until such Shares shall have been sold to the public pursuant to either an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") or an exemption from registration established to the
satisfaction of the Company. You and each transferee will cause any proposed
transferee of the Shares to agree to take and hold the Shares subject to the
provisions of this Section 5. As used in this Section 5, the term "Shares"
includes any shares of the Company's common stock or other securities issued in
respect of the Shares pursuant to any stock split, stock dividend,
recapitalization or otherwise; and the term "Warrant" includes any warrant or
warrants issued in exchange for the original Warrant.
(b) Prior to any proposed transfer of the Warrant or of the Shares,
the holder thereof shall give written notice to the Company stating such
holder's intention to effect such transfer and describing the circumstances of
the proposed transfer in sufficient detail, accompanied by either (i) an opinion
of counsel reasonably satisfactory to the Company to the effect that the
proposed transfer may be effected without registration under the Securities Act,
or (ii) a "no action" letter from the staff of the Securities and Exchange
Commission to the effect that the staff will not recommend that enforcement
action be taken if the proposed transfer is effected without registration.
Subject to evidence of compliance with any applicable state securities or "blue
sky" law or laws, the Company shall promptly notify the holder in writing that
such holder may proceed with its transfer as described, and, if the transfer is
of Shares, shall instruct its transfer agent to remove any stop-transfer
restrictions against the Shares when transferred as proposed.
6. The terms and conditions of the Warrant, including those as to
registration rights, dilution and price adjustment, shall be set forth in the
form of Warrant attached hereto in incorporated as if fully set forth herein
(Balance of Page Left Blank, Intentionally)
2
<PAGE>
If the foregoing correctly sets forth our understanding, please sign below.
Very truly yours,
United Financial Mortgage Corp.
By __________________________________
Joseph Khoshabe, President
Accepted as of the
date written above:
Mills Financial Services, Inc.
By ____________________________________
Joseph Kurczodyna, President
3
<PAGE>
THIS SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO ANY EFFECTIVE REGISTRATION
STATEMENT MADE UNDER THE SECURITIES ACT OF 1993 (THE "ACT"), OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT
Underwriter's Warrant to Purchase __________
Shares of Common Stock
UNDERWRITER'S WARRANT
---------------------
UNITED FINANCIAL MORTGAGE CORP.
------------------------------
THIS IS TO CERTIFY THAT for $_______ consideration paid and received,MILLS
FINANCIAL SERVICES, INC., 20 North Clark Street, Ste. 2411, Chicago, Illinois
60602 or registered assigns (hereinafter the "Holder" or "Mills") is entitled to
purchase from UNITED FINANCIAL MORTGAGE CORP., an Illinois corporation
(hereinafter the "Company"), ______________ Shares of the Company's at a price
of $________ per Share of Common Stock. Except as otherwise provide herein, this
Underwriter's Warrant is exercisable at any time on or after August ____, 1998,
and not later than 3:30 P.M., Chicago Time, on August ____, 2002.
The Shares of Common Stock issuable upon exercise of the Underwriter's
Warrant have been registered under a registration statement filed by the Company
on Form SB-2 (File No. 333-27037) and declared effective by the Securities and
Exchange Commission on August ____, 1997 (the "Registration Statement"). This
Underwriter's Warrant is issued pursuant to an underwriting agreement dated
August ____, 1997 between the Company and Mills Financial Services, Inc. (the
"Underwriter").
The Common Stock which is issuable upon exercise of the Underwriter's
Warrant shall bear the same terms and conditions as described under the section
captioned "Description of Capital Stock" in the Registration Statement,
provided, however, that the holders of such Common Stock shall have registration
rights under the Securities Act of 1933 as more fully described in Paragraph 6
of this Underwriter's Warrant.
1. Exercise of Underwriter's Warrant.
---------------------------------
(a) The Underwriter's Warrant will not be exercisable and may not be
sold from August ____, 1997 until 3:30 P.M., Chicago Time, on August ____, 1998,
provided, however, that if the Company merges or reorganizes during such period
in such a way as to terminate the Underwriter's Warrant or any component
thereof, it will be exercisable immediately prior to such action.
<PAGE>
(b) The Underwriter's Warrant will be exercisable in whole or in part
at any time or from time to time from and after 3:30 P.M., Chicago Time, on
August __, 1998 until 3:30 P.M., Chicago Time, on August __, 2002.
(c) After 3:30 P.M., Chicago Time, on August __, 2002, the Holder
shall have no right to exercise the Underwriter's Warrant.
(d) The exercise price of the Underwriter's Warrant shall be $______
per Share of Common Stock, which exercise price shall be subject to adjustment
as provided in Section 8 herein.
2. Procedures for Exercise of Underwriter's Warrant. The rights
------------------------------------------------
represented by this Underwriter's Warrant may be exercised in whole or in part
by (i) presentation and surrender hereof to the Company (or such office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company) with the
purchase form annexed hereto duly executed; (ii) payment to the Company of the
exercise price then in effect for the number of Shares of Common Stock specified
in the purchase form together with any applicable stock transfer taxes; and
(iii) delivery to the Company of a duly executed agreement signed by the
person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Section 6 and Section 7 of this
Underwriter's Warrant. This Underwriter's Warrant shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the date this Underwriter's Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this Section 2,
and the person or persons in whose name or names the certificates for shares of
Common Stock shall be issuable upon such exercise shall become the holder or
holders of record of such Common Stock at that time and date. The certificates
for the Common Stock and Unit Warrants so purchased shall be delivered to the
holder within a reasonable time, not exceeding ten (10) days after the rights
represented by this Underwriter's Warrant shall have been so exercised. If this
Underwriter's Warrant should be exercised in part only, the Company shall, upon
surrender of this Underwriter's Warrant for cancellation, execute and deliver
a new Underwriter's Warrant evidencing the right of the holder to purchase the
balance of the Shares of Common Stock purchasable hereunder.
3. Assignment, Transfer, Exchange or Loss of Underwriter's Warrant. The
---------------------------------------------------------------
Underwriter's Warrants may not be transferred, assigned or hypothecated, except
that they may be assigned, in whole or in part, to any successor of the
Underwriter, or to a bona fide officer of the Underwriter who
2
<PAGE>
is also a shareholder of the Underwriter, or to members of any underwriting or
selling group who are members of the National Association of Securities Dealers,
Inc. or to a bona fide partner of such member or bona fide officer of such
member who is also a shareholder of such member, or pursuant to the laws of
inheritance or intestacy, provided, however, that such assigns, if any, are
permitted by applicable rules of the NASD and the applicable state blue sky
laws. Any such assignment shall be made by surrender of this Underwriter's
Warrant to the Company with the assignment form annexed hereto duly executed
with funds sufficient to pay any transfer tax; whereupon the Company shall,
without charge, execute and deliver a new Underwriter's Warrant in the name of
the assignee named in such instrument of assignment and this Underwriter's
Warrant shall be promptly canceled. This Underwriter's Warrant may be divided or
combined with other Underwriter's Warrants which carry the same rights upon
presentation thereof at the office of the Company together with a written notice
signed by the Holder specifying the names and denominations in which new
Underwriter's Warrants are to be issued. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Underwriter's Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Underwriter's Warrant, if mutilated, the Company will execute and deliver a
new Underwriter's Warrant of like tenor and date. Any such new Underwriter's
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Underwriter's Warrant
so lost, stolen, destroyed or mutilated shall be at any time enforceable by
anyone.
4. Reservation of Shares; Fractional Shares; The Company covenants and
-----------------------------------------
agrees that all shares of Common Stock which may be issued upon exercise of the
Underwriter's Warrant will, upon issuance, be duly and validly issued, fully
paid and nonassessable, and no personal liability will attach to the holder
thereof. The Company further covenants and agrees that during the periods within
which this Underwriter's Warrant may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of its Common Stock
for issuance upon exercise of the Underwriter's Warrant.
5. Rights of Holder. The Holder of this Underwriter's Warrant shall not,
----------------
by virtue hereof, be entitled to any rights of a shareholder in the Company,
either at law or equity, and the rights of Holder are limited to those expressed
in the Underwriter's Warrant and are not enforceable against the Company except
to the extent set forth herein.
<PAGE>
6. Registration Under the Securities Act of 1933
---------------------------------------------
(a) Registration Rights - Piggy-Back.
--------------------------------
(i) Right. In the event that the Company files a registration
-----
statement (defined here to include a Notification under Regulation A under the
Act and the Offering Circular included therein) under the Securities Act of
1933, as amend, ("Act") which relates to a current offering of securities of the
Company (except in connection with an offering to employees), such registration
statement and the prospectus included therein shall, at the written request to
the Company by the holder of an Underwriter's Warrant or the Common Stock
purchased upon exercise of the Underwriter's Warrant (such securities
collectively referred to as the "Registrable Securities"), include and relate
to, and meet the requirements of the Act with respect to, the public offering of
such Registrable Securities so as to permit the public sale thereof in
compliance with the Act. In addition, the Company shall use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as are reasonably designated by the holders of the Registrable Securities.
(ii) Notice Requirement. The Company shall give written notice
------------------
to the holders of the Registrable Securities of the Company's intention to file
a registration statement under the Act relating to a current offering of
securities of the Company, sixty (60) or more days prior to the filing of such
registration statement, and the written request provided for in subsection 6(a)
herein shall be made by the holders of the Registrable Securities forty-five
(45) or more days prior to the date specified in the notice as the date on which
the Company intends to file such registration statement.
(iii) Duration of Piggy-BAck Right. The registration rights and
----------------------------
notification requirements provided for in subsections 6(a)(i) and 6(a)(ii)
herein shall be in force during the period from August __, 1998 to 3:30 P.M.,
Chicago Time on August __, 2004.
(iv) Information and Indemnification. The Distributing Holders
-------------------------------
shall furnish the Company with such information as the Company may reasonably
request in connection with the registration of the Registrable Securities. The
Distributing Holders and the Company shall provided and receive indemnification
as provided for in Section 7 hereof, except that the maximum amount which may be
recovered by a Distributing Holder from the Company shall be limited to the
amount of proceeds received by the Distributing Holder pursuant to the sale of
securities pursuant to the registration
4
<PAGE>
statement.
(v) Expenses. The Company shall bear all the costs of the
--------
registration and qualification provided for in this Section 6(a), but the
Company shall not be responsible for the cost of separate counsel for the
Distributing Holders to review the registration statement. Nor will the Company
be responsible for any underwriting compensation applicable to the securities
sold pursuant to the registration right provided for herein.
(b) Registration Rights - Demand.
----------------------------
(i) Right. If any Fifty-Percent Holder ("50% Holder"), as
-----
defined in paragraph 6(d) below, shall give written notice to the Company to the
effect that such 50% Holder desires to transfer any or all of the Registrable
Securities owned by the 50% Holder under such circumstances that a public
distribution (within the meaning of the Act) of any such Registrable Securities
may be involved, then the Company will promptly, but no later than sixty (60)
days after receipt of such notice, file, not more than once, a registration
statement or, if available, a Notification on Form 1-A (collectively,
"registration statement"), and all necessary amendments thereto, under the
Securities Act, registering or qualifying, as the case may be, the Registrable
Securities requested to be registered or qualified. The Company will use its
best efforts to cause such registration statement to become and remain effective
(including the taking of such steps as are necessary to obtain the removal of
any stop order) and shall use its best efforts to register and qualify any of
the Registrable Securities for sale in such states as are reasonably designated
by the 50% Holder. The Company will maintain such registration statement current
under the Act for a period of at least six (6) months (and for up to an
additional three (3) months if requested by the 50% Holder) from the effective
date thereof.
(ii) Limitation - One-Time Right. The registra- right
---------------------------
provided for in subsection 6(b)(i) shall be exercised only once.
(iii) Notification to Other Holders. Within ten (10) days
-----------------------------
after receipt of the written notice provided for in subsection 6(b)(i), the
Company shall give notice to the other holders of Registrable Securities
advising that the Company is proceeding with such registration statement and
offering to include therein the Registrable Securities of such other holders.
The election by such other holders to participate shall be made in writing to
the Company not later than ten (10) days after receipt of the notice provided
for herein. The 50% Holder and the other holders electing to participate shall
be hereinafter referred to as the "Distributing Holders".
5
<PAGE>
(iv) Duration of Demand Right. The registration right and
------------------------
notification requirements provided for in subsections 6(b)(i) and 6(b)(iii)
herein shall be in force during the period from August ___, 1998 to 3:30 P.M.,
Chicago Time on August ___, 2002.
(v) Information and Indemnification. The Distributing Holders
-------------------------------
shall furnish the Company with such information as the Company may reasonably
request in connection with the registration of the Registrable Securities. The
Distributing Holders and the Company shall provide and receive indemnification
as provided for in Section 7 hereof, except that the maximum amount which may be
recovered by a Distributing Holder from the Company shall be limited to the
amount of proceeds received by the Distributing Holder pursuant to the sale of
securities pursuant to the registration statement.
(vi) Expenses. The Company shall bear all the costs of the
--------
registration and qualification provided for in this Section 6(b), but the
Company shall not be responsible for the cost of separate counsel for the
Distributing Holders to review the registration statement. Nor will the Company
be responsible for any underwriting compensation applicable to the securities
sold pursuant to the registration right provided for herein.
(c) Registration - Non-Demand. In addition to the rights above
-------------------------
provided in subsections 6(a) and 6(b) herein, the Company will cooperate with
the then holder(s) of the Underwriter's Warrants in preparing and signing any
Registration Statement or Notification, in addition to the Registration
Statements or Notifications discussed above, required in order to sell or
transfer the shares issued upon the exercise of the Underwriter's Warrant, and
will supply all information required therefor, but such additional Registration
Statement or Notification shall be at the then holder(s) cost and expense.
(d) Fifty-Percent (50%) Holder. The term "50% Holder" as used in this
--------------------------
Paragraph 6 shall mean, assuming exercise of all Underwriter's Warrants, the
holder of at least fifty-percent (50%) of the Common Stock issued or issuable
upon such exercise and shall include any owner or combination of owners of such
securities.
(e) Registration on Form S-3. In the event the Company receives from
------------------------
the 50% Holder a request that the Company effect a registration on Form S-3
with respect to Registrable Securities and if Form S-3 is available for such
offering by the 50% Holder, the Company shall, as soon as practicable, effect
such registration as would permit or facilitate the sale and distribution of the
Registrable Securities as are specified
6
<PAGE>
in the request. All expenses incurred in connection with the registration
pursuant to this Section 6(e) shall be borne by the Company. Registrations
pursuant to this Section 6(e) shall not be counted as a demand for registration
pursuant to Section 6(b) hereof. Holders of other securities of the Company
having registration rights shall have the ability to be included in the
registration on Form S-3.
7. Indemnification
---------------
(a) Whenever pursuant to Paragraph 6 a registration statement
relating to the Underwriter's Warrant or any Shares of Common Stock issued or
issuable upon the exercise of any Underwriter's Warrants, is filed under the
Act, amended or supplemented, the Company will indemnify and hold harmless each
holder of the securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action; provided; however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who
7
<PAGE>
controls the Company (within the meaning of the Act) against any losses, claims,
damages or liabilities to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof; and
will reimburse the Company or any such director, officer or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and under such circumstances, the indemnifying party will not
be liable to such indemnified party for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
8. Anti-Dilution Provisions. The exercise price of the Underwriter's
-----------------------
Warrant and the number of Shares of Common Stock purchasable upon the exercise
of the Underwriter's Warrants shall be subject to adjustment from time to time
upon the happening of certain events as follows:
(a) Adjustment of Exercise Prices.
-----------------------------
(1) No Consideration or Consideration Less than
-------------------------------------------
8
<PAGE>
Exercise Price of Underwriter's Warrant. In case the Company should at any
---------------------------------------
time or from time to time during the life of the Underwriter's Warrants issue or
sell any shares of Common Stock (other than the Common Stock which may be
purchased pursuant to options, warrants and/or conversion rights outstanding as
of the date of this Underwriter's Warrant) without consideration or for a
consideration per share less than the exercise price of the Underwriter's
Warrant in effect immediately prior to the time of the issue or sale, then
forthwith upon such issue or sale, the exercise price of the Underwriter's
Warrant shall be adjusted to a price (computed to the nearest cent) determined
by dividing (i) the sum of (x) the number of shares of the Company's Common
Stock outstanding immediately prior to such issue or sale multiplied by the
exercise price in effect immediately prior to such issue or sale and (y) the
consideration, if any, received by the Company upon such issuance or sale by
(ii) the total number of shares of the Company's Common Stock outstanding
immediately after such issue or sale.
(2) Options. For purposes of the computations provided for in
-------
subsection 8(a) (1) above, this subsection 8(a) (2) shall be applicable. In case
the Company at any time hereafter shall in any manner grant any right to
subscribe for or to purchase, or grant any option for the purchase of Common
Stock or for the purchase of securities convertible into or exchangeable for
Common Stock, and the minimum price per share (determined in accordance with
subsection 8(a) (2) (i) below) for which Common Stock is issuable upon exercise
or conversion shall be less than the exercise price of the Underwriter's
Warrant, then, for purposes of the calculations provided for in subsection 8(a)
(1) above, the maximum amount of Common Stock issuable upon exercise of the
purchase rights or conversion rights described herein shall be deemed to have
been issued for the minimum price per share, provided, that no further
--------
adjustment of the exercise price of the Underwriter's Warrant shall be made upon
the actual issue of Common Stock so deemed to have been issued; and further
-------
provided, that upon the expiration of such rights, options or conversion rights,
- --------
the exercise price of the Underwriter's Warrant shall be adjusted to the price
that would have prevailed had all prior adjustments been made on the basis of
the issuance only of the Common Stock actually issued upon the exercise of the
purchase rights and conversion rights described herein.
(i) The "minimum price per share" referred to in subsection
8(a) (2) shall be determined by dividing the total amount to be received by the
Company in consideration both for the right to purchase the Common Stock and
the actual purchase of the Common Stock, by the maximum number of shares of
Common Stock issuable pursuant to the purchase rights, options or conversions
rights.
9
<PAGE>
(3) Convertible Securities. For purposes of the computation
----------------------
provided for in subsection 8(a) (1) above, this subsection 8(a) (3) shall be
applicable. In case the Company at any time hereafter shall in any manner issue
or sell any securities which are convertible into Common Stock ("Convertible
Securities") and the minimum price per share (determined in accordance with
subsection 8(a)(3)(i) below) for which Common Stock is issuable upon conversion
shall be less than the exercise price of the Underwriter's Warrant, then, for
purposes of the calculation provided for in subsection 8(a) (1) above, the
maximum amount of Common Stock issuable upon conversion of the Convertible
Securities shall be deemed to have been issued for the minimum price per share,
provided, that no further adjustment of the exercise price of the Underwriter's
- --------
Warrant shall be made upon the actual issue of Common Stock so deemed to have
been issued; and further provided, that if any such issue or sale of Convertible
----------------
Securities is made upon exercise of any right to subscribe of or to purchase or
any option to purchase any such Convertible Securities for which an adjustment
of the exercise price of the Underwriter's Warrant has been or is to be made
pursuant to Section 8(a) (2), no further adjustment of the exercise prices shall
be made by reason of such issue or sale; and further provided, that upon
----------------
termination of the right to convert or to exchange such Convertible Securities
for Common Stock, the exercise price of the Underwriter's Warrant shall be
adjusted to the price that would have prevailed had all prior adjustments been
made on the basis of the issuance only of the Common Stock actually issued upon
the conversion or exchange of the Convertible Securities described herein.
(i) The "minimum price per share" referred to in subsection
8(a) (3) shall be determined by dividing the total amount to be received by the
Company in consideration both for the issuance of the Convertible Security and
for actual exchange or conversion of the Convertible Security into shares of
Common Stock, by the maximum number of shares of Common Stock issuable pursuant
to the exchange of conversion of the Convertible Securities.
(4) Determination of Issue Price. For purposes of the
----------------------------
computations provided for in this Section 8, this subsection 8(a) (4) shall be
applicable. In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such stock or securities shall be issued for
cash the consideration received therefor, after deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance thereof, shall be
deemed to be the amount received by the Company therefor. In case any shares of
Common Stock or Convertible Securities or any rights or options to purchase any
such stock or securities shall be issued for
10
<PAGE>
consideration part or all of which shall be other than cash, then, for the
purposes of this Section 8, the Board of Directors of the Company shall make a
good faith determination of the fair value of such consideration, irrespective
of accounting treatment, and such Common Stock, Convertible Securities, rights
or options shall be deemed to have been issued for an amount of cash equal to
the value so determined by the Board of Directors. The reclassification of
securities other than Common Stock into securities including Common Stock shall
be deemed to involve the issuance of Common Stock for a consideration other than
cash and the issuance of such securities shall be deemed to have occurred
immediately prior to the close of business on the date fixed for the
determination of the identity of the security holders entitled to received such
Common Stock. In case any shares of Common Stock or Convertible Securities or
any rights or options to purchase any such stock or other securities shall be
issued together with other stock or securities or other assets of the Company
for a consideration which includes both, the Board of Directors of the Company
shall determine what part of the consideration so received is to be deemed to be
consideration for the issuance of such shares of Common Stock, Convertible
Securities, rights or options.
(5) Determination of Date of Issue. In case the Company shall
------------------------------
take a record of the holders of any Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common Stock or
in Convertible Securities, or (ii) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(6) Treasury Shares. For the purpose of this Section 8, shares
---------------
of Common Stock at any relevant time owned or held by, or for the account of,
the Company shall not be deemed outstanding.
(b) Adjustment of Exercise Prices - Stock Dividend, Distribution,
------------------------------------------------------------
Subdivision or Reclassification. Anything in this Section 8 to the contrary
- -------------------------------
notwithstanding, in case the Company shall at any time (i) issue Common Stock or
Convertible Securities by way of dividend or other distribution on any stock of
the Company or (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the exercise
price of the Underwriter's Warrant in effect at the time of the record date for
such dividend or distribution or of the effective date of such subdivision,
combination or
11
<PAGE>
reclassification shall each be adjusted so that each shall equal a price
determined by multiplying the exercise price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding after giving
effect to such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Notwithstanding
anything to the contrary contained in this Underwriter's Warrant, in the event
an adjustment to the exercise price of the Underwriter's Warrant is effected
pursuant to this subsection 8(b) a corresponding adjustment to the number of
Shares of Common Stock issuable upon exercise of the Underwriter's Warrant shall
be made pursuant to Section 8(c) below. Adjustment of the exercise price shall
be made successively whenever any event described herein shall occur.
(c) Adjustment of Number of Shares of Common Stock Issuable upon
-----------------------------------------------------------
Exercise of Underwriter's Warrants. Whenever the exercise price of the
- ----------------------------------
Underwriter's Warrant is adjusted pursuant to subsection 8(a) above, the number
of Shares of Common Stock issuable upon exercise of this Underwriter's Warrant
shall simultaneously be adjusted by multiplying the number of Shares of Common
Stock initially issuable upon exercise of this Underwriter's Warrant by the
exercise price in effect immediately prior to the referenced adjustment and
dividing the product so obtained by the exercise price as adjusted. Adjustment
of the number of Shares of Common Stock issuable upon exercise of the
Underwriter's Warrants shall be made successively whenever any event described
herein shall occur.
(d) No Adjustment For Small Amounts. Anything in this Section 8 to
-------------------------------
the contrary notwithstanding, the Company shall not be required to give effect
to any adjustment in an exercise price unless and until the net effect of one or
more adjustments, determined as above provided, shall have required an
adjustment by at least five cents ($.05), but when the cumulative net effect of
more than one adjustment so determined shall be to change the actual exercise
price by at least five cents ($.05), such change in the exercise price shall
thereupon be given effect.
(e) Computations and Notifications. Whenever any exercise price is
------------------------------
adjusted as provided for herein, the Company shall promptly but no later than
ten (10) days after any written request for such adjustment by Holder, cause a
notice setting forth the adjusted exercise price and adjusted number of
securities to be issued upon exercise and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to Holder, at the
addresses set forth herein, and shall cause a certified copy thereof to be
mailed to the warrant agent of the Company. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be the regular accountants
12
<PAGE>
employed by the Company) to make any computation required by this Section 8, and
a certificate signed by such firm shall be conclusive evidence of the
correctness of such adjustments.
(f) Notices to Holders of Underwriter's Warrant. So long as this
-------------------------------------------
Underwriter's Warrant shall be outstanding and unexercised (i) if the Company
shall pay any dividend or make any distribution upon the Common Stock or (ii)
if the Company shall offer to the holders of Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights or (iii)
if any capital reorganization of the Company, reclassification of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to the
Holder, at least ten days prior to the date specified in (x) or (y) below, as
the case may be, a notice containing a brief description of the proposed action
and stating the date on which (x) a record is to be taken for the purpose of
such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the place and date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(g) Reclassification, Reorganization or Merger. In case of any
------------------------------------------
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Underwriter's Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the Company shall cause effective provision to be made so that the
holder shall have the right thereafter, by exercising this Underwriter's
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance.
13
<PAGE>
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Underwriter's Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassification, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of subsection (f)(i) hereof with the amount of the
consideration received upon the issue thereof being determined by the Board of
Directors of the Company, such determination to be final and binding on the
holder.
(h) Spin-Offs. In the event the Company spins-off a subsidiary by
---------
distributing to the shareholders of the Company as a dividend or otherwise the
stock of the subsidiary, the Company shall reserve for the life of the
Underwriters' Warrants, shares of the subsidiary to be delivered to the holders
of the Underwriters' Warrants upon exercise to the same extent as if they were
owners of record of the Shares of Common Stock issuable upon exercise of the
Underwriter's Warrant on the record date for payment of the shares of the
subsidiary.
9. Governing Law. This Warrant shall be governed by and in accordance
-------------
with the laws of the State of Illinois.
IN WITNESS WHEREOF, United Financial Mortgage Corp. has caused this
Warrant to be signed by its duly authorized officer under its corporate seal on
this ____ day of ________________, 1997.
UNITED FINANCIAL MORTGAGE CORP.
By: ___________________________________
Joseph Khoshabe, President
and Chief Executive Officer
[Seal]
Attest:
14
<PAGE>
___________________________
Secretary
15
<PAGE>
PURCHASE FORM
-------------
(To be completed only upon exercise of Underwriter's Warrant)
Date: ____________________,
199_
The undersigned, the Holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant to the extent of purchasing __________ Shares of Common
Stock and hereby makes payment of $ _____________ in payment of the actual
exercise price thereof.
__________________________________ (Signature)
__________________________________ (Please print or type name)
_____________________________________________
INSTRUCTIONS FOR REGISTRATION OF COMMON STOCK
---------------------------------------------
Name:
________________________________________________________
(Please print or type name)
Address: ________________________________
________________________________
________________________________
16
<PAGE>
ASSIGNMENT FORM
---------------
(To be completed only upon assignment of Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto
Name: __________________________________________________________________
(Please type or print name)
Address: _________________________________
_________________________________
_________________________________
the right to purchase Shares of Common Stock represented by the foregoing
Underwriter's Warrant to the extent of _______________ Shares of Common Stock,
and does hereby irrevocably constitute and appoint _____________________________
attorney, to transfer the Underwriter's Warrant on the books of the Company with
full power of substitution in the premises.
Dated: _________________________, _____
________________________________
(Signature)
________________________________
(Please print or type name)
17
<PAGE>
EXHIBIT 10(III)
TENA COMPANIES, INC.
QUALITY CONTROL MASTER AGREEMENT
Agreement between Tena Companies, Inc. (hereafter "Tena") with a principal place
of business located at 1973 Sloan Place, Maplewood, Minnesota 55117 and the
Client (hereafter "Lender") identified below. Tena's federal tax identification
number is 41-1410768.
- --------------------------------------------------------------------------------
Lender
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Lender Name..........: United Financial Mortgage
-----------------------------------
Street Address.......: 600 Enterprise Drive, Suite 206
-----------------------------------
City.................: Oak Brook State: IL Zip: 60521
-----------------------------------
Contact Name.........: Steve Khoshabe
-----------------------------------
Title................: SR. VP/COO Phone: 708-571-7222 Fax: 708-571-7296
-----------------------------------
Lender Structure.....: CORPORATION Lender is organized under laws of: ILLINOIS
----------------------------------- --------
</TABLE>
- --------------------------------------------------------------------------------
Parent Company
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name.................: __________________________________
Street Address.......: __________________________________
City.................: __________________________________ State: ____________ Zip: ____________
</TABLE>
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ACCEPTANCE
- --------------------------------------------------------------------------------
Services provided under this agreement are subject to fees outlined in the Tena
Fee Schedule 9404. A copy of that fee schedule is attached as Exhibit 1. If fee
modifications are made or new services added, an updated Tena Fee Schedule with
a new identifying number will be provided to Lender. This agreement shall be
effective only when executed by both parties. By signing below, each party
acknowledges acceptance of the terms and conditions in this agreement and
attached exhibits.
- --------------------------------------------------------------------------------
Company....: United Financial Mortgage Company....: Tena Companies, Inc.
--------------------------- ----------------------
Signature..: [SIGNATURE ILLEGIBLE] Signature..: [SIGNATURE ILLEGIBLE]
--------------------------- ----------------------
Title......: SR VP /COO Title......: SR V President
--------------------------- ----------------------
Date.......: 10/16/95 Date.......: 10/17/95
--------------------------- ----------------------
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1. GENERAL PROVISIONS:
a) Lender appoints Tena as its audit contractor for mortgage loans which it
originates or purchases and Tena agrees to provide audit services as an
independent contractor. This agreement shall commence on the date of
execution and will continue until it is renegotiated or canceled (which
either party may initiate by providing written notice to the other party at
least 30 days prior to the effective date of the change). Tena will not be
responsible for any services other than those set forth in this Agreement
and any amendments, all of which must be in writing. This agreement
supersedes any and all prior agreements, representations, and
understandings, written and verbal, between Lender and Tena. This agreement
shall not be assignable without consent of both parties and shall be
construed and interpreted in accordance with the laws of the State of
Minnesota. If any term or provision is found to be invalid or
unenforceable, the remainder of the agreement shall remain in effect.
b) Each loan file will be reviewed to determine whether the loan appears to
meet nationally recognized underwriting and documentation requirements of
FHA, VA, FNMA or FHLMC. The guidelines used will be those in effect at the
time that the loan
__________________________________________________________________________
(C) 1995 TENA COMPANIES, INC. Page 1
<PAGE>
closed. The audit includes but is not limited to specific reviews of file
documents pertaining to origination, processing, underwriting, appraising
and loan closing as well as a review of the credit decision. As part of
this process, Tena will complete an Audit Questionnaire which Lender
acknowledges is Tena's proprietary, copyrighted questionnaire and may not
be used, reconstructed, re-created, copled, or distributed by Lender. Upon
request, an addendum to the Audit Questionnaire will be prepared to
incorporate additional questions specific to Lender. Tena reserves the
right to review and approve these additional questions and to renegotiate
the audit fee if the additional questions exceed one page in length.
c) Tena's standard Quality Control audit will include a review of the
following: Final Application, Preliminary Application, Conventional
Transmittal, Verification of Employment, Verification of Deposit, Other
Verifications, Self Employed/Tax Returns, Credit Report, Rental
Income/Loss, Gift Letter, Appraisal, Purchase Agreement, FHA Mortgage
Credit Analysis Worksheet, PMI Insurance Documents, Underwriting, Specific
VA Requirements, Rate Lock/Commitment Letter, Flood Insurance, Good Faith
Estimate, Truth-In-Lending, Survey/Plat Drawing, Title Insurance or
Opinions, Note, Mortgage/Deed of Trust, Settlement Statement/Closing
Instructions, Right to Rescind, Hazard Insurance, Assignment, VA Loan
Guaranty Certificate, FHA Mortgage Insurance Certificate (MIC), Notice of
Adverse Action, Verification of Credit, Rental Verification, Mortgage
Payment History, Owner Occupancy, Miscellaneous Verifications, Program
Disclosures, Other Audit Factors (e.g,. Assumptions, Modification
Agreements, Transfer of Servicing Disclosure Etc.), Alternative
Documentation (Le., Pay Stubs, W2s, Bank Statements, Etc.).
2. AUDIT SCHEDULE AND LOCATION: Files will be selected for audit in accordance
with the provisions outlined in the Selection Criteria section on page four
of this agreement. Tena will conduct audit services at its offices and
shall provide a file turnaround time of five business days from the day
that the audits are scheduled to begin until the day the files leave Tena;
however, if Tena receives files after the scheduled date, a delay in audit
time may occur.
3. REVIEW APPRAISALS: Tena will perform an internal desk review of all
appraisals during the audit to identify discrepancies and to ensure general
conformance to secondary market standards as defined by FNMA, FHLMC, FHA
and VA. In addition, field review appraisals will be obtained in accordance
with the provisions outlined in the Appraisal Criteria section on page four
of this agreement. The field review appraisals will be ordered from
independent fee appraisers who are not associated with the appraiser that
prepared the initial appraisal report. The review appraiser will be asked
to analyze the appraisal document and perform an external inspection of the
subject and comparable properties then provide a written analysis of the
original appraisal, a conclusion of value and a photo of the subject and
comparable properties. The standard appraisal review form (FNMA Form
#2000/FHLMC Form #1032/FHA Form #1038) will be used unless Lender has
requested an alternative document. The expense of these review appraisals
will be included on Lender's invoice. Lender will be provided with the
original review appraisal.
4. CREDIT REPORT REVIEWS: On all files with an original report, new credit
reports will be obtained and compared to the original credit reports in
accordance with the provisions outlined in the credit report criteria
section on page 4 of this agreement. The new reports will be ordered from a
source other than the original credit agency and, if possible, will access
at least one new repository that was not used to produce the original
credit report. The charges for these new reports will be included on
Lender's invoice.
5. REVERIFICATION PROCEDURES:
a) Copies of verifications of deposit, employment, loans, sources of funds for
down payment, gift letters, pay stubs, W2s, and/or bank statements will be
mailed to the issuers requesting that the recipient confirm the
information. One follow-up effort will be made for requests that are not
returned. Verbal information, if obtained, will be documented and negative
findings will be reflected on the applicable Individual Loan Summary. Tax
returns of self-employed borrowers and borrowers with FHA alternative
documentation loans will be verified with the IRS provided an original,
signed and unexpired IRS Form 4506 (or Form 8821) are in the file. Fees
paid to the IRS will be included on Lender's invoice for reimbursement. For
FNMA loans, a copy of the final mortgage application will be mailed to the
borrower(s) for re-certification. This reverification will not be performed
on other types of loans unless requested in the Optional Reverification
Services section.
b) Lender may select additional reverification functions from the list in the
Optional Reverification Services section on page four. The fee for each
Optional Reverification is found on the Tena Fee Schedule and will be
-----------------
charged only if Lender has specifically requested the service and only for
the files on which the function was performed.
6. AUDIT REPORTS: All audit results, information and materials are
confidential and will be disclosed by Tena only to Lender or those
individuals, firms or agencies specifically designated in writing by
Lender. The audit results are summarized in the Management Information
Report which has two distinct sections, the Management Summary and the
Individual Loan Summaries. The Management Summary presents a graphical
overview of the audit findings with a statistical comparison of current and
previous audit results. The second portion of the Management Information
Report (called the Individual Loan Summary) summarizes the findings for
each file audited. If ten or more files are audited in a calendar month,
the full Management Information Report will be sent to Lender approximately
thirty days after the completion of the audit. If nine or fewer files are
audited in a calendar month, the Individual Loan Summaries will be sent
approximately thirty days after the completion of the audit and the full
Management Information Report will then be sent on a quarterly basis. Tena
will provide two copies of all reports unless requested otherwise.
7. SERVICE FEES: Lender will receive an invoice summarizing the number of
audits performed and the associated expenditures (if any) for the subject
period. All additional charges, supplementary services or out-of-pocket
expenses, including but not limited to appraisal fees, credit report fees
and shipping fees, shall be itemized and included on the invoice. Expenses
incurred or received by
_________________________________________________________________________
(C) 1995 TENA COMPANIES, INC. Page 2
<PAGE>
Tena after the invoice has been sent will be itemized on a later invoice.
Tena will retain responsibility for payment of all expenses to credit
reporting agencies and review appraisers. Lender agrees to pay Tena's
invoice within 10 days of receipt. Interest on the balance due shall accrue
from the date shown on the invoice at a rate equal to the lesser of 1
percent per month or the maximum permitted by the applicable state law.
Said interest shall be waived provided payment in full is received by Tena
no later than thirty (30) days after the invoice date.
8. DOCUMENT RETENTION AND DISPOSITION: Tena will maintain audit documentation
(or copies thereof) including reverifications, review appraisals, credit
reports, Individual Loan Summaries, Management Reports, and other documents
copied, generated or received during the course of the audit for a period
of three years.
9. LENDER AGREEMENTS AND RESPONSIBILITIES:
a) Lender will provide any unique lending or underwriting guidelines (and
subsequent amendments) that apply to the loans audited and resolve
inconsistencies by providing clarification of Lender's underwriting
guidelines when requested by Tena. Lender will provide all information,
lists etc., necessary to comply with the specific audit procedures
outlined in this agreement. Lender will include (in files tendered for
audit) all relevant credit, appraisal and loan documentation relating to
the transaction and will knowingly omit neither information nor purge
documents or notes which may affect the audit results. Lender agrees to
share with Tena any information Lender may possess regarding real or
suspected file quality problems or any other information which would
generally be considered to be useful to an auditor. Lender agrees to
provide a FNMA Form #1003, FHLMC Form #0065, URLA, or a separate Quality
Control Release signed by all loan applicants whose files Tena may audit.
If a Lender's internally prepared Quality Control Release form is used,
it must authorize a Quality Control review by Lender, Lender's assigns
and an authorized third party. If such a release is not provided in the
---
audit file, Lender acknowledges that reverification of documents will not
be attempted.
b) Lender is responsible for initiating any corrective actions to resolve
discrepancies noted by the audit process and will make all decisions
relating to repurchase obligations and disclosure of Quality Control
results to investors. If Lender is audited during or after the term of
this agreement and files which Tena reviewed are included in said audit,
both Tena and Lender agree to cooperate in responding to any agency
inquiries regarding the Quality Control procedures on those audited
files. If it is subsequently necessary for Tena to recreate reports,
assemble materials, gather information or perform other work to assist in
preparation for an agency or internal audit, investigation, civil
proceeding or criminal action, Lender agrees to reimburse Tena for out of
pocket expenses incurred in relation to said work and to compensate Tena
at the rate of $80.00 per hour.
c) If Lender has reason to believe that it (or its parent firm) is
immediately subject to insolvency or to being placed under control of any
government agency, Lender will notify Tena and immediately pay all
outstanding invoices, pay for all audit work in progress and prepay, on a
monthly basis, any additional audit work Tena performs.
10. LIMIT OF LIABILITY: Tena accepts no liability or responsibility for the
subsequent sale of mortgage loans, funding of mortgage loans, preparation
of disclosures, calculation of the APR, flood map determinations or
repurchase obligations. Lender acknowledges that Tena provides the audit
reviews and management reports only as an informational tool. Tena will
attempt to identify those areas that do not appear to meet Lender's
standards but makes no representations that all problems will be found.
Both Lender and Tena acknowledge that the credit analysis and file review
rely on subjective judgements and that conclusions reached on a file may
differ from one prudent individual to another. Therefore, Tena makes no
representation that the loans are saleable in the secondary market or
acceptable to investors. Lender will hold Tena harmless from any losses
that may result from Lender's ownership of the loan, inability to sell or
obligation to repurchase the loan. Tena shall not be liable to Lender or
any other entity for any act, failure to act, mistake or omission unless
resulting from willful negligence by Tena.
________________________________________________________________________________
(C) 1995 Tena Companies, Inc. Page 3
<PAGE>
<TABLE>
<CAPTION>
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PROCEDURAL REQUIREMENTS GRID
?? the sections A through E on this grid to specify the criteria Tens should employ to meet your firm's
audit requirements. Mark each box ?? with the percentage of total loans that should receive the
corresponding function listed in the left column.
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?? SELECTION CRITERIA: Complete the boxes in this section by entering the applicable percentage in each
box. For example, to select ??? closed FHA loans for audit, enter 10% in the box at the intersection of
the "FHA INSURED" column and the "% of Closed Loans to ????". To use a statistical sampling formula,
enter the work "Formula" in the appropriate box(es). If audits are not required for a ???? category,
leave the corresponding box blank. If Lender selects ??? leave this section blank.
- --------------------------------------------------------------------------------------------------------------
Conv. FNMA Conv. FHLMC Conv. FHLMC Conv. FHA Insured VA Guaranteed Other
1-2 Unit 3-4 Unit Undesginated
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
??? Loans to 10 10 10 10 10 10
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??? Payment 100
??? to Select
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??? ??? 10
??? to Select
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??? ??? 10
??? to Select
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??? Report Criteria: Use this section of the grid to indicate the concentration and mix of review credit
reports that Tena should ??? various types of audited loans. Example: To request 90% In-files and 10%
Residentials on FNMA loans, enter "90" in the box at the ??? of the Conv-FNMA column and the "% Of In-
File Report" row. Then enter 10% at the intersection of the Conv-FNMA column ??? % Of Residential
Reports" row.
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% ??? -file Reports 90 90 90 90
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% ??? Three File 90
??? Reports
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% ??? Residential 10 10 10 10 10 100
????????
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??? ??? Appraisal Criteria: This portion of the grid will provide Tena with guidelines regarding the
percentage of audited loans ??? ??? receive a full appraisal field review. For each loan type, indicate
the percentage of files that need review appraisals ??? To ??? ??? Tena to obtain review appraisals on
10% of all Conventional FNMA files, enter 10% in the box at the intersection of Conv-FNMA ??? ??? ???
the "%" Of Review Appraisal Field Review" row.
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% ??? Appraisal 10 10 10 10 10 10
??? ???
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??? ??? Services: To request optional services listed on the TENA FEE SCHEDULE, enter the requested
-----------------
service in the left-hand column ???? ??? appropriate box corresponding to each loan type, enter the
percentage of loans that should receive the optional service. (NOTE: The ??? be performed only on
eligible files. For example, the State Agency Inquiry verification is used for self-employed borrowers. If
the ??? ??? column is marked for 100% of this optional service, 100% of Conv-FNMA files with self-
----
employed borrowers will be selected, but ??? borrowers who are not self-employed will not be included.
- --------
The same logic is used for the optional Owner Occupancy reverifications; the ??? ??? will be employed
only on Owner Occupied loan files.)
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</TABLE>
<PAGE>
? PROVISIONS:
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? review appraisals, individual appraisers should be selected as follows: A
(Choose one and enter the choice in ? the right column, e.g., "A", "B", or
"C.")
Tena selects the review appraiser from Tena's appraiser list.
? Tena selects the appraise from a list of appraisers provided by Lender, but if
the list does not include a firm that services a geographical are where a review
is required, Tens will select the appraiser from Tena's list.
? Tena selects the appraiser from a list of appraisers provided by Lender, but
if the list does not include a firm that ? services a geographical area where a
review is required, Tena will contact Lender and Lender will provide Tena with
the name of an approved appraiser for the specific location.
- -------------------------------------------------------------------------------
? provides Lender with two copies of all reports. Enter the number of extra
copies requested in the right column.
? for additional copies is listed in the TENA FEE SCHEDULE.)
- --------------------------------------------------------------------------------
? reverifications are returned to Tena with a request from the addressee for a
fee to process the reverification.
? in the right column the maximum fee Tena is authorized to pay when this
encountered. All paid fees are ? for reimbursement on Lender's invoice. (If no
fee is authorized, enter $0.00) $10.00
- --------------------------------------------------------------------------------
?use the loan file and closed report (if one is provided) to help determine
whether a conventional loan was ? using FNMA or FHLMC guidelines. In the event
that Tena is unable to ascertain what guidelines were ? what default audit
checklist should be employed. Choose FNMA FHLMC, or Conv-Undesignated and
? choice in the right column. Undesignated
- --------------------------------------------------------------------------------
? send Management Reports To:
Name................: UNITED FINANCIAL MORTGAGE
---------------------------------------------
? of................: STEVE KHOSHABE
---------------------------------------------
? Address...........: 600 ENTERPRISE DRIVE SUITE 206
---------------------------------------------
? Zip code..........: OAK BROOK IL 60521
---------------------------------------------
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? AND MODIFICATIONS
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- --------------------------------------------------------------------------------
<PAGE>
CONDUIT MASTER
3/26/96
EXHIBIT 10(IV)
MORTGAGE LOAN PURCHASE AGREEMENT
--------------------------------
PURCHASER: PAINE WEBBER REAL ESTATE SECURITIES INC.
ADDRESS: 1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
ATTENTION: Robert Carpenter
-------------------------------
SELLER: United Financial Mortgage Corp.
------------------------------------------
ADDRESS: 600 Enterprise Drive, Suite 206
------------------------------------------
Oak Brook, IL 60521
------------------------------------------
Attn: Joseph Khoshabe, President
------------------------------------------
DATE OF AGREEMENT: __________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions................................................... 1
Section 2. Procedures for Purchases of Mortgage Loans.................... 6
Section 3. Sale of Mortgage Loan to Takeout Investor..................... 7
Section 4. Servicing of the Mortgage Loans............................... 9
Section 5. Trade Assignments............................................. 10
Section 6. Transfers of Mortgage Loans by Purchaser...................... 10
Section 7. Record Title to Mortgage Loans; Intent of Parties, Security
Interest...................................................... 11
Section 8. Representations and Warranties................................ 11
Section 9. Covenants of Seller........................................... 17
Section 10. Term.......................................................... 20
Section 11. Exclusive Benefit of Parties; Assignment...................... 20
Section 12. Amendments; Waivers; Cumulative Rights........................ 20
Section 13. Execution in Counterparts..................................... 20
Section 14. Effect of Invalidity of Provisions............................ 20
Section 15. Governing Law................................................. 20
Section 16. Notices....................................................... 20
Section 17. Entire Agreement.............................................. 21
Section 18. Costs of Enforcement.......................................... 21
Section 19. Consent to Service............................................ 21
Section 20. Construction.................................................. 21
</TABLE>
<PAGE>
Exhibit A Loan Purchase Detail
Exhibit B-1 Warehouse Lender's Release
Exhibit B-2 Warehouse Lender's Wire Instructions
Exhibit C-1 Seller's Release
Exhibit C-2 Seller's Wire Instructions
Exhibit D Purchaser's Wire Instructions to Seller
Exhibit E UCC-1 Financing Statement
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
--------------------------------
This Mortgage Loan Purchase Agreement ("Agreement"), dated as of the
date set forth on the cover page hereof, between PAINE WEBBER REAL ESTATE
SECURITIES, INC. ("Purchaser") and the Seller whose name is set forth on the
cover page hereof ("Seller").
PRELIMINARY STATEMENT
---------------------
Seller may, in its sole discretion, offer to sell to Purchaser from
time to time Mortgage Loans, and Purchaser, in its sole discretion, may agree to
purchase such Mortgage Loans from Seller in accordance with the terms and
conditions set forth in this Agreement. Seller, subject to the terms hereof,
will cause each Mortgage Loan to be purchased by Takeout Investor. During the
period from the purchase of a Mortgage Loan to the sale of the Mortgage Loan to
Takeout Investor, Purchaser expects to rely entirely upon Seller to service each
such Mortgage Loan.
The parties hereto hereby agree as follows:
Section 1. Definitions.
-----------
Capitalized terms used but not defined herein shall have the meanings
set forth in the Custodial Agreement. As used in this Agreement, the following
terms shall have the following meanings:
"Act of Insolvency": With respect to Seller, (a) the commencement
by Seller as debtor of any case or proceeding under any bankruptcy,
insolvency, reorganization, liquidation, dissolution or similar law,
or Seller's seeking the appointment of a receiver, trustee, custodian
or similar official for Seller or any substantial part of its
property, or (b) the commencement of any such case or proceeding
against Seller, or another's seeking such appointment, or the filing
against Seller of an application for a protective decree which (1) is
consented to or not timely contested by Seller, (2) results in the
entry of an order for relief, such an appointment, the issuance of
such a protective decree or the entry of an order having a similar
effect, or (3) is not dismissed within sixty (60) days, (c) the making
by Seller of a general assignment for the benefit of creditors, or (d)
the admission in writing by Seller that Seller is unable to pay its
debts as they become due or the nonpayment generally by Seller of its
debts as they become due.
"Applicable Guide": The Takeout Investor's eligibility
requirements for Mortgage Loans, as applicable, and as each may be
amended or supplemented from time to time.
"Applicable Purchase Agreement": The applicable agreement,
providing for the purchase by Takeout Investor of Mortgage Loans from
Seller as such agreement may be amended from time to time.
<PAGE>
-2-
"Assignee": The Chase Manhattan Bank, National Association, as
agent for certain beneficiaries pursuant to certain Repurchase
Transaction Tri-Party Custody Agreements.
"Business Day": Any day other than (a) a Saturday, Sunday or
other day on which banks located in the City of New York, New York are
authorized or obligated by law or executive order to be closed, or (b)
any day on which Paine Webber Real Estate Securities Inc. is closed
for business, provided that notice thereof shall have been given not
less than seven calendar days prior to such day.
"Collateral": The Mortgage Loans (including all servicing rights
related thereto), any Custodial Accounts, the Takeout Commitments and
the proceeds of any and all of the foregoing.
"Commitment Date": The date set forth in a Takeout Commitment as
the commitment date.
"Commitment Expiration Date": With respect to any Mortgage Loan,
the date occurring 30 calendar days after the Purchase Date.
"Commitment Requirements": The requirements issued by Takeout
Investor in the Applicable Guide regarding the issuance of Takeout
Commitments, as amended from time to time by Takeout Investor.
"Conduit": As defined in the Custodial Agreement.
"Conduit Submission Package": As defined in the Custodial
Agreement.
"Credit File": All papers and records of whatever kind or
description, whether developed or originated by Seller or others,
required to document or service the Mortgage Loan; provided, however,
that such Mortgage Loan papers, documents and records shall not
include any Mortgage Loan papers, documents or records which are
contained in the Conduit Submission Package.
"Custodial Account": A separate custodial account, established
and maintained by Seller under the conditions set forth in Section
4(b), for the deposit by Seller of all collections in respect of a
Mortgage Loan that are payable to Purchaser as the owner of the
Mortgage Loan.
"Custodial Agreement": The Mortgage Loan Custodial Agreement,
dated as of the date set forth on the cover sheet thereof, among
Seller, Purchaser and Custodian, as amended from time to time.
"Custodial Fee": With respect to each Mortgage Loan, the amount
set forth on the related Funding Confirmation as the "Custodial Fee."
<PAGE>
-3-
"Custodian": The Chase Manhattan Bank, National Association, and
its permitted successors.
"Defective Mortgage Loan": A Mortgage Loan that is not in
compliance with the Applicable Guide and this Agreement.
"Discount": With respect to each Mortgage Loan, the amount set
forth on such related Funding Confirmation as the Discount.
"Document File": The Credit File and the Conduit Submission
Package.
"Due Date": The day of the month on which the Monthly Payment is
due on a Mortgage Loan.
"FDIC": The Federal Deposit Insurance Corporation or any
successor thereto.
"Funding Confirmation": With respect to all Mortgage Loans
purchased by Purchaser from Seller via a single wire funds transaction
on a particular Business Day, the trade confirmation from Purchaser to
Seller confirming the terms of Purchaser's purchase of such Mortgage
Loans.
"Incremental Pass-Through Rate": The amount by which the
Pass-Through Rate is increased upon the occurrence of (i) an
Commitment Expiration Date or (ii) any event giving Purchaser the
right to elect a remedy pursuant to Section 3, which amount shall be
set forth in a Funding Confirmation as the "Incremental Pass-Through
Rate".
"Loan Purchase Detail": A loan purchase detail, transmitted via
facsimile in the form of Exhibit A, or transmitted electronically in
an appropriate data layout provided by Purchaser, prepared by Seller,
containing certain information regarding the characteristics of all
Mortgage Loans being offered for sale by Seller on a particular
Business Day.
"Losses": Any and all losses, claims, damages, liabilities or
expenses (including reasonable attorneys' fees) incurred by any person
specified; provided, however, that "Losses" shall not include any
losses, claims, damages, liabilities or expenses which would have been
avoided had such person taken reasonable actions to mitigate such
losses, claims, damages, liabilities or expenses.
"Monthly Payment": The scheduled monthly payment of principal and
interest on a Mortgage Loan.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien on an estate in fee simple in real property
securing a Mortgage Note.
<PAGE>
-4-
"Mortgage Loan": A mortgage loan which is subject to this
Agreement, and which satisfies the Commitment Requirements as the same
may be modified from time to time.
"Mortgage Note": The note or other evidence of the indebtedness
of a Mortgagor secured by a Mortgage.
"Mortgaged Property": The property subject to the lien of the
Mortgage securing a Mortgage Note.
"Mortgagor": The obligor on a Mortgage Note.
"NCUA": The National Credit Union Administration, or any
successor thereto.
"OTS": The Office of Thrift Supervision, or any successor
thereto.
"Parent Company": A corporation or other entity owning at least
50% of the outstanding shares of voting stock of Seller.
"Pass-Through Rate": With respect to each Mortgage Loan, the rate
at which interest is passed through to Purchaser which initially shall
be the rate of interest specified on a Funding Confirmation as the
Pass-Through Rate.
"Performance Fee": With respect to each Mortgage Loan, an amount
equal to the Discount less the Custodial Fee, plus the Yield
Compensation Adjustment plus or minus any other adjustments permitted
hereunder, which amount shall be payable to Seller by Purchaser as
compensation to Seller for its services hereunder.
"Purchase Advice": An approved purchase list delivered to
Purchaser by the Takeout Investor via electronic or facsimile
transmission, confirming the amount of Takeout Proceeds allocable to
each Mortgage Loan purchased by Takeout Investor.
"Purchase Date": With respect to any Mortgage Loan, the date of
payment thereof by Purchaser to Seller of the Purchase Price.
"Purchase Price": With respect to each Mortgage Loan, an amount
equal to the Trade Principal less an amount equal to the product of
the Trade Principal and the Discount. Accrued interest shall be
allocated in accordance with Section 2(c).
"Purchaser": Paine Webber Real Estate Securities Inc. and its
successors.
"Purchaser's Wire Instructions to Seller": The wire instructions,
set forth in a notice delivered by Purchaser to Seller containing the
information set forth in
<PAGE>
-5-
Exhibit D, to be used for the payment of all amounts due and payable
to Purchaser hereunder.
"RTC": The Resolution Trust Corporation or any successor thereto.
"Seller": The Seller whose name is set forth on the cover page
hereof, and its permitted successors hereunder.
"Seller's Release": A letter in the form of Exhibit C-1,
delivered by Seller when no Warehouse has an interest in a Mortgage
Loan, conditionally releasing all of Seller's interest in a Mortgage
Loan upon receipt of payment by Seller.
"Seller's Wire Instructions": The wire instructions, set forth in
a letter in the form of Exhibit C-2, to be used for the payment of
funds to Seller when no Warehouse Lender has an interest in the
Mortgage Loans to which such payment relates.
"Settlement Date": With respect to any Mortgage Loan, the date
the allocable Pass-Through Rate shall cease to accrue upon payment by
Takeout Investor to Purchaser of the Takeout Proceeds as confirmed by
Purchaser's receipt from Seller of the related Settlement Information
in accordance with Section 3(a).
"Settlement Information": The Purchase Advice or group of
Purchase Advices which shall identify each Mortgage Loan by the
Mortgagor's name, and of which the aggregate disbursement amount
equals the precise dollar amount of Takeout Proceeds to be received by
Purchaser from Agreement.
"Successor Servicer": An entity designated by Purchaser, in
conformity with Section 16, to replace Seller as servicer for
Purchaser.
"Takeout Commitment": Commitment of Seller to sell one or more
Mortgage Loans to Takeout Investor and of Takeout Investor to purchase
one or more Mortgage Loans from Seller.
"Takeout Investor": The applicable Conduit.
"Takeout Proceeds": The amount of funds Takeout Investor pays to
Purchaser on a particular Business Day as identified by the related
Settlement Information.
"Third Party Underwriter": Any third party, including but not
limited to a mortgage loan pool insurer, who underwrites the Mortgage
Loan(s) prior to the purchase by Purchaser.
"Third Party Underwriter's Certificate": A certificate issued by
a Third Party Underwriter with respect to a Mortgage Loan, certifying
that such Mortgage Loan complies with its underwriting requirements.
<PAGE>
-6-
"Trade Price": The trade price set forth on a Takeout Commitment.
"Trade Principal": With respect to any Mortgage Loan, the
outstanding principal balance of the Mortgage Loan multiplied by a
percentage equal to the Trade Price.
"Warehouse Lender": Any lender, including, without limitation,
Purchaser, providing financing to the Seller in any fractional amount
for the purpose of originating or purchasing Mortgage Loans which
lender has a security interest in such Mortgage Loans as collateral
for the obligations of Seller to such lender.
"Warehouse Lender's Release": A letter in the form of Exhibit B-
1, from a Warehouse Lender to Purchaser, conditionally releasing all
of Warehouse Lender's right, title and interest in certain Mortgage
Loans identified therein upon receipt of payment by Warehouse Lender.
"Warehouse Lender's Wire Instructions": The wire instructions,
set forth in a letter in the form of Exhibit B-2, from a Warehouse
Lender to Purchaser, setting forth wire instructions for all amounts
due and payable to such Warehouse Lender hereunder.
"Yield Compensation Adjustment": Subject to any further
adjustment provided in this Agreement, an amount (which may be a
negative number) equal to:
A(BC-DE)
--------
360
where (i) A equals the number of days in the period beginning on the
Purchase Date to but not including the Settlement Date, (ii) B equals
the principal amount of the Mortgage Loan, (iii) C equals the interest
rate (expressed as a decimal) on the Mortgage Loan, (iv) D equals the
Purchase Price and (v) E equals the Pass-Through Rate (expressed as a
decimal).
Section 2. Procedures for Purchases of Mortgage Loans.
------------------------------------------
(a)(1) Purchaser may, in its sole discretion, from time to time,
purchase one or more Mortgage Loans from Seller. Seller shall be deemed to make
for the benefit of Purchaser, as of the applicable dates specified in Section 8,
the representations and warranties set forth in Section 8 in respect of each
such Mortgage Loan.
(a)(2) Prior to Purchaser's election to purchase any Mortgage Loan,
Purchaser shall have received from Seller a Loan Purchase Detail, either
electronically or via a facsimile transmission, and Custodian shall have
received all applicable documents required by Section 2 of the Custodian
Agreement. The terms and conditions of such purchase shall be forth in this
Agreement and in each Funding Confirmation.
(b)(1) If Purchaser elects to purchase any Mortgage Loan, Purchaser
shall pay the amount of the Purchase Price for such Mortgage Loan by wire
transfer of immediately available funds (i) if a Warehouse Lender's Release has
been included in the related Conduit Submission
<PAGE>
-7-
Package, in accordance with the Warehouse Lender's Wire Instructions or (ii) if
there is no Warehouse Lender's Release included in the related Conduit
Submission Package, in accordance with the Seller's Wire Instructions. If
Purchaser is the Warehouse Lender with respect to a Mortgage Loan, the amount
transferred shall be reduced to account for amounts previously advanced by
Purchaser with respect to such Mortgage Loan. With respect to each Mortgage Loan
which Purchaser has elected to purchase, Custodian shall deliver to Takeout
Investor the applicable portion of the Conduit Submission Package, in the manner
and at the time set forth in the Custodian Agreement. Seller shall thereafter
promptly deliver to Takeout Investor any and all additional documents requested
by Takeout Investor to enable Takeout Investor to make payment to Purchaser of
the Takeout Proceeds.
(b)(2) Simultaneously with the payment by Purchaser of the Purchase Price
of a Mortgage Loan, in accordance with the Warehouse Lender's Wire Instructions
or the Seller's Wire Instructions, as applicable, with respect to a Mortgage
Loan, Seller hereby conveys to Purchaser all of Seller's right, title and
interest in and to such Mortgage Loan, free and clear of any lien, claim or
encumbrance.
(c) With respect to each Mortgage Loan that Purchaser elects to purchase
hereunder, Purchaser shall owe to Seller a Performance Fee. The Yield
Compensation Adjustment component of the Performance Fee shall include an
accrued interest calculation. Purchaser's accrued interest calculation shall be
identical to that of Takeout Investor, therefore the amount of accrued interest
included in a settlement calculation will represent accrued interest paid to
Purchaser and paid by Purchaser.
(d) Notwithstanding the satisfaction by Seller of the conditions
specified in Section 2(a), Purchaser is not obligated to purchase any Mortgage
Loan offered to it hereunder. In the event that Purchaser rejects a Mortgage
Loan for purchase for any reason and/or does not transmit the Purchase Price,
any Conduit Submission Package delivered to Custodian in anticipation of such
purchase shall be returned by Custodian in accordance with the terms of the
bailee letter under which it was received.
Section 3. Sale of Mortgage Loans to Takeout Investor.
------------------------------------------
(a)(1) Upon the sale to Takeout Investor of a Mortgage Loan previously
purchased by Purchaser hereunder, Seller shall cause Takeout Proceeds relating
to such Mortgage Loan to be paid to Purchaser in accordance with Purchaser's
Wire Instructions to Seller.
(a)(2) All Takeout Proceeds received by Purchaser from Takeout Investor
after 3:00 P.M. New York City time on a Business Day (or at any time on a day
which is not a Business Day) shall be deemed, with regard to determining the
Settlement Date, received by Purchaser on the next succeeding Business Day.
(b)(1) If any Mortgage Loan is rejected by Takeout Investor because it is a
Defective Mortgage Loan, Seller shall promptly notify Purchaser. If any Mortgage
Loan is a Defective Mortgage Loan on the Purchase Date and in Purchaser's sole
judgement the defects in such Mortgage Loan will not be cured (or in fact are
not cured) by Seller prior to the Commitment Expiration Date, the Pass-Though
Rate applicable to such Defective Mortgage Loan shall, on such Commitment
Expiration Date, increase by the Incremental Pass-Through Rate and
<PAGE>
-8-
Purchaser, at its election, may require that Seller, upon receipt of notice from
Purchaser, immediately repurchase Purchaser's ownership interest in such
Defective Mortgage Loan by remitting to Purchaser (in immediately available
funds in accordance with Purchaser's instructions) the amount paid by Purchaser
for such Defective Mortgage Loan plus interest at the Pass-Through Rate on the
principal amount thereof from the Purchase Date of such Mortgage Loan to the
date of such repurchase. If at any time prior to the repurchase of a Defective
Mortgage Loan by Seller or the purchase of a Mortgage Loan by Takeout Investor,
Seller receives the Mortgage Note or any other portion of the Conduit Submission
Package, Seller shall promptly forward such Mortgage Note and/or other portion
of the Conduit Submission Package to Purchaser.
(b)(2) If Seller fails to comply with its obligations in the manner
described in Section 3(b)(1), upon receipt by Seller of notice from Purchaser,
Seller's rights and obligations to service Mortgage Loans, as provided in this
Agreement, shall terminate. If an Act of Insolvency occurs at any time, Seller's
rights and obligations to service the Mortgage Loans, as provided in this
Agreement, shall terminate immediately, without any notice or action by
Purchaser. Upon any such termination, Purchaser is hereby authorized and
empowered as the exclusive agent for Seller to sell and transfer such rights to
service the Mortgage Loans for such price and on such terms and conditions as
Purchaser shall reasonably determine, and Seller shall not otherwise attempt to
sell or transfer such rights to service without the prior consent of Purchaser.
Seller shall perform all acts and take all action so that all files and
documents relating to the Mortgage Loans held by Seller, together with all
escrow amounts relating to such Mortgage Loans, are delivered to Successor
Servicer. To the extent that the approval of a third Party Underwriter or any
other person is required for any such sale or transfer, Seller shall fully
cooperate with Purchaser to obtain such approval. Upon exercise by Purchaser of
its remedies under this Section 3(b)(2). Seller hereby authorizes Purchaser to
receive all amounts paid by any purchaser of such rights to service the Mortgage
Loans and to remit such amounts to Seller subject to Purchaser's rights of set-
off under this Agreement. Upon exercise by Purchaser of its remedies under this
Section 3(b)(2), Purchaser's obligation to pay and Seller's right to receive any
portion of the Performance Fee relating to such Mortgage Loans shall
automatically be canceled and become null and void, provided that such
cancellation shall in no way relieve Seller or otherwise affect the obligation
of Seller to indemnify and hold Purchaser harmless as specified in Section 3(c).
(b)(3) Each Mortgage Loan required to be delivered to Successor Servicer by
Section 3(b)(2) shall be delivered free of any servicing rights in favor of
Seller and free of any title, interest, lien, encumbrance or claim of any kind
of Seller. Seller shall deliver or cause to be delivered all files and documents
relating to each Mortgage Loan held by Seller to Successor Servicer. Seller
shall promptly take such actions and furnish to Purchaser such documents that
Purchaser deems necessary or appropriate to enable Purchaser to cure any defect
in each such Mortgage Loan or to enforce such Mortgage Loans, as appropriate.
(c) Seller agrees to indemnify and hold Purchaser and its assignees
harmless from and against all Losses resulting from or relating to any breach or
failure to perform by Seller of any representation, warranty, covenant, term or
condition made or to be performed by Seller under this Agreement.
<PAGE>
-9-
(d) No exercise by Purchaser of its rights under this Section 3 shall
relieve Seller of responsibility or liability for any breach of this Agreement.
(e) Seller hereby grants Purchaser a right of set-off against the
payment of any amounts that may be due and payable to Purchaser from Seller,
such right to be upon any and all monies or other property of Seller held or
received by Purchaser, or due and owing from Purchaser to Seller.
Section 4. Servicing of the Mortgage Loans.
-------------------------------
(a) Seller shall service and administer each Mortgage Loan on behalf
of Purchaser in accordance with prudent mortgage loan servicing standards and
procedures generally accepted in the mortgage banking industry and in accordance
with the requirements of Takeout Investor as though Takeout Investor's
requirement were set forth in independent contract between Seller and
Purchaser, provided that Seller shall at all times comply with applicable law,
and the requirements of any applicable insurer or guarantor so that the
insurance in respect of any Mortgage Loan is not voided or reduced. Seller shall
at all times maintain accurate and complete records of its servicing of each
Mortgage Loan, and Purchaser may, at any time during Seller's business hours on
reasonable notice, examine and make copies of such records. In addition, if a
Mortgage Loan is not purchased by Takeout Investor on or before the Commitment
Expiration Date, Seller shall at Purchaser's request deliver to Purchaser
monthly reports regarding the status of such Mortgage Loan, which reports shall
include, but shall not be limited to, a description of each Mortgage Loan in
default for more than thirty days, and such other circumstances with respect to
any Mortgage Loan (whether or not such Mortgage Loan is included in the
foregoing list) that could materially adversely affect any such Mortgage Loan,
Purchaser's ownership of any such Mortgage Loan or the collateral securing any
such Mortgage Loan. Seller shall deliver such a report to Purchaser every thirty
days until (i) the purchase by Takeout Investor of such Mortgage Loan pursuant
to the related Takeout Commitment or (ii) the exercise by Purchaser of any
remedial election pursuant to Section 3.
(b) Within five Business Days of notice from Purchaser or, with
respect to any Mortgage Loan, on the Commitment Expiration Date, Seller shall
establish and maintain a Custodial Account entitled "[NAME OF SELLER], in trust
for Paine Webber Real Estate Securities Inc. and its assignees under the
Mortgage Loan Purchase Agreement dated [the date of this Agreement]" and shall
promptly deposit into such Custodial Account, in the form received with any
necessary endorsements, all collections received in respect of each Mortgage
Loan that are payable to Purchaser as the owner of each such Mortgage Loan.
(c) Amounts deposited in the Custodial Account with respect to any
Mortgage Loan shall be held in trust for Purchaser as the owner of such
Mortgage Loan and shall be released only as follows:
(1) Except as otherwise provided in this Section 4(c), following
receipt by Purchaser or its designee of the Takeout Proceeds for such
Mortgage Loan from Takeout Investor or Seller amounts deposited in the
Custodial Account shall be paid
<PAGE>
-10-
extent that, the amounts due and payable to Purchaser hereunder have
been set off against the Purchase Price for the Mortgage Loan or the
Performance Fee relating to the Mortgage Loan. The amounts paid to
Seller (if any) pursuant to this Section4(c)(1) shall constitute
Seller's sole compensation for servicing the Mortgage Loans as
provided in this Section 4.
(2) If Successor Servicer is appointed by Purchaser (either
under the circumstances set forth in Section 3 or otherwise), all
amounts deposited in the Custodial Account shall be paid to Purchaser
promptly upon such delivery.
(3) If a Mortgage Loan is not purchased by Takeout Investor on
or before the Commitment Expiration Date, during the period thereafter
that Seller remains as servicer, all amounts deposited in the
Custodial Account shall be released only in accordance with a
Purchaser's written instructions.
Section 5. Trade Assignments. Seller hereby assigns to Purchaser,
-----------------
free of any security interest, lien, claim or encumbrance of any kind, Seller's
rights, under each Takeout Commitment to the full extend permitted by Takeout
Investor, to deliver the Mortgage Loan(s) specified therein to Takeout Investor
and to receive the Takeout Proceeds therefor from Takeout Investor. Purchaser
shall not be deemed to have accepted such rights of Seller which relate to a
particular Mortgage Loan unless and until it purchases the Mortgage Loan, and
nothing set forth herein shall be deemed to impair Purchaser's right to reject
any Mortgage Loan for any reason, in its sole discretion.
Section 6. Transfers of Mortgage Loans by Purchaser. Purchaser may,
----------------------------------------
in its sole discretion, assign all of its right, title and interest in or grant
a security interest in any Mortgage Loan sold by Seller hereunder and all rights
of Purchaser under this Agreement and the Custodial Agreement, in respect of
such Mortgage Loan to Assignee, subject only to an obligation on the part of
Assignee to deliver each such Mortgage Loan to Takeout Investor pursuant to
Section 5 or to Purchaser to permit Purchaser or its designee to make delivery
thereof to Takeout Investor pursuant to Section 5. It is anticipated that such
assignment to Assignee will be made by Purchaser, and Seller hereby irrevocably
consents to such assignment. No notice of such assignment shall be given by
Purchaser to Seller or Takeout Investor. Assignment by Purchaser of the Mortgage
Loans as provided in this Section 6 shall not release Purchaser from its
obligations otherwise under this Agreement.
Without limitation of the foregoing, an assignment of a Mortgage Loan
to Assignee, as described in this Section 6, shall be effective upon delivery to
Assignee of a Conduit Submission Package.
Section 7. Record Title to Mortgage Loans; Intent of Parties;
--------------------------------------------------
Security Interest.
-----------------
(a) From and after the delivery of the related Conduit Submission
Package, and subject to the remedies of Purchaser in Section 3, Seller shall
remain the last named payee or endorse of each Mortgage Note and the mortgagee
or assignee of record of each Mortgage in trust for the benefit of Purchaser,
for the sole purpose of facilitating the servicing of such Mortgage Loan.
<PAGE>
-11-
(b) Seller shall maintain a complete set of books and records for
each Mortgage Loan which shall be clearly marked to reflect the ownership
interest in each Mortgage Loan of Purchaser.
(c) Purchaser and Seller confirm that the transactions contemplated
herein are intended to be sales of the Mortgage Loans by Seller to Purchaser
rather than borrowings secured by the Mortgage Loans. In the event, for any
reason, any transaction is construed by any court or regulatory authority as a
borrowing rather than as a sale, the Seller and Purchaser intend that Purchaser
or Assignee, as the case may be, shall have a perfected first priority security
interest in the Collateral, free and clear of adverse claims. In such case,
Seller shall be deemed to have hereby granted to Purchaser or Assignee, as the
case may be, a first priority security interest in and lien upon the collateral,
free and clear of adverse claims. In such event, this Agreement shall constitute
a security agreement, the Custodian shall be deemed to be an independent
custodian for purposes of perfection of the security interest granted to
Purchaser or Assignee, as the case may be, and Purchaser or Assignee, as the
case may be, shall have all of the rights of a secured party under applicable
law. Seller shall, not later than the date of the first purchase of a Mortgage
Loan by Purchaser under this Agreement, deliver to Purchaser a UCC-1 Financing
Statement, executed by Seller, containing a description of collateral in the
form attached hereto in Exhibit E.
Section 8. Representations and Warranties.
------------------------------
(a) Seller hereby represents and warrants to Purchaser as of the date
hereof and as of the date of each delivery of a Conduit Submission Package that:
(i) Seller is duly organized, validly existing and in good
standing under the laws of the state of its organization or of the
United States of America and has all licenses necessary to carry on
its business as now being conducted and is licensed, qualified and in
good standing in the state where the Mortgaged Property is located if
the laws of such state require licensing or qualification in order to
conduct business of the type conducted by Seller. Seller has all
requisite power and authority (including, if applicable, corporate
power) to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this
Agreement (including all instruments of transfer to be delivered
pursuant to this Agreement) by Seller and the consummation of the
transactions contemplated hereby have been duly and validly
authorized; this Agreement evidences the valid, binding and
enforceable obligation of Seller; and all requisite action (including,
if applicable, corporate action) has been taken by Seller to make this
Agreement valid and binding upon Seller in accordance with its terms;
(ii) No approval of the transactions contemplated by this
Agreement from the OTS, the NCUA, the FDIC or any similar federal or
state regulatory authority having jurisdiction over Seller is
required, or if required, such approval has been obtained. There are
no actions or proceedings pending or affecting Seller which would
adversely affect its ability to perform hereunder. The transfers,
assignments and conveyances provided for herein are not subject to the
bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction;
<PAGE>
-12-
(iii) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of Seller and will not
result in the breach of any term or provision of the charter or by-laws of
Seller or result in the breach of any term or provision of, or conflict
with or constitute a default under or result in the acceleration of any
obligation under, any agreement, indenture or loan or credit agreement or
other instrument to which Seller or its property is subject, or result in
the violation of any law, rule, regulation, order, judgment or decree to
which Seller or its property is subject;
(iv) This Agreement, the Custodial Agreement and every document to be
executed by Seller pursuant to this Agreement is and will be valid, binding
and subsisting obligations of Seller, enforceable in accordance with their
respective terms. No consents or approvals are required to be obtained by
Seller or its Parent Company for the execution, delivery and performance of
this Agreement or the Custodial Agreement by Seller;
(v) Purchaser will be the sole owner of the related Mortgage Loan,
free and clear of any lien, claim or encumbrance; and
(vi) All information relating to Seller that Seller has delivered or
caused to be delivered to Purchaser, including, but not limited to, all
documents related this Agreement, the Custodial Agreement or Seller's
financial statements, does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made
therein or herein in light of the circumstances under which they were made,
not misleading; and
(vii) There is no action, suit, proceeding, inquiry or investigation,
at law or in equity, or before, or by any court, public board or body
pending or, to Seller's knowledge, threatened against or affecting Seller
(or, to Seller's knowledge, any basis therefor) wherein an unfavorable
decision, ruling or finding would adversely affect the validity of
enforceability of this Agreement, the Custodial Agreement or any agreement
or instrument to which Seller is a party and which is used or contemplated
for use in the consummation of the transactions contemplated hereby, would
adversely affect the proceedings of Seller in connection herewith or would
or could materially and adversely affect Seller's ability to carry out its
obligations hereunder.
(b) Seller hereby represents, warrants and covenants to Purchaser with
respect to each Mortgage Loan as of the related Purchase Date that;
(i) The Mortgage ????
this Agreement, the Commitment Requirements and all other requirements of
Takeout Investor;
(ii) Seller is the sole owner and holder of the Mortgage Loan free
and clear of any and all liens, claims, defenses, offsets, pledges,
encumbrances, charges or security interests of any nature and has full
right and authority, subject to no
<PAGE>
-13-
interest or participation of, or agreement with, any other party, to sell
and assign the same pursuant to this Agreement;
(iii) No servicing agreement has been entered into with respect to
the Mortgage Loan, or any such servicing agreement has been terminated and
there are no restrictions, contractual or governmental, which would impair
the ability of Purchaser or Purchaser's designees from servicing the
Mortgage Loan;
(iv) The Mortgage is a valid and subsisting first lien on the
property therein described and the Mortgaged Property is free and clear of
all encumbrances and liens having priority over the first lien of the
Mortgage except for liens for real estate taxes and special assessments not
yet due and payable. Any pledge account, security agreement, chattel
mortgage or equivalent document related to, and delivered to Purchaser with
the Mortgage, establishes in Seller a valid and subsisting first lien on
the property described therein, and Seller has full right to sell and
assign the same to Purchaser;
(v) Neither Seller nor any prior holder of the Mortgage has
modified the Mortgage in any material respect; satisfied, canceled or
subordinated the Mortgage in whole or in part; released the Mortgaged
Property in whole or in part from the lien of the Mortgage; or executed any
instrument of release, cancellation, modification or satisfaction unless
such release, cancellation, modification or satisfaction does not adversely
affect the value of the Mortgage Loan and is contained in the related
Document File;
(vi) The Mortgage Loan is not in default, and all Monthly
Payments due prior to the Purchase Date and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges,
leasehold payments or ground rents have been paid. Seller has not advanced
funds, or induced or solicited any advance of funds by a party other than
the Mortgagor directly or indirectly, for the payment of any amount
required by the Mortgage Loan. The collection practices used by each entity
which has serviced the Mortgage Loan have been in all respects legal,
proper, prudent, and customary in the mortgage servicing business. With
respect to escrow deposits and payments in those instances where such were
required, there exist no deficiences in connection therewith for which
customary arrangements for repayment thereof have not been made and no
escrow deposits or payments or other charges or payments have been
capitalized under any Mortgage or the related Mortgage Note;
(vii) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the related Mortgage Note and
no event which, with the passage of time or with notice and the expiration
of any grace of cure period, would constitute a default, breach, violation
or event of acceleration; and Seller has not waived any default, breach,
violation or event of acceleration;
(viii) The Mortgage Loan is not subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor will
the operation of any of the terms of the Mortgage Note or the Mortgage, or
the exercise of any right
<PAGE>
-14-
thereunder, render either the Mortgage Note or the Mortgage unenforceable,
in whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and no such right
of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(ix) The Mortgage Note and the related Mortgage are genuine and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms. All parties to the Mortgage Note
and the Mortgage had legal capacity to execute the Mortgage Note and the
Mortgage and each Mortgage Note and Mortgage have been duly and property
executed by the Mortgagor. No Mortgagor is a partnership, trust or
corporation;
(x) The Mortgage Loan meets, or is exempt from, applicable state
or federal laws, regulations and other requirements pertaining to usury,
and the Mortgage Loan is not usurious;
(xi) Any and all requirements of any federal, state or local law
including, without limitation, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loan have been complied with,
and Seller shall deliver to Purchaser upon demand, evidence of compliance
with all such requirements;
(xii) Either:(i) Seller and every other holder of the Mortgage, if
any, were authorized to transact and do business in the jurisdiction in
which the Mortgaged Property is located at all times when such party held
the Mortgage; or (ii) the loan of mortgage funds, the acquisition of the
Mortgage (if Seller was not the original lender), the holding of the
Mortgage and the transfer of the Mortgage did not constitute the
transaction of business or the doing of business in such jurisdiction;
(xiii) The proceeds of the Mortgage Loan have fully disbursed,
there is no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site improvements and
as to disbursements of any escrow funds, therefore, have been complied
with. All costs, fees and expenses incurred in making, or closing or
recording the Mortgage Loans were paid;
(xiv) The related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits
of the security, including, (i) in the case of a Mortgage designated as a
deed of trust, by trustee's sale, and (ii) otherwise by judicial
foreclosure. There is no homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the Mortgaged
Property at a trustee's sale or the right to foreclose the Mortgage;
(xv) The Mortgage Loan was originated free of any "original issue
discount" with respect to which the owner of the Mortgage Loan could be
deemed to have income pursuant to Sections 1271 et seq. of the Internal
-- ---
Revenue Code;
<PAGE>
-15-
(xvi) Each Mortgage Loan was originated by an institution that is
eligible to issue Mortgage Loans under the Applicable Guide;
(xvii) At origination, the Mortgaged Property was free and clear of
all mechanics' and materialmen's liens or liens in the nature thereof which
are or could be prior to the Mortgage lien, and no rights are outstanding
that under law could give rise to any such lien;
(xviii) All of the improvements which are included for the purpose
of determining the appraised value of the Mortgaged Property lie wholly
within the boundaries and building restriction lines of such property, and
no improvements on adjoining properties encroach upon the Mortgaged
Property;
(xix) At origination, no improvement located on or being part of
the Mortgaged Property was in violation of any applicable zoning law or
regulation and all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged
Property, and with respect to the use and occupancy of the same, including
but not limited to certificates of occupancy and fire underwriting
certificates, had been made or obtained from the appropriate authorities
and the Mortgaged Property was lawfully occupied under applicable law. No
improvement located on or being part of the Mortgaged Property is in
violation of any applicable zoning law or regulation and all inspections,
licenses and certificates required to be made or issued with respect to
Property, and with respect to the use and occupancy of the same, including
but not limited to certificates of occupancy and fire underwriting
certificates, have been made or obtained from the appropriate authorities
and the Mortgaged Property is lawfully occupied under applicable law;
(xx) There is no proceeding pending for the total or partial
condemnation of the Mortgaged Property and said property is undamaged by
waste, fire, earthquake or earth movement, windstorm, flood, tornado or
other casualty;
(xxi) All buildings upon the Mortgaged Property are insured
against loss by fire, hazards of extended coverage and such other hazards
as are customary in the area where the Mortgaged Property is located,
pursuant to fire and hazard insurance policies with extended coverage or
other insurance required by the Applicable Purchase Agreement, in an amount
at least equal to the greater of (i) the outstanding principal balance of
the Mortgage Loan or (ii) the maximum insurable value (replacement cost
without deduction for depreciation) of the improvements constituting the
Mortgaged Property. If applicable laws limit the amount of such insurance
to the replacement cost of the improvements constituting the Mortgaged
Property or to some other amount, then such insurance is in an amount equal
to the maximum allowed by such laws. Such insurance amount is sufficient to
prevent the Mortgagor or the loss payee under the policy from becoming a
co-insurer. The insurer issuing such insurance is acceptable pursuant to
the Applicable Purchase Agreement. All individual insurance policies
contain a standard mortgagee clause naming Seller, its successors and
assigns, as mortgagee and all premiums thereon have been paid. Each
Mortgage obligates the Mortgagor thereunder to maintain all
<PAGE>
-16-
such insurance at Mortgagor's cost and expense, and upon the Mortgagor's
failure to do so, authorizes the holder of the Mortgage to obtain and
maintain such insurance at Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor. Any flood insurance required by
applicable law has been obtained;
(xxii) The related Mortgage Note is payable on the Due Date of each
month in self-amortizing monthly installments of principal and interest,
with interest payable in arrears, providing for full amortization by
maturity, over an original term of not more than thirty years;
(xxiii) At the time that the related Mortgage Loan was made the
Mortgagor represented that the Mortgagor would occupy such Mortgaged
Property as Mortgagor's primary residence;
(xxiv) The Mortgaged Property consists of a single parcel of real
property;
(xxv) There are no circumstances or conditions with respect to the
Mortgage, the Mortgaged Property, the Mortgagor or the Mortgagor's credit
standing that can be reasonably expected to cause Takeout Investor or
private institutional investors to regard the Mortgage Loan as an
unacceptable investment, cause the Mortgage Loan to become delinquent or
adversely affect the value or marketability of the Mortgage Loan;
(xxvi) The Document File contains or shall contain prior to the
Commitment Expiration Date each of the documents and instruments specified
to be included therein duly executed and in due and proper form and each
such document or instrument is in form acceptable to Takeout Investor. Each
Mortgage Note and Mortgage are on forms approved by Takeout Investor; and
(xxvii) Each Mortgage Loan is covered by a mortgage title insurance
policy acceptable to Takeout Investor, issued by, and the valid and binding
obligation of, a title insurer acceptable to Takeout Investor, and
qualified to do business in the jurisdiction where the property subject to
the Mortgage is located, insuring Seller, its successors and assigns, as to
the first priority lien of the Mortgage in the original principal amount of
the Mortgage Loan. Seller is the named insured and the sale insured of such
mortgage title insurance policy, the assignment to Purchaser of Seller's
interest in such mortgage title insurance policy does not require the
consent of or notification to the insurer, such mortgage title insurance
policy is in full force and effect and will be in full force and effect and
inure to the benefit of Purchaser upon the consummation of the transactions
contemplated by this Agreement and no claims have been made under such
mortgage title insurance policy and no prior holder of the related
Mortgage, including Seller, has done, by act or omission, anything which
would impair the coverage of such mortgage title insurance policy.
(xxviii) The loan-to-value ratio of each Mortgage Loan does not
exceed the maximum loan-to-value ratio permitted by the Applicable Guide.
All provisions of each related primary mortgage insurance policy have been
and are being complied with, and such policy is written with a private
mortgage insurance company
<PAGE>
-17-
acceptable to the Takeout Investor, is the binding obligation of such
insurer, is in full force and effect, and all premiums due thereunder have
been paid. Seller has not engaged in any act or omission, and Seller has no
knowledge of any act or omission by or on behalf of the related Mortgagor
or any other person, which act or omission would impair the coverage or
validity of any such primary mortgage insurance policy, the benefit of the
endorsement provided for in the Applicable Guide, or the validity or
binding effect of either. Any Mortgage Loan subject to a primary mortgage
insurance policy obligates the Mortgagor thereunder to maintain such
primary mortgage insurance policy and to pay all premiums and charges in
connection therewith. The interest rate for the Mortgage Loan is net of any
such insurance premiums.
The representations and warranties of Seller in this Section 8 are
unaffected by and supersede any provision in any endorsement of any Mortgage
Loan or in any assignment with respect to such Mortgage Loan to the effect that
such endorsement or assignment is without recourse or without representation or
warranty. With respect to each Mortgage Loan purchased by Purchaser hereunder,
to the extent that any representation or warranty made by Seller is either not
required by Takeout Investor or is waived by Takeout Investor, Purchaser hereby
agrees to waive such representation or warranty if such Mortgage Loan is
purchased by Takeout Investor from Purchaser, in accordance with the terms of
the related Takeout Commitment.
Section 9. Covenants of Seller. Seller hereby covenants and agrees
-------------------
with Purchaser as follows:
(a) Seller shall deliver to Purchaser:
(i) Within one hundred twenty (120) days after the end of each
fiscal year of Seller, consolidated balance sheets of Seller and its
consolidated subsidiaries and the related consolidated statements of income
showing the financial condition of Seller and its consolidated subsidiaries
as of the close of such fiscal year and the results of operations during
such year, and a consolidated statement of cash flows, as of the close of
such fiscal year, setting forth, in each case, in comparative form the
corresponding figures for the preceding year, all the foregoing
consolidated financial statements to be reported on by, and to carry the
report (acceptable in form and content to Purchaser) of an independent
public accountant of national standing acceptable to Purchaser;
(ii) Within sixty (60) days after the end of each of the first
three fiscal quarters of each fiscal year of Seller, unaudited consolidated
balance sheets and consolidated statements of income, all to be in a form
acceptable to Purchaser, showing the financial condition and results of
operations of Seller and its consolidated subsidiaries on a consolidated
basis as of the end of each such quarter and for the then elapsed portion
of the fiscal year, setting forth, in each case, in comparative form the
corresponding figures for the corresponding periods of the preceding fiscal
year, certified by a financial officer of Seller (acceptable to Purchaser)
as presenting fairly the financial position and results of operations of
Seller and its consolidated subsidiaries and as having been prepared in
accordance
<PAGE>
-18-
with generally accepted accounting principles consistently applied, in each
case, subject to normal year-end audit adjustments;
(iii) Promptly upon receipt thereof, a copy of each other report
submitted to Seller by its independent public accountants in connection
with any annual, interim or special audit of Seller;
(iv) Promptly upon becoming aware thereof, notice of (1) the
commencement of, or any determination in, any legal, judicial or regulatory
proceedings, (2) any dispute between Seller or its Parent Company and any
governmental or regulatory body, (3) any event or condition, which, in any
case of (1) or (2) if adversely determined, would have a material adverse
effect on (A) the validity or enforceability of this Agreement, (B) the
financial condition or business operations of Seller, or (C) the ability of
Seller to fulfill its obligations under this Agreement or (4) any material
adverse change in the business, operations, prospects or financial
condition of Seller, including, without limitation, the insolvency of
Seller or its Parent Company;
(v) Promptly upon becoming available, copies of all financial
statements, reports, notices and proxy statements sent by its Parent
Company, Seller or any of Seller's consolidated subsidiaries in a general
mailing to their respective stockholders and of all reports and other
material (including copies of all registration statements under the
Securities Act of 1933, as amended) filed by any of them with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any or all of the functions of said
Commission;
(vi) Promptly upon becoming available, copies of any press
releases issued by its Parent Company or Seller and copies of any annual
and quarterly financial reports and any reports on Form H-(b)12 which its
Parent Company or Seller may be required to file with the OTS or the RTC or
comparable reports which a Parent Company or Seller may be required to file
with the FDIC or any other federal banking agency containing such financial
statements and other information concerning such Parent Company's or
Seller's business and affairs as is required to be included in such reports
in accordance with the rules and regulations of the OTS, the RTC, the FDIC
or such other banking agency, as may be promulgated from time to time;
(vii) Such supplements to the aforementioned documents and such other
information regarding the operations, business, affairs and financial
condition of its Parent Company, Seller or any of Seller's consolidated
subsidiaries as Purchaser may request; and
(viii) A copy of (1) the articles of incorporation of Seller and
any amendments thereto, certified by the Secretary of State of Seller's
state of incorporation, (2) a copy of Seller's by-laws, together with any
amendments thereto, (3) a copy of the resolutions adopted by Seller's Board
of Directors authorizing Seller to enter into this Agreement and the
Custodial Agreement and authorizing one or more of Seller's officers to
execute the documents related to this Agreement and
<PAGE>
-19-
Custodial Agreement, and (4) a certificate of incumbency and signature
of each officer of Seller executing any document in connection with
this Agreement.
(b) The consideration received by the Seller upon the sale of each
Mortgage Loan will constitute reasonably equivalent value and fair consideration
for the ownership interest in the Mortgage Loan.
(c) Neither the Seller nor any affiliate thereof will acquire at any
time any Mortgage Loan or any other economic interest in or obligation with
respect to any Mortgage Loan.
(d) Under generally accepted accounting principles ("GAAP") and for
federal income tax purposes, the Seller will report each sale of a Mortgage Loan
to the Purchaser as a sale of the ownership interest in the Mortgage Loan. The
Seller has been advised by or has confirmed with its independent public
accountants that the foregoing transactions will be so classified under GAAP.
(e) The Seller will be solvent at all relevant times prior to, and
will not be rendered insolvent by, any sale of a Mortgage Loan to the Purchaser.
(f) The Seller will not sell any Mortgage Loan to the Purchaser with
any intent to hinder, delay or defraud any of the Seller's creditors.
(g) Seller shall comply, in all material respects, with all laws,
rules and regulations to which it is or may become subject.
(h) Seller shall, upon request of Purchaser, promptly execute and
deliver to Purchaser all such other and further documents and instruments of
transfer, conveyance and assignment, and shall take such other action as
Purchaser may require more effectively to transfer, convey, assign to and vest
in Purchaser and to put Purchaser in possession of the property to be
transferred, conveyed, assigned and delivered hereunder and otherwise to carry
out more effectively the intent of the provisions under this Agreement.
(i) Seller shall ensure that all Takeout Proceeds paid by Takeout
Investor resulting from Takeout Commitments that relate to Mortgage Loans
purchased by Purchaser pursuant to the terms of this Agreement are paid to
Purchaser by Takeout Investor in accordance with Purchaser's Wire Instructions
to Seller.
(j) The consideration received by Seller upon sale of each Mortgage
Loan will constitute reasonably equivalent value and fair consideration for the
Mortgage Loan.
Section 10. Term. This Agreement shall continue in effect until
----
terminated as to future transactions by written instruction signed by either
Seller or Purchaser and delivered to the other, provided that no termination
will affect the obligations hereunder as to any of the Mortgage Loans with
respect to which Conduit Submission Packages have been delivered to Custodian
pursuant to the terms of this Agreement or the Custodial Agreement.
Section 11. Exclusive Benefit of Parties; Assignment. This
----------------------------------------
Agreement is for the exclusive benefit of the parties hereto and their
respective successors and assigns and shall not
<PAGE>
-20-
be deemed to give any legal or equitable right to any other person, including
the Custodian. Except as provided in Section 6, no rights or obligations
created by this Agreement may be assigned by any party hereto without the prior
written consent of the other parties.
Section 12. Amendments: Waivers: Cumulative Rights. This Agreement
--------------------------------------
may be amended from time to time only by written agreement of Seller and
Purchaser. Any forbearance, failure or delay by either party in exercising any
right, power or remedy hereunder shall not be deemed to be a waiver thereof; and
any single or partial exercise by Purchaser of any right, power or remedy
hereunder shall not preclude the further exercise thereof. Every right, power
and remedy of Purchaser shall continue in full force and effect until
specifically waived by Purchaser in writing. No right, power or remedy shall be
exclusive, and each such right, power of remedy shall be cumulative and in
addition to any other right, power or remedy, whether conferred hereby or
hereafter available at law or in equity or by statute or otherwise.
Section 13. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
Section 14. Effect of Invalidity of Provisions. In case any one or
----------------------------------
more of the provisions contained in this Agreement should be or become invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall in
no way be affected, prejudiced or disturbed thereby.
Section 15. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to conflict of laws rules.
Section 16. Notices. Any notices, consents, elections, directions
-------
and other communications given under this Agreement shall be in writing and
shall be deemed to have been duly given when telecopied or delivered by
overnight courier to, personally delivered to, or on the third day following the
placing thereof in the mail, first class postage prepaid to, the respective
addresses set forth on the cover page hereof for Seller and Purchaser, or to
such other address as either party shall give notice to the other party pursuant
to this Section 16. Notices to Assignee shall be given to such address as
Assignee shall provide to Seller in writing.
Section 17. Entire Agreement. This Agreement, the Funding
----------------
Confirmations and the Custodial Agreement contain the entire agreement between
the parties hereto with respect to the subject matter hereof, and supersede all
prior and contemporaneous agreements between them, oral or written, of any
nature whatsoever with respect to the subject matter hereof.
Section 18. Costs of Enforcement. In addition to any other
--------------------
indemnity specified in this Agreement, in the event of a breach by Seller of
this Agreement, the Custodial Agreement or a Takeout Commitment, Seller agrees
to pay the reasonable attorneys' fees and expenses of Purchaser and, when
applicable, Assignee incurred as a consequence of such breach.
Section 19. Consent to Service. Each party irrevocably consents to
------------------
the service of process by registered or certified mail, postage prepaid, to it
at its address given in or pursuant to Section 16.
<PAGE>
-21-
Section 20. Construction. The headings in this Agreement are for
------------
convenience only and are not intended to influence its construction. References
to Sections, Exhibits and Annexes in this Agreement are to the Sections of and
Exhibits to this Agreement. The Exhibits are part of this Agreement, and are
incorporated herein by reference. The singular includes the plural, the plural
the singular, and the words "and" and "or" are used in the conjunctive or
disjunctive as the sense and circumstances may require.
<PAGE>
-22-
IN WITNESS WHEREOF, Purchaser and Seller have duly executed this
Agreement as of the date and year set forth on the cover page hereof.
PAINE WEBBER REAL ESTATE SECURITIES INC.
By /s/ George A. Mangiarocina
-------------------------------------
Name: George A. Mangiarocina
Title: ??? FVP
???????
---------------------------------------
(Seller's Name)
By ??????
------------------------------------
Name: ??????
Title: ??????
Address (if different from cover page):
<PAGE>
EXHIBIT A
PAINE WEBBER REAL ESTATE SECURITIES INC.
CONDUCT LOAN PURCHASE DETAIL
CLIENT:____________
EXPECTED DELIVERY DATE
OF MORTGAGE FILE IS:____________, 199_
<TABLE>
<CAPTION>
FACE # OF MONTH TO TAKEOUT
LOAN# LAST NAME AMOUNT MATURITY NOTE RATE INVESTOR SALE PRICE
<S> <C> <C> <C> <C> <C> <C>
- --------- ------------- ---------- ------------- ------------- ------------ --------------
- --------- ------------- ---------- ------------- ------------- ------------ --------------
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- --------- ------------- ---------- ------------- ------------- ------------ --------------
- --------- ------------- ---------- ------------- ------------- ------------ --------------
<CAPTION>
COMMIT. EXP. DELIVERY WAREHOUSE
COMMIT. # DATE DATE LENDER
<S> <C> <C> <C>
- ------------- ---------------- ---------- -------------
- ------------- ---------------- ---------- -------------
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</TABLE>
<PAGE>
EXHIBIT B-1
[WAREHOUSE LENDER'S RELEASE]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
We hereby release all right, interest or claim of any kind, including any
security interest or lien, with respect to the mortgage loan(s) referenced
below, such release to be effective automatically without any further action by
any party, upon receipt, in one or more installments, from Paine Webber Real
Estate Securities Inc., in accordance with the wire instructions which we
delivered to you in a letter dated _________, 199_, in immediately available
funds, of an aggregate amount equal to the product of A multiplied by B (such
product being rounded to the nearest $0.01) multiplied by C.*
Street
Loan # Mortgagor Address City State Zip
- ---------- ------------ ------------ --------- -------- ----------
Very truly yours,
[WAREHOUSE LENDER]
BY:_____________________________
Name:___________________________
Title:__________________________
*A = weighted average trade price
B = principal amount of the mortgage loan(s)
C = 1 minus the discount set forth on the related funding confirmation
<PAGE>
EXHIBIT B-2
[WAREHOUSE LENDER'S WIRE INSTRUCTIONS]
Paine Webber Real Estate Securities, Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Paine Webber Real Estate Securities, Inc. Whole Loan Purchase:
Conduit Funding Program with [Seller]
------------------------------------------------------------------
Ladies and Gentlemen:
Set forth below are [Warehouse Lender's] wire instructions applicable
to the above-referenced Whole Loan Purchase: Program.
Wire Instructions:
- -----------------
Bank Name:
City, State:
ABA #:
Account #:
Account Name:
Please acknowledge receipt of this letter in the space provided below.
This letter supersedes and replaces any prior notice specifying the name of
[Warehouse Lender] and setting forth wire instructions and shall remain in
effect until superseded and replaced by a letter, in the form of this letter,
executed by each of us and acknowledged by you.
Very truly yours,
[SELLER]
By:_____________________________
Name:___________________________
Title:__________________________
[WAREHOUSE LENDER(S)]*
By:_____________________________
Name:___________________________
Title:__________________________
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By: _________________________
Name:
Title:
______________________
* The authorized officer of each warehouse lender executing this letter
must be the same authorized officer as signs the Warehouse Lender's
Release. Not applicable if there is no warehouse lender.
<PAGE>
EXHIBIT C-1
[SELLER'S RELEASE]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
With respect to the mortgage loan(s) referenced below (a) we hereby
certify to you that the mortgage loan(s) is not subject to a lien of any
warehouse lender and (b) we hereby release all right, interest or claim of any
kind with respect to such mortgage loan, such release to be effective
automatically without any further action by any party upon payment from
Purchaser to Seller of an aggregate amount equal to the product of A multiplied
by B (such product being rounded to the newest $0.01) multiplied by C* in
accordance with our wire instructions in effect on the date of such payment.
Street
Loan # Mortgagor Address City State Zip
- --------- ------------- ------------ ---------- -------- ---------
Very truly yours,
[SELLER]
By:_____________________________
Name:___________________________
Title:__________________________
*A = weighted average trade price
B = principal amount of the mortgage loan(s)
C = 1 minus the discount set forth on the related funding
confirmation
<PAGE>
EXHIBIT C-2
[SELLER'S WIRE INSTRUCTIONS]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Whole Loan Purchase: Conduit Funding Program with [Seller]
----------------------------------------------------------
Ladies and Gentlemen:
Set forth below are the [Seller's] wire instructions applicable to the
above-referenced Conforming Whole Loan Purchase: Program with [Seller].
Wire Instructions:
- -----------------
Bank Name:
City, State
ABA #:
Account #:
Account Name:
Please acknowledge receipt of this letter in the space provided below.
This letter supersedes and replaces any prior notice specifying our wire
instructions and shall remain in effect until superseded and replaced by a
letter, in the form of this letter, executed by us and acknowledged by you.
Very truly yours,
[SELLER]*
By:_________________________
Name:_______________________
Title:______________________
Receipt acknowledged by:
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By: ______________________________
Name:
Title:
_____________________
* The authorized officer of executing this letter must be the same
authorized officer as signs the Seller's Release. Applicable only if
there is no Warehouse Lender.
<PAGE>
EXHIBIT D
[PURCHASER'S WIRE INSTRUCTIONS TO SELLER]
Wire Instructions:
- -----------------
Bank Name:
City, State:
ABA #:
Account #:
Account Name:
Ref: [Name of Seller]
<PAGE>
EXHIBIT E
UCC-1 FINANCING STATEMENT
Debtor: [Seller]
Secured Party: Paine Webber Real Estate Securities Inc.
Item :
- ------
All right (including the power to convey title thereof), title and
interest of Debtor in and to the property listed below:
All participation certificates evidencing an interest in mortgage
loans, and all mortgage loans, mortgage notes, mortgages or deeds of
trust, assignments thereof and any and all documents and instruments
related thereto, which are subject to the interest of Secured Party or
any assignee under or pursuant to the Mortgage Loan Participation
Agreements and Mortgage Loan Purchase Agreements between Secured Party
and the Debtor.
<PAGE>
DRY/CW/CONDUIT PROGRAMS
3/26/96
MORTGAGE LOAN CUSTODIAL AGREEMENT
---------------------------------
PURCHASER: PAINE WEBBER REAL ESTATE SECURITIES INC.
ADDRESS: 1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
ATTENTION: Robert Carpenter
--------------------------------
CUSTODIAN: THE CHASE MANHATTAN BANK, N.A.
ADDRESS: MORTGAGE BANKING DIVISION
2 CHASE MANHATTAN PLAZA (20th FLOOR)
NEW YORK, NEW YORK 10081
ATTENTION: GLENN HETT
SELLER: United Financial Mortgage Corporation
-------------------------------------------
ADDRESS: 600 Enterprise Drive, Suite 206
-------------------------------------------
Oak Brook, IL 60521
-------------------------------------------
Attn: Joseph Khoshobe, President
-------------------------------------------
DATE: ___________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions.............................................................................................. 1
Section 2. Delivery of Documents by Seller.......................................................................... 9
Section 3. Custodian as Custodian for, and Bailee of, Purchaser, Assignee and Warehouse Lender...................... 9
Section 4. Certification by Custodian; Delivery of Documents........................................................ 11
Section 5. Funding by the Takeout Investor.......................................................................... 13
Section 6. Default.................................................................................................. 14
Section 7. Access to Documents...................................................................................... 14
Section 8. Custodian's Fees and Expenses; Successor Custodian; Standard of Care..................................... 14
Section 9. Assignment by Purchaser.................................................................................. 16
Section 10. Insurance................................................................................................ 16
Section 11. Representations, Warranties and Covenants................................................................ 16
Section 12. No Adverse Interests..................................................................................... 17
Section 13. Amendments............................................................................................... 17
Section 14. Execution in Counterparts................................................................................ 18
Section 15. Agreement for Exclusive Benefit of Parties; Assignment................................................... 18
Section 16. Effect of Invalidity of Provisions....................................................................... 18
Section 17. Governing Law............................................................................................ 18
Section 18. Consent to Service....................................................................................... 18
Section 19. Notices.................................................................................................. 18
Section 20. Certification............................................................................................ 18
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
Section 21. Construction ............................................................................................ 18
Exhibit A Dry Submission Package
Exhibit B-1 Cash Window Submission Package
Exhibit B-2 FHLMC Document List
Exhibit B-3 FNMA Document List
Exhibit B-4 FNMA Bailee Letter
Exhibit C-1 Conduit Submission Package
Exhibit C-2 Conduit Bailee Letter
Exhibit D Conversion Submission Packages
Exhibit E Request for Certification
Exhibit F Document Codes
Exhibit G-1 Warehouse Lender's Release
Exhibit G-2 Warehouse Lender's Wire Instructions
Exhibit H-1 Seller's Release
Exhibit H-2 Seller's Wire Instructions
Exhibit I-1 Purchaser's Wire Instructions to Seller
Exhibit I-2 Purchaser's Wire Instructions to Custodian
Exhibit I-3 Purchaser's Delivery Instructions to Custodian
Exhibit J Notice by Assignee to Custodian of Purchaser's Default
Exhibit K Limited Power of Attorney
Exhibit L Unidentified Mortgage Loans List
Exhibit M Unidentified/Suspension Mortgage Loan Directive
Exhibit N Form of Delivery Instructions
Exhibit O Purchaser's Instructions to Custodian to Destroy Specified Files
Exhibit P List of Primary Mortgage Insurers
Schedule A List of Conduits
</TABLE>
-ii-
<PAGE>
MORTGAGE LOAN CUSTODIAL AGREEMENT
THIS Mortgage Loan Custodial Agreement ("Agreement"), dated as of the
date set forth on the cover page hereof, among PAINE WEBBER REAL ESTATE
SECURITIES INC. ("Purchaser"), THE CHASE MANHATTAN BANK, N.A. ("Custodian") and
the SELLER whose name is set forth on the cover page hereof ("Seller").
PRELIMINARY STATEMENT
Purchaser has agreed to purchase, from time to time, as its sole
election from Seller, certain residential first mortgage loans pursuant to the
terms and conditions of one or more Purchase Agreements between Purchaser and
Seller relating to Dry Transactions, Cash Window Transactions or Conduit
Transactions. Seller is obligated to service the Mortgage Loans pursuant to the
terms and conditions of the Purchase Agreements. Purchaser desires to have
Custodian take possession of the Mortgage Notes evidencing the Mortgage Loans,
along with certain other documents specified herein, as the custodian for and
bailee of Purchaser or Assignee in accordance with the terms and conditions
hereof.
The parties hereto agree as follows:
Section 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
"Agency": FHLMC or FNMA, as applicable.
"Applicable Agency Documents": The documents listed on Exhibit
B-2 or Exhibit B-3, as applicable.
"Applicable Guide": With respect to each Takeout Investor the
applicable guide published by such Takeout Investor setting forth the
requirements each Mortgage Loan needs to satisfy in order to be
eligible for purchase by such Takeout Investor, as such guide may be
amended or supplemented from time to time.
"Assignee": The Chase Manhattan Bank, National Association, as
agent for certain beneficiaries pursuant to certain Repurchase
Transaction Tri-Party Custody Agreements.
"Assignment of Mortgage": An assignment of the Mortgage, notice
of transfer or equivalent instrument sufficient under the laws of the
jurisdiction wherein the related, Mortgaged Property is located to
reflect of record the sale of a Mortgage Loan.
"Bailee Letter": A FNMA Bailee Letter or a Conduit Bailee Letter,
as applicable.
<PAGE>
-2-
"Business Day": Any day other than (a) a Saturday, Sunday or other day
on which banks located in The City of New York, New York are authorized or
obligated by law or executive order to be closed, or (b) any day on which
Paine Webber Real Estate Securities Inc. is closed for business, provided
that notice thereof shall have been given not less than seven calendar days
prior to such day.
"Cash Window Submission Package": The documents listed on Exhibit B-1,
which shall be delivered by Seller to Custodian in connection with each
Cash Window Transaction.
"Cash Window Transaction": A transaction initiated by Purchaser's
delivery of a Request for Certification which identifies FNMA or FHLMC as
the Takeout Investor but does not include a Conversion Code.
"Certification": With respect to a Mortgage Loan, the full performance
by Custodian of the procedures set forth in Sections 4(a) and 4(b).
"Certification Code": A Mortgage Loan Absentee Code, a Mortgage Loan
Approval Code or a Mortgage Loan Suspension Code.
"Certification Report": A Request for Certification to which Custodian
has added its Certification Codes and, when a Certification Code indicates
suspension, applicable Exception Codes, and which is transmitted by
Custodian to Purchaser in an appropriate data layout provided by Purchaser.
"Commitment": A commitment executed by Takeout Investor and Seller
evidencing Takeout Investor's agreement to purchase one or more Mortgage
Loans from Seller and Seller's agreement to sell one or more Mortgage Loans
to an investor in a forward trade by the applicable Commitment Expiration
Date.
"Commitment Expiration Date": With respect to any Commitment, the
expiration date thereof.
"Conduit": Any of the Entities listed on Schedule A, as amended or
supplemented from time to time.
"Conduit Bailee Letter": The master bailee letter, in the form of
Exhibit C-2, for use by Custodian in connection with the delivery of a
Conduit Submission Package, provided, however, for the purposes of
delivering the related Conduit Submission Package, excluding (i) a copy of
the Commitment, (ii) the Warehouse Lender's Release or Seller's Release, as
applicable, and (iii) the original Assignment of Mortgage, in blank, to a
Conduit.
"Conduit Submission Package": The documents listed on Exhibit C-1,
which shall be delivered by Seller to Custodian in connection with each
Conduit Transaction.
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"Conduit Transaction": A transaction initiated by Purchaser's delivery
of a Request for Certification which identifies a Conduit as the Takeout
Investor but does not include a Conversion Code.
"Confirmation": A confirmation confirming a trade between Seller and
Takeout Investor.
"Conversion Code": With respect to a Mortgage Loan, the conversion
code set forth in Part II of Exhibit F, entered by Purchaser, along with
the Program Code, in the "PROG CODE" column of the related Request for
Certification indicating that (i) such Mortgage Loan was previously
acquired by Purchaser in a Dry Transaction and (ii) a Conversion Submission
Package shall be received by Custodian on the applicable Delivery Date.
"Conversion Submission Package": One of the sets of documents listed
on Exhibit D, which shall be delivered by Seller to Custodian in connection
with each Conversion Transaction.
"Conversion Transaction": With respect to a Mortgage Loan, a
transaction initiated by Purchaser's delivery to Custodian of a Request for
Certification containing a Conversion Code. A Conversion Transaction shall
always be preceded by a Dry Transaction.
"Custodian": The Chase Manhattan Bank, National Association, and its
permitted successors hereunder.
"Delivery Date": With respect to a Mortgage Loan, the date set forth
on the related Request for Certification in the "DELIVERY DATE" column,
which shall be the Business Day on which Seller desires the applicable
portion of the related Submission Package be sent by Custodian to the
----
Takeover Investor, i.e., one Business Day prior to the Business Day on
which Seller desires the applicable portion of the Submission Package to be
received by the Takeout Investor.
--------
"Delivery Directive": With respect to each Mortgage Loan either
appearing on an Unidentified Mortgage Loan List or marked by Custodian with
a Suspension Code on a Certification Report, the delivery directive, set
forth in Part IV of Exhibit F, used by Purchaser in a notice in the form of
Exhibit M, to direct Custodian to deliver the related Submission Package in
accordance with the Delivery Instructions.
"Delivery Instructions": With respect to a Mortgage Loan, instructions
prepared by Seller, in the form of Exhibit N indicating the address for the
delivery by Custodian of the applicable portion of the related Submission
Package.
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"Dry Submission Package": The documents listed on Exhibit A, which
shall be delivered by Seller to Custodian in connection with each Dry
Transaction.
"Dry Transaction": A transaction initiated by Purchaser's delivery to
Custodian of a Request for Certification, which does not identify a Takeout
Investor, and which does not include a Conversion Code.
"Entity": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or
political subdivision thereof.
"Exception Code": Each of the exception codes set forth in Part V of
Exhibit F, placed by Custodian on a Certification Report indicating missing
documents, incomplete documents and deficiencies in documents reviewed by
Custodian.
"Expected Delivery Date": The date identified on a Request for
Certification as the "Expected Delivery Date of Mortgage File", which shall
be the date on which Seller has informed Purchaser that a Submission
Package will be received by Custodian from Seller.
"FHLMC": The Federal Home Loan Mortgage Corporation and any successor
thereto.
"FHLMC Commitment": A commitment executed by FHLMC and Seller
evidencing FHLMC's agreement to purchase one or more Mortgage Loans from
Seller and Seller's agreement to sell one or more Mortgage Loans to FHLMC
by the applicable Commitment Expiration Date under the Applicable Guide.
"FNMA" The Federal National Mortgage Association and any successor
thereto.
"FNMA Bailee Letter": The master bailee letter, in the form of Exhibit
B-4, for use by Custodian in connection with the delivery to FNMA of the
Cash Window Submission Package, excluding (i) the original Assignment of
Mortgage, in blank, (ii) the Warehouse Lender's Release or Seller's
Release, as applicable, (iii) all modification agreements relating to a
Mortgage, (iv) the Delivery Instructions and (v) copy of the Commitment.
"FNMA Commitment": A commitment executed by FNMA and Seller,
evidencing FNMA's agreement to purchase one or more Mortgage Loans from
Seller and Seller's agreement to sell one or more Mortgage Loans to FNMA by
the applicable Commitment Expiration Date under the Applicable Guide.
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"Hold Directive": With respect to a Mortgage Loan either appearing on an
Unidentified Mortgage Loan List or marked by Custodian with a Suspension Code on
a Certification Report, the hold directive, set forth in Part IV of Exhibit F,
used by Purchaser in a notice in the form of Exhibit M to direct Custodian to
continue to hold the related Submission Package.
"HUD": United States Department of Housing and Urban Development and any
successor thereto.
"Limited Power of Attorney": A limited power of attorney, in the form of
Exhibit K, executed by Seller and delivered to Custodian, authorizing Custodian
to prepare Mortgage Note endorsements in the form indicated thereon.
"Loan Identification Data": The applicable information regarding a Mortgage
Loan, set forth on a Request for Certification, which shall include Purchaser's
reference number, the name of Purchaser's applicable program, the Mortgage Loan
number, the last name of the Mortgagor, the face amount of the Mortgage Note,
the number of months to maturity of the Mortgage Loan, and the interest rate
borne by the Mortgage Note and, solely with respect to Cash Window Transactions,
Conduit Transactions and Conversion Transactions, the name of the Takeout
Investor, the sale price of the Mortgage Loan to the Takeout Investor, the
commitment number, the Commitment Expiration Date, the Delivery Date, the
Release Payment, and the name of the Warehouse Lender.
"Losses": Any and all losses, claims, damages, liabilities or expenses
(including reasonable attorney's fees) incurred by any person specified;
provided however that "Losses" shall not include losses, claims, damages,
liabilities or expenses which would have been avoided had such person taken
reasonable actions to mitigate such losses, claims, damages, liabilities or
expenses.
"Mortgage": A mortgage, deed of trust or other security instrument creating
a first lien on an estate in fee simple in real property securing a Mortgage
Note.
"Mortgage Loan": A one-to-four family residential mortgage loan that is
subject to this Agreement.
"Mortgage Loan Absentee Code": The mortgage loan absentee code, set forth
in Part III of Exhibit F, placed by Custodian on a Certification Report to
notify Purchaser that a Submission Package related to a Mortgage Loan listed on
a Request for Certification is not in Custodian's possession.
"Mortgage Loan Approval Code": The mortgage loan approval code, set forth
in Part III of Exhibit F, placed by Custodian on a Certification Report to
notify Purchaser that Custodian's review of the applicable items in a Submission
<PAGE>
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Package is complete and that such items satisfy all the applicable requirements
set forth in Section 4(a) and Section 4(b).
"Mortgage Loan Suspension Code": The mortgage loan suspension code, set
forth in Part III of Exhibit F, placed by Custodian on a Certification Report to
notify Purchaser that Custodian's review of the Submission Package has
determined that one or more of the documents in the Submission Package are
missing, incomplete or incorrect and/or do not satisfy one or more of the
requirements set forth in Section 4(a) or Section 4(b).
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property": The property subject to the lien of the Mortgage
securing a Mortgage Note.
"Mortgagor": The obligor on a Mortgage Note.
"Notice of Bailment": A notice, in the form of Schedule A to Exhibit B-4 or
C-2, as applicable, delivered by Custodian to Takeout Investor in connection
with each delivery to Takeout Investor of the applicable portion of each
Submission Package.
"Payee Number": The code used by FNMA to indicate the wire transfer
instructions that will be used by FNMA to purchase a Mortgage Loan.
"Primary Mortgage Insurer": Any one of the Entities set forth on Exhibit P,
as such Exhibit may be amended or supplemented from time to time.
"Program Code": Each of the codes, set forth in Part I of Exhibit F, placed
by the Purchaser in the "PROG CODE" column of a Request for Certification
indicating that the Mortgage Loan is being offered by Seller to Purchaser in a
Dry Transaction, Cash Window Transaction or a Conduit Transaction, as
applicable.
"Purchase Agreement": Each Mortgage Loan Purchase Agreement, dated as of
the date set forth on the cover page thereof, between Seller and Purchaser, as
each is amended from time to time providing the terms of Dry Transactions, Cash
Window Transactions, Conduit Transactions or Conversion Transactions.
"Purchase Date": With respect to a Mortgage Loan, the date on which
Purchaser purchases such Mortgage Loan from Seller.
"Purchaser": Paine Webber Real Estate Securities Inc. and its successors.
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"Purchaser's Wire Instructions to Seller": The wire
instructions, set forth on Exhibit I-1, specifying the account which
shall be used for the payment of all amounts due and payable by Seller
to Purchaser hereunder.
"Purchaser's Payment": The amount set forth on the Request for
Certification in the "RELEASE PAYMENT" column.
"Purchaser's Wire Instructions to Custodian": Wire Instructions
delivered by Purchaser to Custodian, in the form of Exhibit 1-2,
executed by Purchaser, receipt of which has been acknowledged by
Custodian specifying the wire address where all funds received in
accordance with Purchaser's Wire Instructions to Seller shall be
transferred by Custodian.
"Release Payment": The funds referred to in a Warehouse Lender's
Release or Seller's Release, as applicable.
"Request for Certification": A report detailing Loan
Identification Data supplied by Seller to Purchaser, transmitted by
Purchaser to Custodian either via facsimile in the form of Exhibit E
or transmitted electronically in an appropriate data layout, regarding
all Mortgage Loans being offered for sale by Seller to Purchaser on
the Submission Package Delivery Date.
"Return Directive": With respect to each Mortgage Loan either
appearing on an Unidentified Mortgage Loan List or marked by Custodian
with a Suspension Code on a Certification Report, the return
directive, set forth in Part IV of Exhibit F, used by Purchaser in a
notice in the form of Exhibit M, to direct Custodian to deliver (i)
the related Submission Package in accordance with the terms of the
applicable bailee letter pursuant to which such Submission Package was
delivered to Custodian or (ii) the related Submission Package to the
Entity who sent such Submission Package to Custodian if no bailee
letter was included in the Submission Package, as applicable.
"Seller": The Seller whose name is set forth on the cover page
hereof, and its permitted successors hereunder.
"Seller's Release": A letter, in the form of Exhibit H-1,
delivered by Seller when no Warehouse Lender has an interest in a
Mortgage Loan, conditionally releasing all of Seller's right, title
and interest in such Mortgage Loan upon receipt of payment by Seller.
"Seller's Wire Instructions": The wire instructions, set forth in
a letter in the form of Exhibit H-2, to be used for the payment of
funds to Seller when no Warehouse Lender has an interest in the
Mortgage Loans to which such payment relates.
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"Submission Package": With respect to each Mortgage Loan, a Dry
Submission Package, a Cash Window Submission Package, a Conduit
Submission Package or a Conversion Submission Package, as applicable.
"Successor Servicer": An entity designated by Purchaser, in
conformity with the Purchase Agreement, to replace Seller as servicer
for Purchaser, and, with respect to Cash Window Transactions, as
seller/servicer of the Mortgage Loans for the Agency.
"Takeout Investor": An Agency or a Conduit, as applicable.
"Underwriter": Any party, including but not limited to a mortgage
loan pool insurer, who underwrites a Mortgage Loan prior to its
purchase by Purchaser.
"Underwriter's Form": A FNMA/FHLMC Form 1008/1077, HUD 92900WS,
HUD92900.4, VA Form 26-6393, VA Form 26-1866, a mortgage loan pool
insurance certificate, or an underwriting approval form from a Primary
Mortgage Insurer, as applicable, completed by an Underwriter with
respect to a Mortgage Loan, indicating that such Mortgage Loan
complies with its underwriting requirements.
"Unidentified/Suspension Mortgage Loan Directive": A Delivery
Directive, a Hold Directive or a Return Directive, as applicable.
"Unidentified Mortgage Loans List": A list of Mortgage Loans for
which Custodians has received the related Submission Packages from
Seller but which have not been identified by Purchaser in a Request
for Certification. Such list shall include, with respect to each
Mortgage Loan, the information set forth in Exhibit L.
"Warehouse Lender": Any lender providing financing to Seller in
any fractional amount for the purpose of originating or purchasing
Mortgage Loans, which lender has a security interest in such Mortgage
Loans as collateral for the obligations of Seller to such lender. In
all Dry Transactions and Conversion Transactions, Purchaser shall be
the Warehouse Lender.
"Warehouse Lender's Release": A letter, in the form of Exhibit
G-1, from a Warehouse Lender to Purchaser, conditionally releasing all
of Warehouse Lender's right, title and interest in certain Mortgage
Loans identified therein upon receipt of payment by Warehouse Lender.
"Warehouse Lender's Wire Instructions": The wire instructions,
set forth in a letter in the form of Exhibit G-2, from a Warehouse
Lender to Purchaser, setting forth wire instructions for all amounts
due and payable to such Warehouse Lender.
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Section 2. Delivery of Documents by Seller.
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(a) Seller may, before the first purchase by Purchaser under a
Purchase Agreement of a Mortgage Loan, deliver to Custodian a Limited Power of
Attorney, provided, however, Custodian shall have no responsibility or
obligation to act under such Limited Power of Attorney.
(b) If Seller desires to engage in Cash Window Transactions:
(1) relating to a FHLMC Commitment, Seller shall deliver to
Purchaser a copy of (i) FHLMC Form 1035 (Custodial Agreement), if
applicable, duly executed by the related custodian and FHLMC, and (ii)
FHLMC Form 3 (Summary Agreement) or such other equivalent agreement as is
acceptable to Purchaser, duly executed by Seller and FHLMC; or
(2) relating to a FNMA Commitment, Seller shall deliver to
Purchaser a copy of (i) Fannie Mae Form 2003 (Custodial Agreement) if
applicable, duly executed by the related custodian and FNMA. (ii) Fannie
Mae Mortgage Selling and Servicing Contract, and Fannie Mae Form 482
(Designation of Payee- Wire Transfer Information).
(c) With respect to each Mortgage Loan being offered by Seller for
sale to Purchaser pursuant to (i) a Dry Transaction, (ii) a Cash Window
Transaction, (iii) a Conduit Transaction or (iv) a Conversion Transaction,
Seller shall deliver to Custodian a Submission Package on the Expected Delivery
Date. In no event shall Seller deliver a Submission Package to Custodian later
than 12:00 Noon New York City time on the related Delivery Date.
Section 3. Custodian as Custodian for, and Bailee of, Purchaser,
----------------------------------------------------
Assignee and Warehouse Lender. (a) With respect to each Mortgage Note, each
- -----------------------------
Assignment of Mortgage and all other documents constituting each Submission
Package that are delivered to Custodian or that at any time come into
Custodian's possession. Custodian, subject to the provisions of paragraphs (b)
and (c) of this Section 3, shall act solely in the capacity of custodian for,
and bailee of, Purchaser, Custodian shall, subject to the provisions of
paragraphs (b) and (c) of this Section 3 and except as otherwise required by
Section 4, hold all documents constituting a Submission Package received by it
for the exclusive use and benefit of Purchaser, and shall make disposition
thereof only in accordance with this Agreement. Custodian shall segregate and
maintain continuous custody of all documents constituting a Submission Package
received by it in secure and fireproof facilities in accordance with customary
standards for such custody and shall mark its books and records to indicate that
the Submission Package is being held for Purchaser.
(b) Purchaser hereby notifies Custodian that each Mortgage Loan
purchased by Purchaser from Seller shall be promptly assigned by Purchaser to
Assignee, as of the date of Purchase, as described in Section 9. Upon notice, in
the form of Exhibit J, by Assignee to Custodian of Purchaser's default, Assignee
may (i) require Custodian to act with respect to the related Submission Packages
solely in the capacity of custodian for, and bailee of, Assignee, but
<PAGE>
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nevertheless subject to and in accordance with the terms of this Agreement,
(ii) require Custodian to hold such Submission Packages for the exclusive use
and benefit of Assignee and (iii) assume the rights of Purchaser under this
Agreement to furnish instructions to Custodian as to the disposition of such
Submission Packages and such rights shall be exercisable solely by Assignee.
Custodian shall give Assignee written acknowledgment to the effect set forth in
(i), (ii) and (iii), by executing such notice and returning a copy thereof to
Assignee. In the event that, prior to receipt of such notice from Assignee,
Custodian delivered any Submission Package to Purchaser, Takeout Investor or
Purchaser's designee. Custodian shall so notify Assignee, and Custodian shall
not be deemed to hold such Submission Package for Assignee unless and until such
Submission Package is redelivered to Custodian. The failure of Custodian to give
the written acknowledgement referred to above shall not affect the validity of
such assignment, pledge or grant of a security interest. The effects of
Assignee's notice to Custodian set forth above shall continue until Custodian is
otherwise notified in writing by Assignee. The terms of this Agreement shall not
apply to any Submission Package physically delivered by Custodian to Assignee.
(c) Seller and Purchaser acknowledge that Warehouse Lender, if any,
identified from time to time in each Warehouse Lender's Release to be received
by Custodian pursuant to Section 2(c), is a warehouse lender for the Seller.
Seller and Purchaser acknowledge that, in accordance with the terms of each
Warehouse Lender's Release to be received by the Custodian pursuant to Section
2(c), pursuant to which each such Warehouse Lender conditionally releases its
security interest in the Mortgage Loan referred to in the related Warehouse
Lender's Release, such release shall not be effective until the Release
Payment is received in accordance with the Warehouse Lender's Wire Instructions.
Until receipt of a Release Payment, the interest of the related Warehouse Lender
in a Mortgage Loan shall continue and remain in full force and effect.
(d) If any additional documents relating to the Submission Package
come into the Custodian's posession, the provisions of paragraphs (a), (b) and
(c) of this Section 3 shall apply to such additional documents in the same
manner as such provisions apply to related Submission Package.
(e) Purchaser shall notify Custodian on each Business Day, of all
Mortgage Loans purchased by Purchaser on such Business Day which relate to this
Agreement.
Section 4 Certificate by Custodian: Delivery of Documents.
-----------------------------------------------
(a) With respect to each Mortgage Loan that Purchaser desires to
purchase, Purchaser shall deliver to Custodian a Request for Certification. Upon
receipt by Custodian of a Request for Certification, Custodian shall perform the
following procedures with respect to each Mortgage Loan listed on such Request
for Certification:
(i) Custodian shall ascertain whether it is in possession of a
Submission Package for each Mortgage Loan identified on a Request for
Certification. If Custodian is not in possession of a Submission Package
relating to a Mortgage Loan identified on a Request for Certification,
Custodian shall annotate its Certification Report in the
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appropriate space provided with a Mortgage Loan Absentee Code. If Custodian
is in possession of Submission Packages delivered by Seller which do not
relate to any of the Mortgage Loans listed on a Request for Certification,
Custodian shall generate an Unidentified Mortgage Loans List and shall
deliver such List promptly to Purchaser, Purchaser shall deliver a copy of
such Unidentified Mortgage Loans List to Seller. No action shall be taken
by Custodian, other than in accordance with Unidentified/Suspension
Mortgage Loan Directive or a notice in the form of Exhibit I-3, with
respect to Mortgage Loans appearing on an Unidentified Mortgage Loans List
until any such Mortgage Loans are included in a Request for Certification.
On each Business Day during which a Mortgage Loan shall appear on an
Unidentified Mortgage Loans List, Purchaser shall send to Custodian an
Unidentified/Suspension Mortgage Loan Directive or a notice in the form of
Exhibit I-3, with respect to the related Submission Package.
(ii) With respect to each Request for Certification Custodian shall:
(A) verify the Loan Identification Data appearing in (1) the
"LAST NAME" column by comparing such Loan Identification Data to the
information in the Mortgage Note and Assignment of Mortgage and (2)
the "FACE AMOUNT","# OF MONTHS TO MATURITY" and "NOTE RATE" columns
by comparing such Loan Identification Data to the information in the
Mortgage Note;
(B) if the Program Code indicates a Cash Window Transaction,
verify the Loan Identification Data appearing in the "LOAN #" column
by comparing the related information in any of the related Applicable
Agency Documents;
(C) if the Program Code indicates a Cash Window Transaction,
Conduit Transaction or Conversion Transaction, verify the Loan
Identification Data appearing in the "TAKEOUT INVESTOR", "SALE PRICE",
"COMMITMENT #", and "COMMITMENT EXPIRATION DATE" columns by comparing
such Loan Identification Data to the information appearing in the
Commitment; and
(D) if the Program Code indicates a Cash Window Transaction or
a Conduit Transaction, verify the Loan Identification Data appearing
in the "WAREHOUSE LENDER" column by comparing such Loan Identification
Data to the information appearing in the Warehouse Lender's Release or
Seller's Release, as applicable.
After applying the applicable procedures set forth in clauses (A), (B) and (C)
above, any discrepancies between the Loan Identification Data and documents
comprising the Submission Package shall be noted by Custodian in the appropriate
column immediately below each item of Loan Identification Data.
(b) With respect to each Request for Certification, following completion
by Custodian of the procedures set forth in Section (4)(a).
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(i) Custodian shall review each applicable set of documents
comprising the Submission Package and shall ascertain whether (A) each
such document is in Custodian's possession, (B) each such document
accurately conforms with the Loan Identification Data set forth in the
Request for Certification or as modified by any notations supplied by
Custodian pursuant to Section 4(a)(ii), (C) each such document appears
regular on its face, (D) each such document in the Submission Package
appears on its face to conform to the requirements of Exhibit A, Exhibit B-
1, Exhibit C-1 or Exhibit F, as applicable, (E) unless the Program Code
indicates either a Dry Transaction or a Conversion Transaction, the
Mortgage Loan is listed on a schedule attached to a Warehouse Lender's
Release or a Seller's Release, as the case may be, (F) either (1) if the
Release Payment is a dollar amount, the amount appearing the "RELEASE
PAYMENT" column on the Request for Certification is equal to or exceeds the
Release Payment, or (2) if the Program Code indicates either a Dry
Transaction or a Conversion Transaction, or if the Release Payment is a
formula, as indicated in Exhibit G-1, the Custodian need not verify the
amount, if any, appearing in the "RELEASE PAYMENT" column and (G) (1) with
respect to the wire transfer instructions as set forth in FHLMC Form 987
(Wire Transfer Authorization for a Cash Warehouse Delivery) such wire
transfer instructions are identical to Purchaser's Wire Instructions to
Seller or (2) the Payee Number set forth on Fannie Mae Form 1068 (Fixed-
Rate, Graduated-Payment, or Growing-Equity Mortgage Loan Schedule) or
Fannie Mae Form 1069 (Adjustable-Rate Mortgage Loan Schedule), as
applicable, is identical to the Payee Number that has been identified by
Purchaser in the Request for Certification.
(ii) If Custodian determines that the documents in the Submission
Package and the Mortgage Loan to which they relate conform in all respects
with Section 4(b)(i). Custodian shall so indicate in the space provided in
its Certification Report with a Mortgage Loan Approval Code. If Custodian
determines that the documents in a Submission Package and the Mortgage Loan
to which they relate conform in all respects with Section 4(b)(i) except
that the endorsement of the Mortgage Note is missing, Custodian may, but
shall not be obligated to, prepare such endorsement pursuant to the Limited
Power of Attorney. If documents in the Submission Package do not conform in
all respects with Section 4(b)(i) or are missing and/or do not conform.
Custodian shall annotate its Certification Report with a Mortgage Loan
Suspension Code followed by each applicable Exception Code such that
Purchaser is informed of each and every missing document and/or non-
conformity in the space provided in its Certification Report. With respect
to each Mortgage Loan that has been given a Mortgage Loan Suspension Code,
Purchaser shall, on each Business Day during which such Mortgage Loan
Suspension Code is in effect, send to Custodian an Unidentified/Suspension
Mortgage Loan Directive or a notice in the form of Exhibit I-3, with
respect to the relate Submission Package.
(c) Custodian shall use its reasonable efforts to perform a
Certification with respect to any Submission Package delivered after 12:00 Noon
New York City time on a related Delivery Date for which it has received a
Request for Certification. Upon completion of its Certification, Custodian shall
deliver a Certification Report to Purchaser. All applicable documents comprising
a Submission Package relating to Mortgage Loans with respect to which
<PAGE>
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Custodian has assigned a Mortgage Loan Approval Code shall be delivered by
Custodian in the form and specific order required by Seller, via overnight
courier in accordance with the Delivery Instructions on the applicable Delivery
Date and, except with respect to Mortgage Loans for which FHLMC is the Takeout
Investor, under cover of a fully completed Notice of Bailment prepared by
Custodian in accordance with the terms of the Bailee Letter. If Seller fails to
instruct Custodian regarding the order and specific form for a delivery to
Takeout Investor of such applicable documents, the Custodian shall deliver such
applicable documents in the original form and specific order received from
Seller. With respect to Conduit Transactions in which the Takeout Investor is
The Prudential Home Mortgage Corporation each folder must be clearly market
"SRF". In those cases where a copy of any intervening mortgage assignment, or an
unrecorded original of any intervening mortgage assignment are delivered to the
Custodian, Seller shall cause the original of such instrument to be recorded. If
Delivery Instructions direct Custodian to deliver any portion of a Submission
Package to a location that is not Takeout Investor's office, Custodian must
receive Purchaser's written consent to make deliveries to such location prior to
complying with such Delivery Instructions. Upon receipt of one written approval
from Purchaser, such written approval shall, unless Custodian receives a notice
from Purchaser to the contrary, be deemed to apply to all Delivery Instructions
delivered in the future by Seller that list such location. Following delivery by
Custodian of the applicable portion of a Submission File to Takeout Investor,
all remaining documents comprising such Submission Package shall be held by
Custodian until receipt by Custodian of written instructions from Purchaser to
destroy such documents. Each month, Purchaser may, but shall not be obligated
to, deliver to Custodian a notice in the form of Exhibit O, informing Custodian
of all files that Purchaser has authorized Custodian to destroy.
All applicable documents comprising a Submission Package relating to
Mortgage Loans with respect to which Custodian has assigned a Mortgage Loan
Suspension Code shall be held by Custodian until receipt from Purchaser of
instructions. On each Business Day during which a Mortgage Loan shall have a
Mortgage Loan Suspension Code assigned to it, Purchaser shall send to Custodian
an Unidentified/Suspension Mortgage Loan Directive with respect to such Mortgage
Loan.
(d) At any time following the delivery of a Certification, in the
event Custodian becomes aware of any defect with respect to such Submission
Package or the related forms, including the return of documents to the Custodian
from Takeout Investor due to a defect in such documents, the Custodian shall
give prompt oral notice of such defect to the Purchaser, followed by a written
specification thereof.
Section 5. Funding by the Takeout Investor. Custodian shall promptly
-------------------------------
notify Purchaser, either electronically or by facsimile, upon receipt, in
accordance with Purchaser's Wire Instructions to Seller, of funds by Custodian.
Each notice shall identify all such funds by (i) the amount, (ii) the source
from which such funds were received and (iii) to the extent received by
Custodian, Seller's name. Unless Custodian is otherwise instructed by Assignee,
Custodian shall promptly transfer such funds to Purchaser in accordance with
Purchaser's Wire Instructions to Custodian.
<PAGE>
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Section 6. Default. If Seller fails to fulfill any of its
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obligations under the Purchase Agreement or hereunder or in connection with the
exercise by Purchaser of any remedy pursuant to Section 3 of the Purchase
Agreement then, subject to the provisions of Section 3(c) hereof, Purchaser may,
by notice to Custodian, (a) appoint Custodian as its delegee to complete the
endorsements on the Mortgage Notes held by Custodian and to complete and record
at Purchaser's expense the related blank Assignments of Mortgages relating to
the affected Mortgage Loan in accordance with Purchaser's instructions and, when
applicable, and (b) require Custodian to deliver to Purchaser, Takeout Investor
or Successor Servicer the Submission Packages (or any portion thereof specified
by Purchaser) in Custodian's possession or under Custodian's control to which
the failure relates.
Section 7. Access to Documents. Upon reasonable prior written notice
-------------------
to Custodian, Purchaser (and if the Mortgage Loans have been assigned, Assignee)
and its agents, accountants, attorneys and auditors will be permitted during
normal business hours to examine and copy at their expense the Submission
Packages, documents, records and other papers in possession of or under the
control of Custodian relating to any or all of the Mortgage Loans in which
Purchaser has an interest. Upon the request of Purchaser (or, if applicable,
Assignee) and at the cost and expense of Purchaser (or, if applicable,
Assignee), Custodian shall provide such Purchaser (or, if applicable, Assignee)
with copies of the Mortgage Notes, Assignments of Mortgage and other documents
in Custodian's possession relating to any of the Mortgage Loans in which
Purchaser (or, if applicable, Assignee) has an interest.
Section 8. Custodian's Fees and Expenses: Successor Custodian:
--------------------------------------------------
Standard of Care. (a) It is understood that Seller will be charged for
- ----------------
Custodian's fees for its services under this Agreement in such amounts and in
the manner set forth in the related Purchase Agreement. Notwithstanding the
foregoing, Custodian has no lien on, and shall not attempt to place a lien on,
any of the Mortgage Loans or proceeds thereof to secure the payment of its fees.
(b) Subject to the provisions of any other agreement between
Custodian and Purchaser, Custodian may only resign for cause. Such resignation
shall take effect upon the earlier of (i) the appointment of a successor
Custodian by Purchaser and delivery of all the Submission Packages and any
portion of the related documents in Custodian's possession to the successor
Custodian, and (ii) the delivery of all the Submission Packages and any portion
of the related documents in Custodian's possession to the Purchaser or its
designee pursuant to (c) below.
(c) In the event of any such resignation, Custodian shall promptly
transfer to the successor Custodian all Submission Packages and related
documents in Custodian's possession and the successor Custodian shall hold
Submission Packages and related documents in accordance with this Agreements. If
Purchaser directs the removal of Custodian, Purchaser shall be responsible for
all expenses associated with the transfer of the Submission Packages and any
related documents in Custodian's possession and for any fee of the successor
Custodian in excess of the fees of the initial Custodian hereunder. The
Purchaser shall have 90 days in which to appoint and designate an acceptable
successor Custodian. If the Purchaser fails to appoint a successor Custodian
within such 90-day period, then Custodian shall deliver possession and custody
of the Submission Packages and any related Submission Packages in Custodian's
<PAGE>
-15-
possession to Purchaser at the address specified on the cover page hereof, or if
a timely written designation is received by Custodian, to any designee of
Purchaser.
(d) Custodian shall have responsibility only for the Submission
Packages and the contents thereof which have been actually delivered to it and
which have not been released to Seller, Purchaser, the Agency or Assignee or
their respective agent or designee in accordance with this Agreement. The
standard of care to be exercised by Custodian in the performance of its duties
under this Agreement shall be to exercise the same degree of care as Custodian
exercises when it holds mortgage loan documents as security for its own loans or
its own mortgage warehouse loan customers. Custodian is an agent, bailee and
custodian only and is not intended to be, nor shall it be construed to be
(except only as agent, bailee and custodian), a representative, trustee or
fiduciary of or for either Seller, the Agency, Purchaser or Assignee.
(e) Custodian shall incur no liability to any Entity for Custodian's
acts or omissions hereunder, except for liabilities which (i) arise from
Custodian's gross negligence or willful misconduct or (ii) solely with respect
to the Purchaser, which arise from Custodian negligently or intentionally
failing to (A) issue an accurate Certification Report, provided, however, any
such liability shall not be incurred with respect to the issuance of an
inaccurate Certification Report if the defect causing such inaccuracy would not
have been ascertainable by the Custodian applying the procedures expressly set
forth in this Agreement, (B) timely deliver the Submission Package in accordance
with the Delivery Instructions or Purchaser's written instructions, as
applicable, (C) prevent the loss, damage or destruction of any document included
in a Submission Package when held by Custodian, (D) perform its obligations
under Section 5 or (E) comply with an Unidentified/Suspension Mortgage Loan
Directive; provided, however, Custodian shall have no liability hereunder if
Custodian's failure to perform resulted from the inaction or action of any other
Entity, other than Entities that are affiliated with Custodian or are acting
under the direct control of Custodian. Custodian's liability under this
Agreement shall be limited to direct damages resulting from aforesaid. In
addition Custodian shall not be liable, directly or indirectly, for any losses,
claims, damages, liabilities or expenses which would have been avoided had any
Entity making a claim taken reasonable action to mitigate such losses, claims,
damages, liabilities or expenses or (2) special or consequential damages, even
if Custodian had been advised of the possibility of such damages; provided,
however, that Purchaser's direct damages resulting from a decline in the market
value of a Mortgage Loan shall not be deemed special or consequential damages.
(f) Custodian shall be entitled to reply upon the advice of its legal
counsel from time to time and shall not be liable for any action or inaction by
it in reliance upon such advice. Custodian also shall be entitled to reply upon
any notice, document, correspondence, request or directive received by it from
Seller, Takeout Investor, Purchaser or Assignee, as the case may be, that
Custodian believes to be genuine and to have been signed or presented by the
proper and duly authorized officer or representative thereof, and shall not be
obligated to inquire as to the authority or power of any person so executing or
presenting such documents or as to the truthfulness of any statements set forth
therein.
(g) Seller hereby indemnifies, defends and holds Custodian harmless
from and against any claim, legal action, liability or loss that is initiated
against or incurred by Custodian,
<PAGE>
-16-
including court costs and reasonable attorney's fees and disbursements, in
connection with Custodian's performance of its duties under this Agreement,
including those involving ordinary negligence, but excluding those involving
gross negligence or willful misconduct of Custodian.
(h) Custodian undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement, it being expressly understood
that there are no implied duties hereunder.
Section 9. Assignment by Purchaser. Purchaser hereby notifies
-----------------------
Custodian that Purchaser shall assign, as of the date of the purchase of all of
its right, title and interest in and to all Mortgage Loans purchased by
Purchaser pursuant to the Purchase Agreement and all rights of Purchaser under
the Purchase Agreement (and this Agreement) in respect of such Mortgage Loans
represented thereby to Assignee, subject only to an obligation on the part of
Assignee to deliver each such Mortgage Loan to Custodian or to Purchaser to
permit Custodian, Purchaser or its designee to make delivery thereof to Takeout
Investor, but not otherwise. Seller hereby irrevocably consents to such
assignment. Assignment by Purchaser of the Mortgage Loans as provided in this
Section 9 shall not release Purchaser from its obligations otherwise under this
Agreement. Subject to any limitations in any agreement between Assignee and
Purchaser, Assignee may, upon notice of Purchaser's default as provided in
Section 3(b) hereof, directly enforce and exercise such rights under this
Agreement that have been assigned or pledged to it and, until otherwise notified
by Assignee, Purchaser shall no longer have any such rights. Custodian shall
assume that any assignment from Purchaser to Assignee is subject to no-
limitations that are not expressly set forth in this Agreement.
Section 10. Insurance. Custodian shall, at its own expense,
---------
maintain at all times during the existence of this Agreement such (a) fidelity
insurance, (b) theft of documents insurance, (c) forgery insurance and (d)
errors and omissions insurance as Custodian deems, from time to time
appropriate.
Section 11. Representations, Warranties and Covenants.
-----------------------------------------
(a) By Custodian. Custodian hereby represents and warrants to, and
------------
covenants with, Seller and Purchaser that, as of the date hereof and at all
times while Custodian is performing services under this Agreement:
(i) Custodian is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; and
(ii) Custodian has the full power and authority to hold each
Mortgage Loan and to execute, deliver and perform, and to enter into and
perform its duties and obligations as contemplated by, this Agreement, has
duly authorized the execution, delivery and performance of this Agreement
and has duly executed and delivered this Agreement, and this Agreement
constitutes a legal, valid and binding obligation of Custodian, enforceable
against it in accordance with its terms, except as the enforcement thereof
may be limited by applicable receivership, conservatorship or similar
debtor relief
<PAGE>
-17-
laws and except that certain equitable remedies may not be available
regardless of whether enforcement is sought in equity or law.
(b) By Seller. Seller hereby represents and warrants to, and
---------
covenants with, Custodian and Purchaser that, as of the date hereof and
throughout the term of this Agreement:
(i) Seller is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; and
(ii) Seller has the full power and authority to hold each Mortgage
Loan and to execute, deliver and perform, and to enter into and consummate
all transactions contemplated by, this Agreement, has duly authorized the
execution, delivery and performance of this Agreement and has duly executed
and delivered this Agreement, and this Agreement constitutes a legal, valid
and binding obligation of Seller, enforceable against it in accordance with
its terms, except as the enforcement thereof may be limited by applicable
receivership, conservatorship or similar debtor relief laws and except that
certain equitable remedies may not be available regardless of whether
enforcement is sought in equity or law.
(c) By Purchaser. Purchaser hereby represents and warrants to, and
------------
covenants with, Custodian and Seller that, as of the date hereof and throughout
the term of this Agreement:
(i) Purchaser is acquiring the Mortgage Loans for its own account
only and not for any other person;
(ii) Purchaser considers itself a substantial, sophisticated
institutional investor having such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks
of investment in the Mortgage Loans;
(iii) Purchaser has been furnished with all information regarding
the related Mortgage Loans that it has requested from Seller;
(iv) Purchaser is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; and
(v) Purchaser has the full power and authority to hold each
Mortgage Loan and to execute, deliver and perform, and to enter into and
consummate all transactions contemplated by, this Agreement, has duly
authorized the execution, delivery and performance of this Agreement and
has duly executed and delivered this Agreement, and this Agreement
constitutes a legal, valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms, except as the enforcement thereof
may be limited by applicable receivership, conservatorship or similar
debtor relief laws and except that certain equitable remedies may not be
available regardless of whether enforcement is sought in equity or law.
<PAGE>
-18-
Section 12. No Adverse Interests. By its acceptance of each Submission
--------------------
Package, Custodian covenants and warrants to Purchaser that: (a) as of the date
of payment by Purchaser of the Release Payment, Custodian, solely in its
capacity as Custodian, holds no adverse interests, by way of security or
otherwise, in the related Mortgage Loan and (b) Custodian hereby waives and
releases any such interest in such Mortgage Loan which it, acting solely in its
capacity as Custodian, has or which it may thereafter acquire prior to the time
of release of such Mortgage Loan from the terms of this Agreement.
Section 13. Amendments. This Agreement may be amended from time to time
----------
only by written agreement of Seller, Purchaser and Custodian except that, if
this Agreement shall have been assigned by Purchaser, no amendment shall be
effective unless the amendment is also signed by Assignee. Purchaser shall give
at least five days' prior written notice to Assignee of any proposed amendment
to this Agreement and shall furnish Assignee with a copy of each such amendment
within five days after it is executed and delivered.
Section 14. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
Section 15. Agreement for Exclusive Benefit of Parties: Assignment.
-------------------------------------------------------
This Agreement is for the exclusive benefit of the parties hereto and their
respective successors and permitted assigns hereunder and shall not be deemed to
give any legal or equitable right, remedy or claim to any other person
whatsoever. This Agreement shall bind the parties hereto and their respective
successors, but, except for the assignments provided in Sections 3(b) and 9,
shall not be assigned or pledged by any party without the prior written consent
of the other parties. Written notice from Assignee to Custodian (with a copy to
Purchaser) that Purchaser has defaulted in any material respect under any
funding or loan agreement relating to the financing of Purchaser's purchase of
Mortgage Loans shall be conclusive for all purposes of this Agreement.
Section 16. Effect of Invalidity of Provisions. In case any one or more
----------------------------------
of the provisions contained in this Agreement should be or become invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall in
no way be affected, prejudiced or disturbed thereby.
Section 17. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to conflict of laws rules.
Section 18. Consent to Service. Each party irrevocably consents to the
------------------
service of process by registered or certified mail, postage prepaid, to it at
its address given in or pursuant to Section 19.
Section 19. Notices. Any notices, consents, directions and other
-------
communications given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by facsimile or electronic
transmission, or personally delivered
<PAGE>
-19-
at, or sent by overnight courier to the addresses of the parties hereto set
forth on the cover page hereof or such other address as any party shall give in
a notice to the other parties pursuant to this Section 19.
Section 20. Certification. Custodian hereby acknowledges that each time
-------------
it enters the Approval Code on a Request for Certification in the "Approval
Code" column, it is making an express representation and warranty to Purchaser
that it has performed the Certification as specified in Sections 4(a) and
(b) with respect to the related Mortgage Loan.
Section 21. Construction. The headings in this Agreement are for
------------
convenience only and are not intended to influence its construction. References
to Sections and Exhibits in this Agreement are to the Sections of and Exhibits
to this Agreement. The Exhibits are part of this Agreement. In this Agreement,
the singular includes the plural, the plural the singular, and the words "and"
and "or" are used in the conjunctive or disjunctive as the sense and
circumstances may require.
<PAGE>
IN WITNESS WHEREOF, Seller, Purchaser and Custodian have caused this
Agreement to be duly executed as of the date and year first above written.
Seller's Name: UNITED FINANCIAL MORTGAGE:
-------------------------
_________________________
By: /s/ Joseph Khoshabe
-------------------------------------
Name: Joseph Khoshabe
Title: President
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By: /s/ G. A. Mangiarocina
-------------------------------------
Name: GEORGE A. MANGIAROCINA
Title: FVP
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Gerard M. Pepe
--------------------------------------
Name: GERARD M. PEPE
Title: SECOND VICE PRESIDENT
Telephone No:
<PAGE>
EXHIBIT A
DRY SUBMISSION PACKAGE
With respect to each Mortgage Loan being offered by Seller for sale to
Purchase Seller shall deliver and release to Custodian the following documents:
(i) The original Mortgage Note endorsed, "Pay to the order of
_______________________, without recourse" and signed in the
???????????????
other instrument that authorized and empowered such third-party
to sign or a copy of such power of attorney together with an
Officer's Certificate (or a certificate from the recorder's
office) certifying that such copy presents a true and correct
reproduction of the original and that such original has been duly
recorded or delivered for recordation in the appropriate records
of the jurisdiction in which the related Mortgaged Property is
located;
(ii) If Seller did not originate the Mortgage Loan, all original
intervening assignments duly executed and acknowledged and in
recordable form, which together with the Assignment of Mortgage,
evidence the chain of mortgage assignments from the originator of
the Mortgage Loan to Seller, and/or copies of all such
intervening mortgage assignments, together with an Officer's
Certificate, or a certificate from the recorder's office,
certifying that any such copy represents a true and correct
reproduction of the original of such instrument and that such
original has been duly recorded or delivered for recordation in
the appropriate records of the jurisdiction where the Mortgaged
Property is located;
(iii) An original Assignment of Mortgage, in blank, in recordable form
but unrecorded signed in the name of Seller by any authorized
officer; and
(iv) A copy of the Mortgage naming the Seller, or if the Seller was
not the originator, the originator, as the "mortgagee" or
"beneficiary" thereof, and either bearing evidence that such
instrument has been recorded in the appropriate jurisdiction
where the property with respect to the Mortgage Property is
located or a duplicate or conformed copy of the Mortgage,
together with a certificate of an officer of the originator
certifying that such copy represents a true and correct copy of
the original and that such original has been submitted to the
title insurance company for recordation
<PAGE>
in the appropriate governmental recording office of the
jurisdiction where the Mortgage Property is located.
All documents delivered to Custodian have been and as to future deliveries will
be placed by Seller in an appropriate file folder, properly secured, and clearly
marked with Seller's loan number identifying such Mortgage Loan.
In those cases where a copy of a Mortgage, or any intervening mortgage
assignment, or an unrecorded original of any intervening mortgage assignment are
delivered to the Custodian, Seller shall cause the original of such instrument
to be recorded.
<PAGE>
EXHIBIT B-1
CASH WINDOW SUBMISSION PACKAGE
With respect to each Mortgage Loan being offered by Seller for sale to
Purchaser pursuant to a Cash Window Transaction, Seller shall deliver and
release to Custodian the
???????????????????????????????????????????????????????????????
original assumption agreement, together with the original of any surety
agreement or guaranty agreement relating to the Mortgage Note or any such
assumption agreement, and if the Mortgage Note has been signed by a third
party on behalf of the Mortgagor, the original power of attorney or other
instrument that authorized and empowered such Entity to sign or a copy of
such power of attorney together with an officer's certificate (or a
certificate from the recorder's office) certifying that such copy presents
a true and correct reproduction of the original and that such original has
been duly recorded or delivered for recordation in the appropriate records
of the jurisdiction in which the related Mortgaged Property is located and
if FHLMC is the Agency for the related Mortgage Loan, the Freddie Mac loan
number should appear on the top right hand corner of the Mortgage Note:
(ii) With respect to each Mortgage Loan that has been designated for
sale to FNMA, an original Assignment of Mortgage to FNMA in recordable form
but unrecorded signed in the name of Seller by an authorized officer;
(iii) If Seller did not originate a Mortgage Loan, all necessary
intervening assignments to show a complete chain of title from the
originating mortgagee to Seller;
(iv) An original Assignment of Mortgage, in blank, in recordable
form but unrecorded (which Assignment of Mortgage may be in the form of a
blanket assignment of two or more such Mortgages to the extent permitted by
applicable law) signed in the name of Seller by an authorized officer;
(v) A Warehouse Lender's Release, from any Warehouse Lender having
a security interest in the Mortgage Loans or, if there is no Warehouse
Lender with respect to such Mortgage Loans, a Seller's Release, from
Seller, addressed to Purchaser, releasing any and all right, title and
interest in such Mortgage Loans;
(vi) Delivery Instructions;
(vii) A copy of a Confirmation: and
(viii) The Applicable Agency Documents, listed on Exhibit B-2 and
Exhibit B-3.
All documents delivered to Custodian will be placed by Seller in an appropriate
file folder, properly secured, and clearly marked with Seller's appropriate
FHLMC or FNMA loan number
<PAGE>
identifying such Mortgage Loan in the form and order required by the Agency.
In those cases where a copy of any intervening mortgage assignment, or an
unrecorded original of any intervening mortgage assignment are delivered to the
Custodian, Seller shall cause the original of such instrument to be recorded.
<PAGE>
(i) FHLMC Form 1 (Fixed-Rate Mortgage Purchase Contract Conventional Home
Mortgages - Original Cash) or FHLMC Form 9 (Fixed-Rate Mortgage Purchase
Contract Conventional Home Mortgages - Gold Cash), or FHLMC Form 2
(Adjustable Rate Purchase Contract Conventional Home Mortgages).
(ii) FHLMC Form 1034 (Custodial Certification Schedule).
(iii) FHLMC Form 996 (Warehouse Lender Release of Security Interest)./1/
(iv) FHLMC Form 987 (Wire Transfer Authorization for a Cash Warehouse
Delivery).
(v) FHLMC Form 960 (Transfer of Servicing) (if supplied by Seller).
___________________________________
/1/ Consisting either of the form submitted by Seller to Custodian naming
Purchaser as Warehouse Lender or a substituted form completed by Custodian
naming Purchaser as Warehouse Lender.
<PAGE>
EXHIBIT B-3
FNMA DOCUMENT LIST
(i) Either a Standard Mandatory Delivery Commitment or a Negotiated Mandatory
Delivery Commitment or a Negotiated Market-Rate Standby Commitment.
(ii) FNMA Form 1068 (Fixed-Rate, Graduated-Payment, or Growing-Equity Mortgage
Loan Schedule) or FNMA Form 1069 (Adjustable-Rate Mortgage Loan
Schedule).
(iii) FNMA Form 2004 (Security Release Certification) (executed by Purchaser
and Seller)./1/
(iv) FNMA Form 360 (Incumbency Certificate) (executed by Seller naming person
authorized to instruct FNMA on where to wire funds)./2/
(v) All original intervening assignments (if any) duly executed and
acknowledged and in recordable form, but unrecorded.
/1/ Consisting either of the form submitted by the Seller to the Custodian
naming a person other than the Purchaser as Warehouse Lender or a
substituted form completed by the Custodian naming the Purchaser as
Warehouse Lender.
/2/ If applicable.
<PAGE>
EXHIBIT B-4
[LETTERHEAD OF PURCHASER]
FNMA MASTER BAILEE LETTER
_______ __,199_
The Chase Manhattan Bank, N.A.
Mortgage Banking Division
2 Chase Manhattan Plaza (20th Floor)
New York, New York 10081
Attention: Glenn Hett
Ladies and Gentlemen:
In connection with its Conforming Whole Loan Purchase: Cash Window
Program, the undersigned Paine Webber Real Estate Securities Inc. ("Purchaser")
shall from time to time, cause The Chase Manhattan Bank, N.A., as custodian
("Custodian"), to deliver to the Federal National Mortgage Association ("FNMA")
original promissory notes ("Mortgage Notes") evidencing certain mortgage loans
("Mortgage Loans"), along with certain other documents comprising the related
files ("Mortgage Documents"). Custodian is hereby instructed to prepare and
insert a Notice of Bailment in the form of Schedule A hereto with respect to
each Mortgage Loan ("Notice of Bailment"), in each file of Mortgage Documents
delivered by Custodian to FNMA.
Except as otherwise provided herein, each Mortgage Document so
delivered to FNMA is to be held by FNMA, as agent for Custodian, and subject to
only Purchaser's direction and control.
Upon Purchaser's receipt of all of the proceeds from the sale of a
Mortgage Loan in accordance with the wiring instructions set forth in FNMA's
Form 482 or 1068 all of Purchaser's legal or equitable interest in the Mortgage
Loan shall terminate.
The persons listed on the attached Schedule B are the authorized
representatives ("Authorized Representatives") of Purchaser. Custodian shall not
honor any communication relating to a Mortgage Loan, which is not confirmed by
the written or telephonic consent, confirmed in writing at the request of
Custodian, of an Authorized Representative of Purchaser.
<PAGE>
Please execute and return the enclosed copy of this Master Bailee
Letter in the enclosed self-addressed envelope.
Sincerely,
PAINE WEBBER REAL ESTATE
SECURITIES INC.
(Purchaser)
By:________________________________________
Name:
Title:
Agreed to:
THE CHASE MANHATTAN BANK, N.A.
(Custodian)
By:________________________________________
Name:
Title:
Dated: As of the date first set forth above
<PAGE>
SCHEDULE A
TO EXHIBIT B-4
NOTICE OF BAILMENT
------------------
[FNMA Address]
Re: [Insert Description of Loan, including Borrower's Name,
Loan Amount and FNMA's Loan Number]
-----------------------------------
Ladies and Gentlemen:
Pursuant to the Master Bailee Letter, dated ______ __, 199_ (the
"Master Bailee Letter"), between Paine Webber Real Estate Securities Inc.
("Purchaser") and The Chase Manhattan Bank, N.A. (the "Custodian"), you are
hereby notified that the enclosed original promissory note with respect to the
referenced loan together with certain other documents comprising the related
file with respect to that loan (the "Mortgage Documents") being herby delivered
to you herewith are to be held by you as agent of Custodian (which holds the
Mortgage Documents as custodian and bailee for the benefit of Purchaser).
Any Mortgage Documents (or portion thereof) not purchased by you
in accordance with the provisions of the Fannie Mae Guide shall be sent to the
Custodian by overnight courier to: [insert address for return of documents].
Any questions relating to the Mortgage Documents should be
referred to the Purchaser at (212) 713-2419.
Sincerely,
THE CHASE MANHATTAN BANK, N.A.
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
SCHEDULE B
TO EXHIBIT B-4
AUTHORIZED REPRESENTATIVES OF PURCHASER
---------------------------------------
Name Title Authorized Signature
---- ----- --------------------
<PAGE>
EXHIBIT C-1
CONDUIT SUBMISSION PACKAGE
With respect to each Mortgage Loan being offered by Seller for
sale to Purchaser, pursuant to a Conduit Transaction. Seller shall deliver and
release to Custodian the following documents:
(i) The original Mortgage Note endorsed, "Pay to the order of
________________________________, without recourse" and signed in the name
of Seller by an authorized officer and, if Seller did not originate the
Mortgage Loan, bearing an unbroken chain of endorsements from the
originator thereof to Seller; (if applicable) the original assumption
agreement, together with the original of any surety agreement or guaranty
agreement relating to the Mortgage Note or any such assumption agreement,
and if the Mortgage Note has been signed by a third party on behalf of the
Mortgagor, the original power of attorney or other instrument that
authorized and empowered such Entity to sign or a copy of such power of
attorney together with an officer's certificate (or a certificate from the
recorder's office) certifying that such copy presents a true and correct
reproduction of the original and that such original has been duly recorded
or delivered for recordation in the appropriate records of the jurisdiction
in which the related Mortgaged Property is located;
(ii) A Mortgage meeting one of the following requirements:
(A) The original Mortgage bearing evidence that the Mortgage
has been duly recorded in the records of the jurisdiction in which the
Mortgaged Property is located; or
(B) A copy of the Mortgage together with an officer's
certificate (which may be a blanket officer's certificate of Seller
covering all such Mortgage Loans), or a certificate from the
recorder's office, certifying that such copy represents a true and
correct reproduction of the original Mortgage and that such original
has been duly recorded or delivered for recordation in the appropriate
records of the jurisdiction in which the Mortgage Property is
located;
(iii) If Seller did not originate the Mortgage Loan, all
original intervening assignments duly executed and acknowledged and in
recordable form, which together with the Assignment of Mortgage, evidence
the chain of mortgage assignments from the originator of the Mortgage Loan
to Seller, and/or two copies of each such intervening mortgage assignments,
each copy together with an officer's certificate, or a certificate from the
recorder's office, certifying that such copy represents a true and correct
reproduction of the original of such instrument and that such original has
been duly recorded or delivered for recordation in the appropriate records
of the jurisdiction where the Mortgaged Property is located;
<PAGE>
(iv) An original Assignment of Mortgage, in blank, in recordable
form but unrecorded signed in the name of Seller by an authorized officer:
(v) A Warehouse Lender's Release, from any Warehouse Lender having
a security interest in the Mortgage Loans or, if there is no Warehouse
Lender with respect to such Mortgage Loans, a Seller's Release, from
Seller, addressed to Purchaser, releasing any and all right, title and
interest in such Mortgage Loans;
(vi) Delivery Instructions;
(vii) A copy of a Commitment;
(viii) A copy of a Confirmation;
(ix) Each Mortgage Loan, as identified by Seller, relating to a
Mortgage Note with an original principal amount in excess of 80% of the
appraised value of the related Mortgaged Property at the time of
origination of such Mortgage Loan, either (A) an original of the
certificate/commitment of Primary Mortgage Insurance Policy, issued by the
applicable insurer, without verification of the expiration date thereon, or
(B) an Officer's Certificate (which may be a blanket Officer's Certificate
of Seller covering all such Mortgage Loans), certifying that an appraisal
report has been obtained by Seller which shows that the appraised value of
the Mortgage Property is such that the outstanding principal balance of
such Mortgage Note is less than 80% of such appraised value; and*
(x) An Underwriter's Form.*
_____________________________
*Not applicable to Submission Packages in which the Delivery Instructions
require delivery of the Submission Package to Springfield, Illinois.
<PAGE>
EXHIBIT C-2
[LETTERHEAD OF PURCHASER]
CONDUIT MASTER BAILEE LETTER
__________, 199_
[ADDRESS]
The Chase Manhattan Bank, N.A.
Mortgage Banking Division
2 Chase Manhattan Plaza (20th Floor)
New York, New York 10081
Attention: Glenn Hett
Ladies and Gentlemen:
The undersigned Paine Webber Real Estate Securities Inc. ("Purchaser")
shall from time to time, cause The Chase Manhattan Bank, N.A., as custodian
("Custodian"), to deliver to [Conduit] ("Takeout Investor") original promissory
notes ("Mortgage Notes") evidencing certain mortgage loans ("Mortgage Loans"),
along with certain other documents comprising the related files ("Custodial
File") and, in each case, a Notice of Bailment in the form of Schedule A hereto
with respect to each Mortgage Loan ("Notice of Bailment"), for inspection by
Takeout Investor prior to the possible purchase by Takeout Investor of such
Mortgage Loans pursuant to commitments ("Commitments") from certain sellers of
Mortgage Loans ("Seller"). Prior to its delivery to Takeout Investor, all of
Seller's right, title and interest in each Mortgage Loan and proceeds thereof
shall have been conveyed to Purchaser in accordance with each Seller's agreement
with Purchaser. Initially capitalized terms used herein but not defined herein
shall have the respective meanings ascribed to such terms in the Takeout
Investor [Acknowledgement] Agreement, dated ___________, 199_ (as amended,
supplemented or otherwise modified from time to time, the "TIAA") between
Takeout Investor and Purchaser.
Except as otherwise provided herein and/or in the TIAA, each Custodial File
so delivered to Takeout Investor is to be held by Takeout Investor, as agent for
Custodian, and subject to only Purchaser's direction and control until released
as provided herein. The TIAA shall govern the manner in which Takeout Investor
and Purchaser may agree on the amount to be paid by Takeout Investor for each
Mortgage Loan accepted for purchase. The proceeds of the sale of each Mortgage
Loan accepted for purchase must be remitted immediately upon settlement by
Takeout Investor, by wire transfer in immediately available funds, in accordance
with the wire instructions set forth in the Notice of Bailment which shall be
placed in each Custodial File by Custodian prior to the shipment of each
Custodial File to Takeout Investor. Takeout Investor shall be responsible for
making certain that all of the proceeds from the sale of the Mortgage Loan are
received in accordance with the wire transfer instructions set forth on each
Notice of Bailment.
<PAGE>
Upon Purchaser's receipt of all of the proceeds from the sale of a Mortgage
Loan in accordance with the wiring instructions in the applicable Notice of
Bailment, all of Purchaser's legal or equitable interest in the Mortgage Loan
shall terminate.
All Mortgage Documents held by Takeout Investor which are received by
Takeout Investor from Custodian with respect to a Mortgage Loan that is not
purchased must be returned immediately to Custodian at the address for delivery
of documents set forth on the Notice of Bailment. Purchaser reserves the right
at any time, until a Mortgage Loan has been purchased by Takeout Investor, to
demand the return of the related Mortgage Documents to Custodian, and Takeout
Investor agrees to return to Custodian the Mortgage Documents pertaining to a
Mortgage Loan not purchased by Takeout Investor immediately upon such demand by
Purchaser.
The persons listed on the attached Schedule B are the authorized
representatives ("Authorized Representatives") of Purchaser. Takeout Investor
shall not honor any communication from Sellers relating to a Mortgage Loan,
which is not confirmed by the written or telephonic consent of an Authorized
Representative of Purchaser, or until Purchaser has received the minimum amount
of proceeds of the sale of such Mortgage Loan.
In the event Takeout Investor is not able for any reason to comply with the
terms of ??? Bailee Letter. Takeout Investor shall immediately return the
Custodial File to Custodian at the above address.
Takeout Investor acknowledges that the Custodial File is being delivered in
accordance with its instructions. Takeout Investor shall not deliver a Custodial
File to any third party without the prior written consent of Purchaser unless
such third party is a wholly owned subsidiary of Takeout Investor or a custodian
and bailee of Takeout Investor who is receiving such Custodial File with written
notice of the bailment created by this Master Bailee Letter.
In the event Takeout Investor is not able for any reason to comply with the
terms of this Master Bailee Letter, Takeout Investor shall immediately return
each Custodial File in Takeout Investor's possession to Custodian at the address
for delivery of documents set forth in the related Notice of Bailment.
Custodial File shall be delivered to Takeout Investor in accordance with
its instructions.
No deviation in performance of the terms of any previous bailment agreement
will alter any of Takeout Investor's duties or responsibilities as provided
herein.
<PAGE>
By accepting delivery of a Custodial File containing a Notice of Bailment,
Takeout Investor shall be bound by the terms hereof. Please execute and return
the enclosed copy of this Master Bailee Letter in the enclosed self-addressed
envelope.
Sincerely,
PAINE WEBBER REAL ESTATE
SECURITIES INC.
(Purchaser)
By:___________________________
Name:
Title:
The undersigned Custodian executes this Master Bailee Letter solely
for purposes of appointing Takeout Investor its custodian and bailee to hold the
Custodial Files in accordance with the terms of this Master Bailee Letter.
Agreed to:
THE CHASE MANHATTAN BANK, N.A.
(Custodian)
Agreed to:
[CONDUIT]
(Takeout Investor)
By:_____________________________________________
Name:
Title:
Dated: As of the date first set forth above
<PAGE>
SCHEDULE A
TO EXHIBIT C-2
NOTICE OF BAILMENT
CONDUCT ADDRESS
RE: [Insert Description of Loan, inluding Borrower's Name,
Loan Amount and Loan number]
---------------------------------
Ladies and Gentlemen:
Pursuant to the Master Bailee Letter, dated _______ ___, 199_ (the
"Master Bailee Letter"), between Paine Webber Real Estate Securities Inc.
("Purchaser") and The Chase Manhattan Bank, N.A. (the "Custodian"), you are
hereby notified that the enclosed original promissory note with respect to the
referenced loan together with certain other documents comprising the related
file with respect to that loan (the "Mortgages Documents") being hereby
delivered to you herewith are to be held by you as agent of Custodian (which
holds the Mortgage Documents as custodian and bailee for the benefit of
Purchaser.)
Any Mortgagee Documents (or portion thereof) not purchased by you in
accordance with the provisions of the Fannie Mae Guide shall be sent to the
Custodian by overnight courier to: [insert address for return of documents].
Any questions relating to the Mortgage Documents should be referred to
the Purchaser at (212) 713-2419.
Sincerely,
THE CHASE MANHATTAN BANK, N.A.
BY: ______________________________
Name:_____________________________
Title:____________________________
<PAGE>
SCHEDULE B
TO EXHIBIT C-2
AUTHORIZED REPRESENTATIVES OF PURCHASER
---------------------------------------
Name Title Authorized Signature
---- ----- --------------------
<PAGE>
EXHIBIT D
CONVERSION SUBMISSION PACKAGES
1. To convert from a Dry Transaction to Cash Window Transaction. Seller shall
deliver to Custodian:
A. if FNMA is the Takeout Investor, an original Assignment of
Mortgage to FNMA, in recordable form but unrecorded, signed in
the name of Seller by an authorized officer;
B. the Applicable Agency Documents; and
C. Delivery Instructions.
2. To convert from a Dry Transaction to a Conduit Transaction, Seller shall
deliver to Custodian:
A. a Mortgage meeting one of the following requirements:
(i) The original Mortgage bearing evidence that the
Mortgage has been duly recorded in the records of the
jurisdiction in which the Mortgaged Property is located; or
(ii) A copy of the Mortgage together with an officer's
certificate (which may be a blanket officer's certificate of
Seller covering all such Mortgage Loans), or a certificate
from the recorder's office, certifying that such copy
represents a true and correct reproduction of the original
Mortgage and that such original has been duly recorded or
delivered for recordation in the appropriate records of the
jurisdiction in which the Mortgaged Property is located;
B. a copy of a Commitment;
C. Delivery Instructions;
D. Each Mortgage Loan, as identified by Seller, relating to a
Mortgage Note with an original principal amount in excess of 80%
of the appraised value of the related Mortgaged Property at the
time of origination of such Mortgage Loan, either (A) an original
of the certificate/commitment of Primary Mortgage Insurance
Policy, issued by the applicable insurer, without verification of
the expiration date thereon, or (B) an Officer's Certificate
(which may be a blanket Officer's Certificate of Seller covering
all such Mortgage Loans), certifying that an appraisal report has
been obtained by Seller which shows that the appraised value of
the Mortgage
<PAGE>
Property is such that the outstanding principal balance of such
Mortgage Note is less than 80% of such appraised value;
E. An Underwriter's Form; and
F. A copy of a Confirmation.
<PAGE>
EXHIBIT I
PAINE WEBBER REAL ESTATE SECURITIES INC.
REQUEST FOR CERTIFICATION
CLIENT: , PAYEE NUMBER (ONLY APPLICABLE TO FNMA CASH WINDOW TRANSACTION):
EXPECTED DELIVERY DATE OF MORTGAGE FILE IS _________________, 199_
<TABLE>
<CAPTION>
# OF
ULOG FACE MONTHS TO TAKEOUT
REF NO. CODE LOAN # LAST NAME AMOUNT MATURITY NOTE RATE INVESTOR SALE PRICE COMMITMENTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Information SUPPLIED BY Purchaser
- ------------------------------------------------------------------------------------------------------------------------------------
Information SUPPLIED BY Custodian
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
<CAPTION>
COMMITMENT COMPLETION
EXPIRATION DELIVERY RELEASE WAREHOUSE EXCEPTION
DATE DATE PAYMENT LENDER CODE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
EXHIBIT F
<TABLE>
<S> <C> <C>
D Dry Transaction
W Cash Window Transaction
C Conduit Transaction
II. V Conversion Code
III. Certificate Codes
A Mortgage Loan Absentee Code
N Mortgage Loan Suspension Code
Y Mortgage Loan Approval Code
IV. Unidentified/Suspension Mortgage Loan Directives
H Hold Directive
R Return Directive
D Delivery Directive
V. Exception Codes
1. Note is missing
2. Note is not original
3. Note missing the borrower's name
4. Note - the borrower's name does not match the file
5. Note is missing the borrower's signature
6. Endorsement in blank on the note is missing
7. Endorsement in blank on the note is missing Seller's authorized signature
8. Intervening Endorsement (from/to) on the note is missing
9. Intervening Endorsement (from/to) on the note is missing authorized signature
10. Mortgage/deed is missing
11. Mortgage/deed is not certified
12. Mortgage/deed is missing assumption agreement
13. Mortgage/deed - the borrower's name and signature does not match the note
14. Mortgage/deed - the amount is not less or equal to the amount on the note
15. Mortgage/deed not signed
16. Intervening assignment (from/to) is missing
17. Intervening assignment (from/to) is not signed
18. Intervening assignment (from/to) is not certified
19. Assignment in blank is missing
20. Assignment in blank not signed
21. Assignment in blank is not original
</TABLE>
<PAGE>
<TABLE>
<S> <C>
22. Assignment to FNMA is missing
23. Assignment to FNMA is not signed
24. Assignment to FNMA is not original
25. Warehouse/Sellers Release/Letter is missing
26. Warehouse/Sellers Release/Letter is not signed
27. Commitment is missing
28. LTV/PMI certificate is missing
29 LTV MI officer's certificate is not original
30 Third party underwriters form is missing
31. Consolidation/modification agreement is missing
32. Consolidation/modification agreement is not certified
33. FHLMC purchase contract confirmation is missing
34. FHLMC purchase contract confirmation is missing the price
35. FHLMC midanet/mortgage detail listing is missing
36. FHLMC Form 1034/certification schedule is missing
37. From the FHLMC Form 1034 all files are not present
38. FHLMC Form 996 is missing
39. FHLMC Form 996 wire instruction is incorrect
40. FHLMC Form 987 is missing
41. FHLMC Form 987 wire instruction is incorect
42. FHLMC 960
43. FNMA mandatory delivery commitment is missing
44. FNMA mandatory delivery commitment is missing the price
45. FNMA Form 1068/1069 mornet is missing
46. FNMA Form 1068/1069 - all files are not present
47. FNMA Form 1068/1069 Payee Code is incorrect
48. FNMA Form 1068/1069 Information does not correspond to the note.
49. FNMA 2004 is missing
50. FNMA 360 is missing
51. Delivery Instructions missing
52. Submission Package does not appear regular on its face but no other
Exception Code is applicable
</TABLE>
<PAGE>
EXHIBIT G.1
[WAREHOUSE LENDER'S RELEASE]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
We hereby release all right, interest or claim of any kind with respect to
the mortgage loan(s) referenced below, such release to be effective
automatically without any further action by any party, upon receipt, in one or
more installments, from Paine Webber Real Estate Securities Inc., in accordance
with the wire instructions which we delivered to you in a letter dated
_________, 199_, in immediately available funds, of an aggregate amount equal to
the product of A multiplied by B (such product being rounded to the nearer
$0.01) multiplied by C*
Street
Loan # Mortgagor Address City State Zip
- --------- ------------- ------------- --------- -------- ---------
Very truly yours,
[WAREHOUSE LENDER]
By:_____________________________
Name:___________________________
Title:__________________________
*A = weighted average trade price
B = principal amount of the mortgage loans
C = 1 minus the discount set forth on the related funding
confirmation
<PAGE>
EXHIBIT G-2
[WAREHOUSE LENDER'S WIRE INSTRUCTIONS]
Paine Webber Real Estate Securities, Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Paine Webber Real Estate Securities, Inc. Conforming Whole Loan
Purchase: Cash Window Program with [Seller]
---------------------------------------------------------------
Ladies and Gentlemen:
Set forth below are [Warehouse Lender's] wire instructions applicable
to the above-referenced Conforming Whole Loan Purchase: Cash Window Program.
Wire Instructions:
- -----------------
Bank Name:
City, State:
ABA #:
Account #:
Account Name:
Please acknowledge receipt of this letter in the space provided below.
This letter supersedes and replaces any prior notice specifying the name of
[Warehouse Lender] and setting forth wire instructions and shall remain in
effect until superseded and replaced by a letter, in the form of this letter,
executed by each of us and acknowledged by you.
Very truly yours,
[SELLER]
By:_____________________________
Name:___________________________
Title:__________________________
[WAREHOUSE LENDER(S)]*
BY:_____________________________
Name:___________________________
Title:__________________________
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By: ________________________
Name:
Title:
______________________
* The authorized officer of each warehouse lender executing this letter
must be the same authorized officer as signs the Warehouse Lender's
Release. Not applicable if there is no warehouse lender.
<PAGE>
EXHIBIT H-1
[SELLER'S RELEASE]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
With respect to the mortgage loan(s) referenced below (a) we hereby
certify to you that the mortgage loan(s) is not subject to a lien of any
warehouse lender and (b) we hereby release all right, interest or claim of any
kind with respect to such mortgage loan, such release to be effective
automatically without any further action by any party upon payment from
Purchaser to Seller of an aggregate amount equal to the product of A multiplied
by B (such product being rounded to the nearer $0.01) multiplied by C* in
accordance with our wire instructions in effect on the date of such payment.
Street
Loan # Mortgagor Address City State Zip
- --------- ------------- ------------ --------- ----------- ---------
Very truly yours,
[SELLER]
By:_____________________________
Name:___________________________
Title:__________________________
*A = weighted average trade price
B = principal amount of the mortgage loan(s)
C = 1 minus the discount set forth on the related funding
confirmation
<PAGE>
Date:_
[SELLER'S WIRE INSTRUCTIONS]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Mortgage Loan Custodial Agreement dated as of _________, 199_,
among Paine Webber Real Estate Securities In., [Seller] and
[Custodian]
------------------------------------------------------------------
Ladies and Gentlemen:
Capitalized terms used herein and not defined herein shall have the
meanings ascribed to such terms in the above-referenced Custodial Agreement.
Set forth below are the Seller's Wire Instructions applicable to the
above-referenced Custodial Agreement.
Wire Instructions:
- -----------------
Bank Name:
City, State:
ABA #:
Account #:
A/C Name:
Please acknowledge receipt of this letter in the space provided below
and return it to Seller. This letter supersedes and replaces any prior notice
specifying the name of Seller and the Seller's Wire Instructions and shall
remain in effect until superseded and replaced by a letter, in the form of
this letter, executed by us and acknowledged by you.
Very truly yours,
[SELLER]
Name:___________________________
Title:__________________________
Receipt acknowledged by:
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By: ________________________
Name:
Title:
_____________________________
. The authorized officer of executing this letter must be the same
authorized officer as signs the Seller's Release. Applicable only if
there is no Warehouse Lender.
<PAGE>
EXHIBIT I.1
[PURCHASER'S WIRE INSTRUCTIONS TO SELLER]
Wire Instructions:
- -----------------
Bank Name:
City, State:
ABA #:
Account #:
A/C Name:
Ref: [Name of Seller]
<PAGE>
EXHIBIT 1.2
[PURCHASER'S WIRE INSTRUCTIONS TO CUSTODIAN]
Date:__
[Custodian]
[Address]
Re: Whole Loan Purchaser Program
----------------------------
Ladies and Gentlemen:
Set forth below are the Purchaser's Wire Instructions to Custodian (as
defined in all Conforming Mortgage Loan Custodial Agreements used in the above-
referenced program).
Wire Instructions:
- -----------------
Bank Name:
City, State:
ABA #:
Account #:
Account Name:
Please acknowledge receipt of this letter in the space provided
below and return it to Paine Webber Real Estate Securities Inc. ("Purchaser").
This letter supersedes and replaces any prior notice specifying the name of
Purchaser and the Purchaser's Wire Instructions to Custodian and shall remain in
effect until superseded and replaced by a letter, in the form of this letter,
executed by us and acknowledged by you.
Very truly yours,
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By:
Name:
Title:
Receipt acknowledged by:
[CUSTODIAN]
By: ____________________
Name: __________________
Title: _________________
<PAGE>
[NOTICE BY ASSIGNEE TO CUSTODIAN OF PURCHASER'S DEFAULT]
[Custodian]
[Address]
Re: Whole Loan Purchase Program
---------------------------
Ladies and Gentlemen:
Notice is hereby given that Purchaser has materially defaulted in its
obligations under an agreement between Assignee and Purchaser relating to the
financing by Assignee of Purchaser's purchase of Mortgage Loans described on
Schedule 1 hereto. Assignee hereby (i) directs that Custodian act with respect
to the related mortgage files solely in the capacity of custodian for, and
bailee of, Assignee, (ii) directs that Custodian hold such mortgage files for
the exclusive use and benefit of Assignee and (iii) assumes the rights of
Purchaser to furnish instructions to Custodian as to the disposition of such
mortgage files and such rights shall be exercisable solely by Assignee.
Please acknowledge the foregoing by signing below and returning a copy
of this notice to us at [address].
Very truly yours,
[ASSIGNEE]
By:__________________________
Name:________________________
Title:_______________________
RECEIPT ACKNOWLEDGED:
[CUSTODIAN]
By:_______________
Name:_____________
Title:____________
cc: Paine Webber Real Estate Securities Inc.
<PAGE>
EXHIBIT K
LIMITED POWER OF ATTORNEY
Reference is hereby made to the Mortgage Loan Custodial Agreement (the
"Agreement"), dated _________, 199_, among The Chase Manhattan Bank, N.A.
("Custodian"), Paine Webber Real Estate Securities Inc. ("Purchaser") and
_______ ("Seller"). Any capitalized term not otherwise defined herein shall have
the meaning assigned to such term in the Agreement.
Know all people by these presents, that Seller, a corporation
organized and existing under the laws of the State of _______, does hereby make,
constitute and appoint, ____________, ___________ or _______, or any officer
assigned to the [Corporate Trust Group] (or any successor thereto), including
any Vice President, Assistant Vice President, Trust Officer, any Assistant
Secretary, any trust officer or any other officer of Custodian customarily
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of the
Agreement, each acting singly and independently of the other, as its true and
lawful attorney for it and in its name, place and stead to endorse a Mortgage
Note that has not otherwise been endorsed as follows:
"Pay to the order of ________________
[Name of Seller]
By: ___________________
Its: Attorney-in-Fact"
provided, however, a Mortgage Note shall only be endorsed pursuant to this Power
of Attorney pursuant to the terms and conditions set forth in Section 4(b)(ii)
of the Agreement.
IN WITNESS WHEREOF, [Name of Seller], has caused this Power of
Attorney to be executed in its name by its duly authorized officer this __ day
of ________, 199_.
[Name of Seller]
By: ___________________
Its: ___________________
STATE OF _________
ss:
COUNTY OF __________
On the __th day of _______, in the year 199_, before me personally
came __________________, to me known, who, being by me duly sworn, did depose
and say that he/she is _______________________ of [Name of Seller], the
corporation described in and which executed the above instrument and the he/she
executed said instrument by order of the board of directors of said corporation.
__________________________
Notary Public
<PAGE>
EXHIBIT L
UNIDENTIFIED MORTGAGE LOANS LIST
With regard to [SELLER], the following mortgage loans were received by
The Chase Manhattan Bank, N.A. on [Date] and were not referenced on Paine Webber
Real Estate Securities Inc.'s Request for Certification.
<TABLE>
<CAPTION>
Loan # Last Name Face Amount Takeout Investor Expiration Date
------ --------- ----------- ---------------- ---------------
(if applicable)
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
UNIDENTIFIED/SUSPENSION MORTGAGE LOAN DIRECTIVE
-----------------------------------------------
Seller's Name: ______________________
Product Name: _______________________
<TABLE>
<CAPTION>
Reference # Unidentified/ Commitment Instruction
(if applicable) Suspension Loan # Last Name Face Amount Expiration Date (Hold/Return/Delivery)
- --------------- ---------- ------ --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT N
[LETTERHEAD OF SELLER]
[DATE]
TO: The Chase Manhattan Bank, N.A.
Mortgage Banking Division
2 Chase Manhattan Plaza (20th Floor)
New York, New York 10081
Attention: Glenn Hett
________________________________________________________________________________
Please deliver the Submission Package(s) as indicated on the attached list, in
accordance with the terms of the agreement, to the following:
Company Name :
Address :
City, State Zip :
Attn: :
The documents in the Submission Package shall be arranged as follows:
<PAGE>
[LETTER OF SELLER]
[DATE]
LOANS TO BE DELIVERED BY CHASE MANHATTAN BANK, N.A. FOR [SELLER]
Loans #: Borrower's Name: Loan Amount:
------- --------------- -----------
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
<PAGE>
EXHIBIT O
PURCHASER'S INSTRUCTIONS TO CUSTODIAN TO DESTROY SPECIFIED FILES
[CUSTODIAN]
[ADDRESS]
Attention:________________
Re: Destruction of Files
--------------------
Dear_________:
You are hereby authorized to destroy any documents relating the
Mortgage Loans listed below which were delivered to you in connection with the
Mortgage Loan Custodial Agreement [XXXXXXXXXXXXX].
<TABLE>
<S> <C> <C>
Loan # Last Name Face Amount
------- --------- -----------
</TABLE>
Initially capitalized terms are defined in the Mortgage Loan
Custodial Agreement, dated ____________, 199_ among [Seller], [Purchaser] and
[Custodian].
Very truly yours,
[PURCHASER]
By:________________________________
Title:
<PAGE>
LIST OF PRIMARY MORTGAGE INSURERS
<PAGE>
LIST OF CONDUITS
----------------
1. BancBoston Mortgage Corporation
2. Capstead Mortgage Corporation
3. Citicorp Mortgage Corp.
4. Countrywide Correspondent
5. Fleet Mortgage Corp.
6. GE Capital Mortgage Services, Inc.
7. Hamilton Financial Corp.
8. Headlands Mortgage Corp.
9. Independent National Mortgage Corp.
10. LaSalle Talman Home Mortgage
11. Paine Webber Real Estate Securities Inc.
12. Prudential Home Mortgage Corp. LEX Conduit and LEX Agency
13. Residential Funding Corporation
<PAGE>
EXHIBIT 1-3
PURCHASER'S DELIVERY INSTRUCTIONS TO CUSTODIAN
[CUSTODIAN]
[ADDRESS]
Attention:___________
Re: Delivery of Submission Package
------------------------------
Dear _________:
Please deliver, via overnight courier, each of the Submission Packages
relating the Mortgage Loans listed below to:
________________
________________
________________
Initially capitalized terms are defined in the Mortgage Loan Custodial
Agreement, dated ____________, 199_ among [Seller], [Purchaser] and [Custodian].
Very truly yours,
[PURCHASER]
BY ______________
Title:
<PAGE>
Exhibit 10(v)
PROMISSORY NOTE
---------------
$15,000,000,00 Dated: August 21, 1997
FOR VALUE RECEIVED, United Financial Mortgage Corp. (hereinafter referred
to as "BORROWER") unconditionally promises to pay to the order of West Suburban
Bank (hereinafter referred to as "BANK"), at its principal place of business at
711 S. Westmore/Meyers Rd., Lombard, Il 60148, or such other place as Bank may
designate from time to time hereafter, the principal sum of Fifteen Million &
00/100 ($15,000,000.00) DOLLARS or so much as has been drawn pursuant to the
terms of the Mortgage Warehouse Line of Credit and Security Agreement executed
by Borrower and Bank of even date herewith, with interest from the date of
disbursement thereon as follows:
a. Frequency of Payments: Periodic payments shall be made monthly.
---------------------
b. Date of Payments: The first periodic payment shall be due on September 1,
----------------
1997, and successive periodic payments shall be made on the same day of
each month thereafter.
c. Amount of Payments: Each periodic payment shall consist of all amounts
------------------
collected by Borrower with respect to the collateral and the proceeds from
the sale, transfer, conveyance or assignment of the Collateral or any
portion thereof, together with interest on the entire unpaid principal
balance from time to time outstanding.
d. Final Payment: The entire unpaid principal balance and all accrued interest
-------------
thereon, if not sooner paid, shall be due and payable on October 1, 1998.
e. Interest Rate: The unpaid principal balance shall bear interest from the
-------------
date hereof until fully paid, computed at a daily rate equivalent to 75%
percent per annum (computed on the basis of a 360 day year and actual days
elapsed). Below the Prime Rate published from time to time in the Money
Rates section of the Wall Street Journal, Midwest Edition, and in effect
daily. In the event that more than one prime rate is so published on any
given day, the highest published Prime Rate shall be used. In the event
that the Prime Rate of the Wall Street Journal is not available, Bank will
select another comparable prime rate or other interest rate index. Changes
in the interest rate shall take effect prospectively as of the dates of
changes in the Prime Rate as aforesaid.
COLLATERAL
----------
This Note is made in connection with a Mortgage Warehouse Line of Credit
and Security Agreement between Borrower and Bank of even date herewith and is
secured by the Collateral (as such term is defined in the Mortgage Warehouse
Line of Credit and Security Agreement) (the "Collateral").
<PAGE>
DEFAULT
-------
The occurrence of any one of the following events shall constitute a
default by the Borrower ("EVENT OF DEFAULT") under this Note:
a. Failure to make prompt payment of any amount when due and payable or
declared due and payable;
b. The occurrence of an Event of Default, as such term is defined in the
accompanying Mortgage Warehouse Line of Credit and Security Agreement.
Upon the occurrence of an Event of Default, without notice or demand by
Bank, all amounts owed hereunder shall be immediately due and payable, and Bank
may avail itself to remedies as are set forth in the Mortgage Warehouse Line of
Credit and Security Agreement and others provided by law.
All sums becoming due and payable as a result of an Event of Default shall
bear interest at the Default Rate (as such term is defined in the Mortgage
Warehouse Line of Credit and Security Agreement).
ADDITIONAL REPRESENTATIONS, WARRANTIES,
COVENANTS, TERMS AND CONDITIONS
-------------------------------
a. The Borrower shall have the right at any time, or from time to time, to
prepay any Advance under the Mortgage Warehouse Line of Credit and Security
Agreement without premium or penalty, in whole or in part. Such prepayment
shall be applied to installments of most remote maturity. Any repayment of
any or all Advances (as such term is defined in the Mortgage Warehouse Line
of Credit and Security Agreement) shall not operate to terminate Borrower's
obligations hereunder. Any amount prepaid on this Note may, subject to the
terms and conditions of the Mortgage Warehouse Line of Credit and Security
Agreement, be borrowed, repaid, and borrowed again.
b. Borrower represents and warrants that the Loan evidenced by this Note is a
business loan within the purview of Section 6404 of Chapter 17 of the
Illinois Revised Statutes (or any substitute, amended, or replacement
-------------------------
statutes) transacted solely for the purpose of carrying on or acquiring
the business of the Borrower, and that the Loan is exempt from the
provisions of the Federal Truth-In-Lending Act and Regulation Z (or any
substitute, amended, or replacement statutes or regulations).
c. All of Bank's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Bank of any partial payment made hereunder
after the time when any of Borrower's obligations hereunder become due and
payable will not establish a custom, or waive any rights of Bank to enforce
prompt payment hereof. Bank's failure to require strict performance by
Borrower of any provision of this Note shall not waive, affect or diminish
any right of Bank thereafter to demand strict compliance and performance
therewith. Any waiver of an Event of Default hereunder shall not suspend,
waive or affect any other Event of Default hereunder, Borrower and every
endorser waive presentment, demand and protest and notice of presentment,
protest, default, non-payment, maturity, release, compromise, settlement,
extension or renewal of this Note, and hereby ratify and confirm whatever
Bank may do in this regard. Borrower further waives any and all notice or
demand to which Borrower might be entitled
2
<PAGE>
with respect to this Note by virtue of any applicable statute or law (to
the extent permitted by law).
d. Borrower agrees to pay, upon Bank's demand therefor, any and all costs,
fees and expenses (including attorneys' fees, costs and expenses) incurred
in enforcing any of Bank's rights hereunder, and to the extent not paid the
same shall become part of Borrower's obligations hereunder.
e. Borrower hereby authorizes, irrevocably, any attorney of any court of
record in any state or territory of the United States where the same is
allowed by law, in term time or vacation, at any time after occurrence of
an Event of Default hereunder to waive the issuance and service of process,
and confess a judgment against the undersigned for the amount due
hereunder, including all costs, fees and expenses as provided herein,
further authorizing said attorney to release all errors and waive all right
of appeal and consent to immediate execution upon such judgement, hereby
agreeing that no writ of error or appeal will be prosecuted from such
judgment, nor any bill in equity filed to restrain the operation of such
judgment, or any execution thereon, and hereby ratifying and confirming
all that said attorney may do by virtue hereof. If this provision or any
other provision of this Note or the application thereof to any party or
circumstances is held invalid or unenforceable, the remainder of this Note
and the application thereof to other parties or circumstances will not be
affected thereby, the provisions of this Note being severable in any such
instance.
f. This Note is submitted by Borrower to Bank at Bank's principal place of
business and shall be deemed to have made thereat. This Note shall be
governed and cntrolled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect, choice of law
and in all other respects. Borrower irrevocably agrees that, in Bank's sole
and absolute discretion, all actions, suits and proceedings in any manner
or way arising out of or in respect to this Note shall be litigated in
courts within the County of DuPage or having jurisdiction with respect to
said County. Borrower expressly submits to the jurisdiction of any state or
federal court located within or having jurisdiction over said County.
Borrower waives any right it may have to change the venue of any litigation
brought in accordance herewith.
BORROWER: UNITED FINANCIAL MORTGAGE CORP.
By: /s/ Joseph Khoshabe
-----------------------------------
Joseph Khoshabe, President
:-----------------------------------
3
<PAGE>
STATE OF ILLINOIS)
)SS.
COUNTY OF Dupage )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, DO HEREBY CERTIFY that Joseph Khoshabe personally known to me to be
President of United Financial Mortgage Corp, an Illinois corporation, and
_______________, personally known to me to be the Secretary of said Corporation,
and personally known to me to be the same persons whose names are subscribed to
the foregoing instrument, appeared before me this day in person and severally
acknowledged that as such President and Secretary they signed and delivered the
said instrument as President and Secretary of said Corporation, and caused the
Corporate Seal of said Corporation to be affixed thereto, pursuant to authority,
given by the Board of Directors of said Corporation as their free and voluntary
act, and as the free and voluntary act and deed of said Corporation, for the
uses and purposes therein set forth.
GIVEN under my hand and official seal this 21st day of August, 1997.
[SEAL APPEARS HERE] DEBBIE KOLZE
---------------------
Notary Public
4
<PAGE>
MORTGAGE WAREHOUSE LINE OF CREDIT
AND SECURITY AGREEMENT
THIS AGREEMENT is made as of this 21st day of August, 1997, by and between
West Suburban Bank, ("Bank"), with its principal place of business at 711 S.
Westmore/Meyers Rd., Lombard, IL 60148, and United Financial Mortgage Corp., an
Illinois corporation, ("Borrower"), with its principal place of business at 600
Enterprise Dr., Ste 206, Oakbrook, Illinois, 60521.
W I T N E S S E T H :
WHEREAS, Bank has agreed to extend to Borrower a line of credit in an
aggregate principal amount at any one time outstanding up to but not exceeding
Fifteen Million & 00/100--- and 00/100 ($15,000,000.00) DOLLARS;
WHEREAS, Bank has agreed to establish a Line of Credit for residential
mortgage loans to be made and warehoused by Borrower until the loans are
purchased by financial institutions, provided that Borrower transfer, convey,
and grant to Bank a valid security interest in the Collateral;
NOW, THEREFORE, for and in consideration of any loan or advance (including
any loan or advance by renewal or extension) hereafter made to Borrower by Bank
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms
Whenever used herein, the following terms, when capitalized, shall have the
following respective meanings unless the context shall clearly indicate
otherwise:
a. "Mortgagor" shall mean the party who is obligated on or under any of the
Mortgages.
b. "Collateral" shall mean:
i. All of Borrower's right, title, and interest in and with respect to
mortgages it originates using the proceeds of advances on the line of
credit established hereby (the "Mortgages"), including, but not
limited to, the Mortgage Documents, whether now owned or existing or
hereafter created or acquired;
ii. All accounts, contract rights, instruments, documents, chattel paper,
general intangibles now owned or hereafter acquired (including, but
not limited to choices in action, tax refunds, and insurance
proceeds); any other obligations or indebtedness owed to Borrower from
whatever source arising; all rights of Borrower to receive any
payments in money in kind; all guaranties of the foregoing and
security therefor; all of the
1
<PAGE>
right, title and interest of Borrower in and with respect to the
goods, services, or other property that gave rise or that secure any
of the foregoing and insurance policies and proceeds relating
thereto, and all rights of Borrower as an unpaid seller of goods and
services, including, but not limited to, the rights of stoppage in
transit, replevin, reclamation, and resale; and all of the foregoing,
whether now owned or existing or hereafter created or acquired
(collectively referred to as "Receivables");
iii. All goods, merchandise, and other personal property now owned or
hereafter acquired by Borrower that are held for sale or lease, or
are furnished or to be furnished under any contract of service or are
raw materials, work-in-process, supplies, or materials used or
consumed in Borrower's business, and all products thereof, and all
substitutions, replacements, additions or accessions thereto and
thereto (collectively referred to as "Inventory");
iv. All machinery and equipment and furniture and fixtures, now owned or
hereafter acquired by Borrower, and used or acquired for use in the
business of Borrower, together with all accessions thereto and all
substitutions and replacements thereof and parts therefor
(collectively referred to as "Equipment");
v. All cash or non-cash proceeds of any of the foregoing, including
insurance proceeds;
vi. All ledger sheets, files, records, documents, and instruments
(including, but not limited to, computer programs, tapes, and related
electronic data processing software) evidencing an interest in or
relating to the above;
vii. All instruments, documents, securities, cash, property, and proceeds
of any of the foregoing owned by Borrower or in which Borrower has an
interest, which now or hereafter are at any time in the possession or
control of Bank or in transit by mail or carrier to or in the
possession of any third party acting on behalf of Bank, without
regard to whether Bank received the same in pledge, for safekeeping,
as agent for collection or transmission or otherwise or whether Bank
had conditionally released the same; any deposit accounts of Borrower
with Bank against which Bank may exercise its rights of set-off; and
viii. All mortgages, selling and/or servicing contracts to the extent the
Borrower may legally assign a security interest therein.
2
<PAGE>
c. "Default Rate" shall mean four (4%) percent per annum above the Prime Rate
and shall be charged on any amount payable herein unless promptly paid, and
shall constitute Indebtedness secured by this Agreement and shall be immediately
due and payable.
d. "Events of Default" shall mean the occurrence of any one or more of the
following events (subject to applicable cure periods, if any):
i. Failure to make prompt payment when due, of any payment due on any of
the Indebtedness, or failure to promptly perform any covenant, promise
or agreement contained herein or in the other Loan Documents, or in
any other agreement, document or instrument hereinafter delivered by
Borrower to Bank;
ii. Any representation, warranty or other information made or furnished to
Bank shall prove to have been false or incorrect;
iii. If Borrower shall make a general assignment for the benefit of
creditors, or shall state in writing or by public announcement its
inability to pay its debts as they become due, or shall file a
petition in bankruptcy, or shall be adjudicated a bankrupt, or
insolvent, or shall file a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or regulation,
or shall file an answer admitting or not contesting the material
allegations of a petition against it in any such proceeding, or shall
seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of Borrower, or any material portion of its
assets;
iv. If, within sixty (60) days after the commencement of any proceeding
against Borrower seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulations, such proceeding shall
not have been dismissed, or if, within sixty (60) days after the
appointment, without the consent or acquiescence of Borrower, of any
trustee, receiver or liquidator of Borrower or any material portions
of its assets, such appointment shall not have been vacated;
v. Entry against Borrower of any judgment which in the reasonable
exercise of Bank's judgment may materially affect Borrower's ability
to repay the Indebtedness;
vi. Dissolution, merger or consolidation of Borrower, or sale, transfer,
lease or other disposition of
3
<PAGE>
substantially all of the assets of Borrower other than in the
ordinary course of business;
vii. If in the reasonable exercise of its judgment, Bank deems itself
insecure;
viii. The making of any levy, seizure, or attachment upon the Collateral;
ix. Any claim or action is brought against Bank arising out of the Loan
transaction;
x. Failure to fully comply with the requirements of any governmental
agency or authority within thirty (30) days after notice of such
requirements, if, in the reasonable exercise of Bank's judgment such
failure to comply will materially affect Borrower's ability to repay
the Indebtedness;
xi. Any material adverse change in the Borrower's financial condition;
xii. The direct or indirect use of the proceeds of the Line of Credit for
any purpose other than originating mortgages previously approved by
Bank.
e. "Financials" shall mean those financial statements of Borrower, if any,
heretofore or concurrently herewith delivered by or on behalf of Borrower
to Bank.
f. "Indebtedness" shall mean all obligations of Borrower under this Agreement,
the Note and the other Loan Documents and all other obligations of every
kind and description of Borrower to Bank, its successors and assigns,
howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to become
due, and all principal, interest, taxes, fees, charges, expenses and
reasonable attorney's fees, chargeable to Borrower or incurred by Bank
under this Agreement, the other Loan Documents, or any other agreement,
document or instrument delivered to Bank.
g. "Loan" shall mean the obligations of Borrower to Bank as evidenced by the
Loan Documents, as defined herein.
h. "Loan Documents" shall mean all agreements, instruments and documents,
including without limitation, guaranties, notes, pledges, powers of
attorney, consents, corporate resolutions, assignments, contracts, notices,
security agreements, financing statements and all other written matter now
or from time to time executed by and/or on behalf of Borrower and delivered
to Bank, together with any amendments, modifications or renewals and
replacements.
4
<PAGE>
i. "Mortgage Documents" shall mean all mortgages, deeds of trust, promissory
notes, loan applications, credit reports, appraisal reports, surveys,
hazard and title insurance policies, guarantees, closing statements,
disclosure statements, and all other written matter or materials prepared
or obtained in connection with any of the Mortgages.
j. "Note" shall mean that Note bearing even date herewith executed by Borrower
and payable to the order of Bank, in the principal sum of Fifteen Million
--------------- AND 00/100 ($15,000,000.00) DOLLARS in connection with this
Line of Credit Agreement and any other promissory note or obligation of
Borrower evidencing any Advance or loan made by Bank to Borrower.
k. "Prime Rate" shall mean the prime rate of interest published from time to
time in the Money Rates section of the Wall Street Journal, Midwest
Edition, and in effect daily. In the event more than one Prime Rate is so
published on any given day, the highest published Prime Rate will be used.
In the event that the Prime Rate of the Wall Street Journal is not
available, the Bank will select a comparable prime rate or other interested
rate index. The Prime Rate is not necessarily the lowest interest rate
charged by said Bank to its most creditworthy customers.
2(a) Line of Credit
--------------
The Line of Credit shall not exceed Fifteen Million ----------------------
AND 00/100 ($15,000,000.00) DOLLARS in aggregate principal amount at any one
time outstanding and shall be available (hereinafter referred to as "Advances")
to the Borrower until October 1, 1998. Each Advance shall be repaid as provided
herein.
2(b) Advance Procedure
-----------------
The Borrower shall give the Bank at least one (1) days prior written notice
of the date upon which it requests that an Advance be made under this Line of
Credit. Borrower shall specify the amount of such Advance but in no event shall
an Advance be for less than $10,000.00. The proceeds of each Advance hereunder
shall be made available to the Borrower at the Office of the Bank at 711 S.
Westmore/Meyers Rd., Lomard, Illinois, 60148. Advances may be requested for the
sole purpose of funding Mortgages which are pledged to Bank as Collateral
hereunder. The Bank reserves the right to review and approve the individual
Mortgage Documents and other documents deemed relevant by the Bank prior to
making any Advances. It is expressly agreed that Bank will not be required to
make any Advance if Borrower is in default under any of the terms and conditions
of this Line of Credit, the Loan Documents, or any other documents delivered to
Bank, or if Bank for any reason does not approve the funding of any particular
mortgage loan. Each request for Advance shall be
5
<PAGE>
subject to Bank's approval. As a condition of making any Advance, Borrower shall
acknowledge in writing that the existing principal balance and accrued interest
as of the time of such Advance is true and correct.
At the funding of any particular Mortgage Loan under this Agreement to be
funded by the Bank, Borrower will present evidence that the real estate is
insured against loss in an amount not less than the loan amount with a loss
payment endorsement in favor of Borrower and the following properly executed
documents:
i. Promissory note naming Borrower as sole payee;
ii. Mortgage in favor of Borrower in recordable form;
iii. Settlement statement prepared by the title insurance company;
iv. Closing statement between the Mortgagor and the seller of the real estate,
if applicable;
v. Any and all other instruments, documents, and notices required in order
for the transaction to comply with the Federal Truth-In-Lending Act and
Regulation Z, the Real Estate Settlement Procedures Act, the Illinois
Mortgage Escrow Account Act, and any and all other applicable federal,
state, or local laws; and
vi. Any and all other documents reasonably required by Bank.
2(c) Term of Agreement
-----------------
Bank's obligation to make any future advances under the Line of Credit
shall terminate as of October 1, 1998. Effective August 21, 1997, this Line of
Credit Agreement shall continue to be in effect on a month-to-month basis,
unless previously terminated, and may be terminated by either party at any time
thereafter upon thirty (30) days prior written notice. Termination of the Line
of Credit shall not affect Borrower's obligations to Bank with respect to any
draws made upon the Line of Credit previous to such termination.
2(d) Prepayments
-----------
The Borrower shall have the right at any time, or from time to time, to
prepay any Advance under this Line of Credit without premium or penalty, in
whole or in part. Such prepayment shall be applied first to accrued interest and
then to any principal balance remaining unpaid. Any repayment of any or all
Advances shall not operate to terminate Borrower's obligations under the Loan
Documents. Any amount prepaid on the Note may, subject to the terms and
conditions hereof, be borrowed, repaid, and borrowed again. In the event
Borrower does prepay and reborrows
6
<PAGE>
proceeds under this Agreement, all procedures will be subject to the Advance
procedures outlined in Section 2(b) above.
3. Grant of Security Interest
--------------------------
To secure the payment and performance of all Indebtedness, Borrower hereby
pledges, assigns and grants to Bank a continuing security interest in any and
all of the Collateral.
4. Representations and Warranties
------------------------------
Except as disclosed in writing to Bank, Borrower warrants and represents to
and covenants with Bank that:
a. Borrower is and at all times hereafter shall be a corporation, duly
organized and existing and in good standing under the laws of the State of
Illinois and qualified or licensed to do business in all states in which
the laws thereof require Borrower to be so qualified and/or licensed,
including, but not limited to, licensing pursuant to the Residential
Mortgage License Act, Ill. Rev. Stat. Ch. 17 Section 2321-1 et seq.
b. Borrower has the right, power and capacity and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and
the Loan Documents;
c. The execution, delivery and/or performance by Borrower of this Agreement
and the Loan Documents shall not, by the lapse of time, the giving of
notice or otherwise, constitute a violation of any applicable law or a
breach of any provision contained in Borrower's Articles of Incorporation,
By-Laws, or similar document, or contained in any agreement, instrument or
document to which Borrower is now or hereafter a party or by which it is or
may become bound;
d. Borrower has and at all times hereafter shall have good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of
all liens, claims, security interests and encumbrances except those of Bank
and those, if any, as disclosed in writing to Bank;
e. Borrower is now and at all times hereafter, shall be solvent and generally
paying its debts as they mature and Borrower now owns and shall at all
times hereafter own property which, at a fair valuation, is greater than
the sum of its debts;
f. Borrower now has and shall have at all times hereafter capital sufficient
to carry on its business and transactions and all businesses and
transactions in which it is about to engage;
g. There are no actions or proceedings which are pending or threatened against
Borrower which might result in any
7
<PAGE>
material and adverse change in its financial condition or materially affect
its assets or the Collateral;
h. Except for trade payables arising in the ordinary course of its business
since the dates reflected in the Financials and except as disclosed in the
Financials, Borrower has no indebtedness;
i. Borrower is not subject to the renegotiation of any government contracts;
j. Borrower possesses adequate assets, licenses, patents, copyrights,
trademarks and tradenames to continue to conduct its business as previously
conducted by it;
k. Borrower has and is in good standing with respect to all governmental
permits, certificates, consents and franchises necessary to continue to
conduct its business and to own or lease and operate its properties as now
owned or leased by it;
l. None of said permits, certificates, consents or franchises contain any
term, provision, condition or limitation more burdensome than such as are
generally applicable to persons engaged in the same or similar business as
Borrower;
m. Borrower is not a party to any contract or agreement or subject to any
charge, restriction, judgment, decree or order materially and adversely
affecting its business, property, assets, operations or condition,
financial or otherwise;
n. Borrower is not in violation of any applicable statute, regulation or
ordinance of the United States of America, of any state, city, town
municipality, county or of any other jurisdiction, or of any agency
thereof, in any respect materially and adversely affecting its business,
property, assets, operations or condition, financial or otherwise;
o. Borrower is not in default with respect to any indenture, loan agreement,
mortgage, deed or other similar agreement relating to the borrowing of
monies to which it is a party or by which it is bound;
p. The Financials fairly and accurately present the assets, liabilities and
financial condition and results of operations of Borrower and such other
persons described therein as of and for the periods ending on such dates
and have been prepared in accordance with generally accepted accounting
principles and such principles have been applied on a basis consistently
followed in all material respects throughout the periods involved;
8
<PAGE>
q. There has been no material and adverse change in the assets, liabilities,
or financial condition or Borrower since the date of the Financials;
r. Borrower uses no trade names or assumed names in the conduct of its
business, and has not changed its name or been the surviving entity in a
merger or acquired any business in the last ten (10) years;
s. No financing statement (other than that financing statement previously
filed by Bank regarding any prior loans and any which will be filed on
behalf of Bank) covering the Collateral is on file in any public office or
is presently in the possession of any third party other than any which have
been disclosed to the Bank in writing;
t. Borrower is and will be the lawful owner of all Collateral, free of any and
all liens and claims whatsoever, other than the security interest
hereunder, with full power to subject the Collateral to the security
interest hereunder;
u. All information furnished to Bank concerning the Collateral and financial
affairs of Borrower, and all other written information heretofore or
hereafter furnished by Borrower to Bank, is and will be true and correct;
v. Borrower has filed all federal, state and local tax returns and other
reports it is required to file and has paid or made adequate provision for
payment of all such taxes, assessments and other governmental charges;
w. All Mortgages originated by Borrower, and the advertising, solicitation,
application procedures, servicing, collection, and administration of such
Mortgages, shall fully comply with the provisions of the Federal Truth-In
Lending Act, Regulation Z, the Real Estate Settlement Procedures Act, the
Equal Credit Opportunity Act, Regulation B, the Federal Trade Commission
Act, the Fair Debt Collection Practices Act, the Illinois Interest Act, the
Illinois Mortgage Escrow Account Act, and all other applicable federal and
state laws and regulations and substitutes and replacements thereof.
x. With respect to each promissory note, Mortgage, and any other instrument of
indebtedness or security executed by each Mortgagor, (i) all such documents
shall be complete, genuine, and unaltered; (ii) all signatures thereon
shall be genuine and authorized; (iii) all such documents shall represent
undisputed, bona fide indebtedness due to Borrower as sole payee in the
full face amount thereof, free of all defenses; and (iv) no agreement shall
exist under which any deduction or discount may be claimed or shall have
been or shall thereafter be made; and
y. For every Mortgage funded with proceeds under this Line of Credit, the real
property and improvements covered by the Mortgages shall be located in the
State of Illinois, be free
9
<PAGE>
of damage and in good repair and subject to no title defects that would
impair the priority of the Mortgage as a first lien on the property; a
valid American Land Title Association standard loan policy with extended
coverage over the five standard exceptions issued by a title insurer
acceptable to the Bank shall be in effect insuring the Borrower in the full
amount of the loan; and the improvements on the real property covered by
the Mortgage shall be insured against loss by fire and other casualties
customarily included in an extended coverage policy issued in the State of
Illinois in an amount not less than the full amount of the loan, with loss
payable to the Borrower, and including flood insurance if required or made
available under the National Flood Insurance Act of 1968.
5. Agreements of Borrower
a. Borrower hereby covenants, represents and warrants that Borrower:
i. Shall, upon request of Bank, execute such financing statements and
other documents (and pay the cost of filing or recording the same in
all public offices deemed necessary by Bank) and do such other acts
and things, all as Bank may from time to time request to establish and
maintain a perfected security interest in the Collateral (free of all
liens, claims and rights to third parties whatsoever) to secure the
payment of the Indebtedness and to consummate the transactions
contemplated in or by this Agreement or the Loan Documents;
ii. Shall keep at its principal place of business, its records concerning
the Collateral, which records will be of such character as will enable
Bank or its agents to determine at any time the status thereof, and
Borrower will not, unless Bank shall otherwise consent in writing,
duplicate any such records at any other address;
iii. Shall use the proceeds of all loans made by Bank to Borrower pursuant
to this Agreement and the Loan Documents solely for the purpose of
originating the Mortgages constituting the Collateral, in accordance
with all applicable laws, statutes, rules, regulations, and judicial
decisions. Borrower further warrants and represents to Bank and
covenants with Bank that Borrower is not in the business of extending
credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulation U issued by the Board of Governors
of the Federal Reserve System), and no proceeds of any loans and/or
advances made by Bank to or for the benefit of Borrower hereunder will
be used to purchase or carry any margin stock or to extend
10
<PAGE>
credit to others for the purposes of purchasing or carrying any
margin stock;
iv. Shall, upon the request of Bank, deliver to Bank copies of the
Mortgage Documents and any and all other documents evidencing any
interest in any and all of the Collateral;
v. Shall furnish Bank such information concerning Borrower and the
Collateral as Bank may from time to time request;
vi. Shall permit Bank and its agents, from time to time, but not less
than once a month, to inspect the Collateral, and to inspect, audit
and make copies of and extracts from all records and all other papers
in the possession of Borrower and will, upon request of Bank, deliver
to Bank all of such records and papers which pertain to the
Collateral;
vii. Shall, upon request of Bank, stamp on its records concerning the
Collateral, a notation, in form satisfactory to Bank, of the security
interest of Bank hereunder;
viii. Shall not sell, assign or create or permit to exist any lien on or
security interest in any Collateral to or in favor of anyone other
than Bank;
ix. Shall, at its sole cost and expense, keep and maintain an errors and
omissions insurance policy in favor of Bank. Such policy of insurance
shall be in form, with insurer and in such amount as may be
satisfactory to Bank. Borrower shall deliver to Bank the original (or
certified) copy of said policy of insurance, or a certificate of
insurance, and evidence of payment of all premiums for such policy.
Such policy of insurance shall contain an endorsement, in a form and
substance acceptable to Bank, showing loss payable to Bank, and shall
provide that the insurance company will give Bank at least thirty
(30) days written notice before any such policy or policies of
insurance shall be altered or cancelled and that no act or default of
Borrower or any other person or entity shall affect the right of Bank
to recover under such policy or policies of insurance. Borrower
hereby directs the insurer under such policy of insurance to pay all
proceeds payable thereunder directly to Bank and hereby irrevocably
appoints Bank as Borrower's agent and attorney-in-fact to make,
settle and adjust claims under such policy of insurance and endorse
the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policy of insurance;
11
<PAGE>
x. Shall pay promptly, when due, all taxes, levies, assessments,
charges, liens, claims or encumbrances of any federal, state or
local agency, body or department upon the Indebtedness, Borrower's
business, assets, income or receipts and shall not permit the same
to arise, or to remain, and will promptly discharge the same.
xi. Shall notify Bank in writing of any change in location of its
principal place of business or any change in location of the
Collateral;
xxi. Shall indemnify and hold Bank harmless from any and all claims,
demands, losses, liabilities, actions, lawsuits and other
proceedings, judgments, awards, decrees, costs and expenses
(including reasonable attorney's fees), arising directly or
indirectly, in whole or in part, out of the acts and omissions
whether negligent, willful or otherwise, of Borrower, or any of its
officers, directors, agents, subagents, or employees, in connection
with the Loan and the Loan Documents or as a result of (a) ownership
of the Collateral or any interest therein or receipt of any sums
therefrom, (b) any failure on the part of the Borrower to perform or
comply with any of the terms of the Loan Documents, or (c) any claim
asserted by any party arising in connection with the Collateral; and
xiii. Shall at all times comply with all requirements, conditions and
provisions imposed upon Mortgage Bankers, or such other description
as may hereafter be used to describe the business activity of
Borrower, as set forth under Illinois law.
b. Each loan made by Bank to Borrower pursuant to this Agreement or the Loan
Documents shall constitute an automatic warranty and representation by
Borrower to Bank that there does not then exist an "Event of Default" or
any event or condition which with notice, lapse of time, and/or the making
of such loan would constitute an Event of Default;
c. Borrower hereby authorizes and directs Bank to disburse, for and on behalf
of Borrower and for Borrower's account, the proceeds of loans made by Bank
to Borrower pursuant to this Agreement to such person or persons as
Borrower shall direct, whether in writing or orally;
d. Bank, in its sole and absolute discretion, without notice thereof to
Borrower, may disburse any or all proceeds of loans made to Borrower
pursuant to this Agreement and/or the Loan Documents to pay any costs,
expenses or other amounts required to be paid by Borrower hereunder and not
so paid, and/or to pay any person as Bank deems necessary to insure that
that the security interest granted to Bank in the
12
<PAGE>
Collateral shall at all times have the priority represented and covenanted
by this Agreement and the Loan Documents. All monies so disbursed by Bank
shall be a part of the Indebtedness, payable by Borrower to Bank on demand.
e. Regardless of the adequacy of any Collateral securing Borrower's
obligations hereunder, any deposits or other sums at any time credited by
or payable or due from Bank to Borrower, or any monies, cash, cash
equivalents, securities, instruments, documents or other assets of Borrower
in the possession or control of Bank or its bailee for any purpose may at
any time be reduced to cash and applied by Bank to or setoff by Bank
against the Indebtedness hereunder;
f. All of the representations and warranties contained herein, and all
representations and warranties contained in any other document or
instrument delivered to Bank in connection herewith will be and remain true
and correct during the term of this Agreement; and
g. The obligation of the Bank to make any Advance hereunder is subject to all
legal matters incident to the transactions hereby contemplated being
satisfactory to Bank's counsel, and that the Borrower is not otherwise in
default under this Agreement, or any other agreement, Note, or the Loan
Documents.
6. Collections
a. All amounts collected by Borrower with respect to any of the Mortgages
shall be remitted to the Bank, together with interest thereon as provided
in the Note, on a monthly basis on or before the 1st day of each month
during the term hereof.
b. Borrower shall remit to the Bank the gross proceeds from the sale,
transfer, conveyance, or assignment of any Mortgage within Ninety (90)
business days after any such sale, transfer, conveyance, or assignment,
together with interest thereon as provided in the Note.
c. Until such time as Bank shall notify Borrower of the revocation of such
power and authority, Borrower:
i. Shall, at its own expense, endeavor to collect, as and when due, all
amounts due with respect to any of the Collateral, including the
taking of such actions with respect to such collection as Bank may
request or, in the absence of such request, as Borrower may deem
advisable;
ii May grant, in the ordinary course of business, to any party obligated
on any of the Collateral, any rebate, refund, or allowance to which
such party may be lawfully entitled. Bank, however, may, at any time,
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<PAGE>
whether before or after any revocation of such power and authority or
the maturity of any of the Indebtedness, notify the Mortgagors and any
other parties obligated on any of the Collateral to make payment to
Bank of any amounts due or to become due thereunder and enforce
collection of any of the Collateral by suit or otherwise and
surrender, release or exchange all or any part thereof, or compromise
or extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder or evidenced thereby.
Upon request of Bank, Borrower will, at its own expense, notify any
parties obligated on any of the Collateral to make payments to Bank of
any amounts due or to become due thereunder.
d. Borrower hereby irrevocably appoints the Bank, its officers, agents, and
employees, as Borrower's true and lawful attorneys in fact with full power
to enforce all of Borrower's rights with respect to the Collateral, the
Mortgagors, and all other parties obligated on the Collateral, including,
but not limited to, the right to enforce collection thereon, the right to
notify Mortgagors that payments shall be made directly to the Bank, and the
right to receipt for and endorse and deposit into its own account all
checks for same in satisfaction of amounts outstanding hereunder. Borrower
agrees to provide the originals of all Mortgage documents to the Bank upon
two (2) days advance notice in writing, for the purpose of enforcing such
rights.
7. Certificates, Schedules and Reports
Borrower shall from time to time, as Bank may request (but not less
frequently than monthly), deliver to Bank a schedule identifying each Mortgage
(not previously so identified) subject to the security interest hereunder, and
such additional schedules and such certificates and reports respecting all or
any of the Collateral at the time subject to the security interest hereunder,
and the items or amounts received by Borrower in full or partial payment or
otherwise as proceeds of any of the Collateral, all to such extent as Bank may
request. Any such schedule, certificate or report shall be executed by a duly
authorized officer of Borrower and shall be in form and detail as Bank may
specify. Any such schedule identifying any Mortgage subject to the security
interest hereunder shall be accompanied (if Bank so requests) by a true and
correct copy of the Mortgage documents evidencing such Mortgage.
8. Remedies
If any Event of Default shall occur, then or at any time thereafter at the
option of Bank, Bank may declare all Indebtedness to be due and payable without
notice, protest, presentment or demand, all of which are expressly waived by
Borrower. Bank shall have in addition to any other rights and
14
<PAGE>
remedies contained in this Agreement and the other Loan Documents, and any other
agreements, guarantees, notes, instruments, and documents heretofore, now, or at
any time hereafter executed by Borrower and delivered to Bank, all of the rights
and remedies of a secured party under the Illinois Commercial Code, all of which
rights and remedies shall be cumulative, ad nonexclusive, to the extent
permitted by law. Bank shall also have the following rights and remedies:
a. Declare the Note in default and the Indebtedness shall thereupon become
immediately due and payable in full;
b. Terminate Bank's obligations under this Agreement to extend credit of any
kind or to make any disbursement, whereupon the commitment and obligations
of Bank to extend credit, or to make disbursements hereunder shall be
terminated;
c. To notify or require Borrower to notify any and all Mortgagors or parties
against which Borrower has a claim that the Mortgages have been assigned to
Bank and/or that Bank has a security interest therein and that all payments
should be made to Bank;
d. To endorse the name of Borrower upon any instruments of payments that may
come into the possession of Bank in full or in part payment of any amount
owing to Bank;
e. To sign and endorse the name of Borrower on any assignments, verifications,
and notices in connection with the Mortgages, and any instrument or
document relating thereto or to the rights of Borrower therein;
f. To notify post office authorities to change the address for delivery of
mail of Borrower to an address designated by Bank and to receive, open, and
dispose of all mail addressed to Borrower;
g. To send requests for verification to Mortgagors or other obligors;
h. To sell, assign, sue for, collect, or compromise payment of all or any part
of the Collateral in the name of Borrower or in its own name, or make any
other disposition of the Collateral, or any part thereof, which disposition
may be cash, credit, or any combination thereof;
i. To purchase all or any part of the Collateral at public, or private sale,
and in lieu of actual payment of such purchase price, may set off the
amount of such price against the Indebtedness;
j. To act as the attorney-in-fact of Borrower, with full power of substitution
and full power to do any and all things necessary to be done in and about
the premises as fully and effectually as Borrower might or could do but for
this
15
<PAGE>
appointment, and hereby ratifying all that said attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. Neither Bank, nor its
agents, shall be liable for any acts or omissions or for any error of
judgment or mistake of fact or law in its capacity as such attorney-in-
fact. This power of attorney is coupled with an interest and shall be
irrevocable so long as any Indebtedness shall remain outstanding;
k. To enter and/or remain upon the premises of Borrower without any obligation
to pay rent to Borrower or others, or any other place or places where any
of the Collateral is located and kept and:
i. Remove Collateral therefrom to the premises of Bank or any agent of
Bank, for such time as Bank may desire, in order to maintain, sell,
collect, and/or liquidate the Collateral; or
ii. Use such premises, together with materials, supplies, books, and
records of Borrower, to maintain possession and/or the condition of
the Collateral, and to prepare the Collateral for selling,
liquidating, or collecting.
l. To require Borrower to assemble the Collateral and make it available to
Bank at a place to be designated by Bank which is reasonably convenient to
both parties;
m. To set off, without notice to Borrower, any and all deposits or other sums
at any time credited by or due from Bank to Borrower, whether in a special
account or other account or represented by a certificate of deposit
(whether or not matured);
n. To apply the net proceeds realized by Bank upon a sale or other disposition
of the Collateral, or any part thereof, after deduction of the expenses of
retaking, holding, preparing for sale, selling, or the like, and reasonable
attorney's fees and other expenses incurred by Bank, toward satisfaction of
the Indebtedness hereunder. Bank shall account to Borrower for any surplus
realized upon such sale or other disposition and Borrower shall remain
liable for any deficiency.
The commencement of any action, legal or equitable, shall not affect the
security interest of Bank in the Collateral until the Indebtedness
hereunder or any judgment therefor are fully paid.
o. Any notice required to be given by Bank of a sale or other disposition of
the Collateral or any other intended action by Bank, deposited in the
United States mail, postage prepaid, and duly addressed to Borrower at the
address specified at the beginning of this Agreement not less than five (5)
days prior to such proposed action, shall
16
<PAGE>
constitute commercially reasonable and fair notice to Borrower thereof;
p. Upon an Event of Default, Borrower agrees that Bank may, if Bank deems it
reasonable, postpone or adjourn any such sale of the Collateral from time
to time by an announcement at the time and place of sale or by announcement
at the time and place of such postponed or adjourned sale, without being
required to give a new notice of sale. Borrower agrees that Bank has no
obligation to preserve rights against prior parties to the Collateral.
Further, to the extent permitted by law, Borrower waives and releases any
cause of action and claim against Bank as a result of Bank's possession,
collection or sale of the Collateral, any liability or penalty, for failure
of Bank to comply with any requirement imposed on Bank relating to notice
of sale, holding of sale or reporting of sale of the Collateral, and any
right of redemption from such sale.
9. Expense of Enforcement
----------------------
Borrower shall pay and reimburse Bank for all costs, expenses and
reasonable attorney's fees incurred in seeking to protect or perfect a security
interest in the Collateral, to enforce the terms of this Agreement or the other
Loan Documents, or to defend any action or proceeding relating hereto or to the
Collateral, including without limitation, appraiser's fees, transportation
expenses, documentary and expert evidence fees and costs and stenographer's
charges, including those incurred in connection with: any probate or bankruptcy
actions or proceedings; preparations for the commencement of any action,
proceeding or suit; and preparations for the defense or any threatened action,
proceeding or suit which might affect the Collateral, whether or not actually
filed. All such costs, expenses and fees shall become additional Indebtedness
secured by the Collateral and shall become immediately due and payable at the
Default Rate when paid or incurred by Bank.
If at any time, by assignment or otherwise, Bank transfers any Indebtedness
due hereunder or any Collateral, or other security therefor, such transfer shall
include all of Bank's rights and powers under this Agreement with respect to
said Indebtedness, Collateral, or other security transferred and the transferee
shall become vested with all the same rights and powers, whether or not they are
specifically referred to in the instrument of transfer. If and to the extent
that Bank will continue to have the rights and powers herein set forth with
respect thereto.
Bank shall have the exclusive right to determine how, when and what
application of payments and credits, if any, whether derived from the Borrower,
the Collateral, or any other source, shall be made on the Indebtedness, and such
determination shall be conclusive upon the Borrower.
17
<PAGE>
10. Remedies are Cumulative
-----------------------
Each right, power and remedy of Bank now or hereafter existing at law or in
equity shall be cumulative and concurrent and shall be in addition to every
right, power and remedy provided for in the Loan Documents, and the exercise of
any right, power or remedy shall not preclude the simultaneous or later exercise
of any other right, power or remedy.
11. No Waiver
---------
No delay or failure by Bank to insist upon the strict performance of any
term hereof or of the other Loan Documents or to exercise any right, power or
remedy provided for herein or therein as a consequence of any Event of Default
hereunder or thereunder, and no acceptance of any payment of the principal,
interest, or premium, if any, on the Indebtedness during the continuance of any
such Event of Default, shall constitute a waiver of any such term, such Event of
Default, or such right, power or remedy. The exercise by Bank of any right,
power or remedy conferred upon Bank by this or any other Loan Document or by law
or equity shall not preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. No waiver of any Event of Default
hereunder shall affect or alter this Agreement, which shall continue in full
force and effect with respect to any other then existing or subsequent Events of
Default.
12. Amendment
---------
This Agreement shall not be amended, modified or terminated orally but may
only be amended, modified or terminated pursuant to written agreement between
Borrower and Bank.
13. Notices
-------
Any notice, demand, request or other communication desired to be given or
required pursuant to the terms hereof shall be in writing and shall be delivered
by personal service or sent by registered or certified mail, return receipt
requested, postage prepaid, addressed to the addresses first set forth herein or
to such other address as the parties hereto may designate in writing from time
to time.
Any such notice, demand, request, or other communication shall be deemed
given when mailed to the office of the Bank or Borrower or of any other officer
who shall have been designated by the addressee by notice in writing to the
other party.
14. Cross-Default Clause
--------------------
Any default by Borrower in the performance of observance of any covenant,
promise, condition or agreement hereof shall be deemed an Event of Default under
each of the Loan Documents, entitling Bank to exercise all or any remedies
available to Bank
18
<PAGE>
under the terms of any or all Loan Documents, and any default or Event of
Default under any other Loan Document shall be deemed a default hereunder,
entitling Bank to exercise any or all remedies provided for herein.
15. Incorporation by Reference
--------------------------
The terms of the Loan Documents are incorporated herein and made a part
hereof by reference.
16. Compliance with Applicable Law
------------------------------
Borrower agrees that the obligations evidenced by this Agreement constitute
an excepted transaction under the Truth-In-Lending Act, 15 U.S.C. Section 1601,
et seq., and said obligations constitute a business loan which comes within the
purview of Section 4(1)(c) of "An Act In Relation To The Rate of Interest And
Lending Of Money" approved May 24, 1879, as amended, Ill.Rev.Stat. Ch. 17,
Section 6404(1)(c).
17. Headings
--------
The various headings used in this Agreement as headings for paragraphs or
otherwise are for convenience only and shall not be used in interpreting the
text of the paragraphs in which they appear and shall not limit or otherwise
affect the meanings thereof.
18. Severability
------------
If any provision in this Agreement is held by a court of law to be in
violation of any applicable local, state or federal ordinance, statute, law,
administration or judicial decision, or public policy, and if such court should
declare such provision of this Agreement to be illegal, invalid, unlawful, void,
voidable, or unenforceable as written, then such provision shall be given full
force and affect to the fullest possible extent that is legal, valid and
enforceable. The remainder of this Agreement shall be construed as if such
illegal, invalid, unlawful, void, voidable or unenforceable provision was not
contained therein. The rights, obligations and interest of the Borrower and the
holder hereof under the remainder of this Agreement shall continue in full force
and effect.
19. Copies of Legal Process
-----------------------
If any action or proceeding shall be instituted relating to the Collateral
or Loan Documents or to accomplish any purpose which would materially affect
this Agreement, Borrower shall immediately, upon service or notice thereof,
deliver to Bank a true copy of each petition, summons, complaint, notice of
motion, order to show cause, and all other process, pleadings and papers,
however designated, served in any such action or proceedings.
19
<PAGE>
20. Names
Regardless of their form, all words shall be deemed singular or plural and
to have such gender as required by the text.
21. Governing Law/Venue
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Illinois. Borrower irrevocably agrees that, in Bank's sole
and absolute discretion, all actions, suits and proceedings in any manner or way
arising out of or in respect to this Agreement, any documents executed
concurrently herewith, or the Collateral, shall be litigated in courts within
the County of DuPage, or having jurisdiction with respect to said county.
Borrower expressly submits to the jurisdiction of any state or federal court
located within or having jurisdiction over said county. Borrower waives any
right it may have to change the venue of any litigation brought in accordance
herewith.
22. Completion of Documents
If this Agreement contains any blanks when executed by Borrower, Bank is
hereby authorized, without notice to Borrower, to complete any such blanks
according to the terms upon which any Loan has been granted.
IN WITNESS WHEREOF, this Mortgage Warehouse Line of Credit and Security
Agreement is executed and effective as of the date first set forth above.
BORROWER: UNITED FINANCIAL MORTGAGE CORP.
/s/ ????????
----------------------------------------
an Illinois Corporation
By: Joseph Khoshabe
------------------------------------
Its: President
-----------------------------------
ACCEPTED this 21st day of August, 1997.
BANK: WEST SUBURBAN BANK
/s/ Michael P. Broshahan
----------------------------------------
By: Michael P. Broshahan
------------------------------------
Its: Senior Vice President
-----------------------------------
20
<PAGE>
STATE OF ILLINOIS )
) SS.
COUNTY OF DuPage )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, DO HEREBY CERTIFY, that Joseph Khoshabe, personally known to me to be
President of United Financial Mortgage, an Illinois Corporation, and personally
known to me to be the Secretary of said Corporation, and personally known to me
to be the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person and severally acknowledged that as such
President and Secretary they signed and delivered the said instrument as
President and Secretary of said Corporation, and caused the Corporate Seal of
said Corporation to be affixed thereto, pursuant to authority, given by the
Board of Directors of said Corporation as their free and voluntary act, and as
the free and voluntary act and deed of said Corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and official seal this 21 day of August, 1997.
/s/ Debbie Kolze
--------------------------------
Notary Public
"OFFICIAL SEAL"
DEBBIE KOLZE
Notary Public, State of Illinois
My Commission Expires 11/22/00
21
<PAGE>
GUARANTY
--------
THIS GUARANTY dated August 21, 1997, is given by Joseph Khoshabe
(hereinafter referred to as "Guarantor") to West Suburban Bank, an Illinois
Banking Corporation (hereinafter referred to as the "Bank").
I.
Recitals
--------
1.1 Description of the Loan. United Financial Mortgage Corp., an Illinois
Corporation, (hereinafter referred to as the "Borrower") has executed and
delivered to the bank a note (hereinafter referred to as the "Note") in the
principal amount of Fifteen Million-------------------AND NO/100
($15,000,000.00) DOLLARS in which the Borrower promises to pay to the order of
Bank the principal amount (or so much thereof as may be outstanding from time to
time pursuant to the terms of a certain Mortgage Warehouse Line of Credit and
Security Agreement) and interest thereon at the rate or rates specified in the
Note.
1.2 Description of the Loan. The payment of the Note is secured by this
Guaranty and by a Mortgage Warehouse Line of Credit and Security Agreement, and
such other security instruments which have been executed and delivered in
connection therewith, together with any amendments, modifications or renewals
and replacements thereof (hereinafter collectively referred to as "Loan
Documents"). The obligations, liabilities, and indebtedness described in the
herein collectively referred to as the "Loan".
1.3 Inducement. This Guaranty is made by the Guarantor in order to induce
Bank to make the Loan to the Borrower. It is expressly understood, Bank is
unwilling to make said Loan unless the Guarantor guarantees the payment of the
Loan principal and interest and all other amounts due or accruing hereafter as
provided for in the Loan Documents and guarantees the performance and observance
by the Borrower of all terms, covenants, and conditions on its part to be
performed and observed pursuant to the provisions of the Loan Documents
(hereinafter referred to as the "Indebtedness").
1.4 Beneficiary of Borrower. The Guarantor is a shareholder and officer of
Borrower, and the loan made by Bank and evidenced and/or secured by the Loan
Documents is for the direct pecuniary benefit of Guarantor.
<PAGE>
II.
The Guaranty
------------
2.1 Guarantor hereby:
2.1(a) Absolutely and unconditionally guarantees the due and punctual
payment of all principal of the Loan, all interest now accrued and
hereafter owing, and all other monies now accrued and hereafter accruing
thereon, and the due and punctual performance and observance by the Borrower of
every other term, covenants and condition of the Indebtedness or any renewal,
extension, or modification of the Indebtedness and Loan Documents whether
according to the present terms thereof, or at any earlier or accelerated date or
dates, as provided therein or pursuant to any extension or extensions of time or
any other change or changes in any of the terms, covenants or conditions thereof
now or at any time hereafter made or granted.
2.1(b) Agrees to indemnify Bank against any losses Bank may sustain and
expenses it may incur as a result of any default by Borrower under the Loan
Documents and/or as a result of the enforcement or the attempted enforcement by
Bank of any of its rights against Guarantor hereunder. Further, in the event
this Guaranty is placed in the hands of an attorney for enforcement, the
Guarantor will reimburse Bank for all expenses incurred including reasonable
attorney's fees whether or not suit is initiated.
2.1(c) Guarantees the prompt payment of all Indebtedness owed by Borrower
to Bank which shall hereafter become due and payable under the terms of the Loan
Documents or any renewal, extension, modification or replacement thereof by
reason of advances made or expenses incurred by Bank thereunder or by reason of
additional advances made to Borrower independent thereof at any time hereafter
until after all Indebtedness under the Loan Documents is fully paid.
2.1(d) Guarantees the full and timely performance of each and every
obligation of Borrower under the Loan Documents. Time is of the essence of this
Guaranty.
III.
3.1 Actions by Bank Not to Affect Liability. The liability of Guarantor
hereunder shall not be affected by:
3.1(a) The renewal, extension, modification or replacement of any of the
Loan Documents (all of which Bank is hereby authorized to make without
notification to the Guarantor.
2
<PAGE>
3.1(b) Any extension in the time for making any payment due under the Loan
Documents;
3.1(c) The acceptance by Bank of any additional security for the
Indebtedness; or
3.1(d) The failure during any period of time whatsoever of Bank to attempt
to collect any amount due under the Loan Documents or to execute any remedy
available thereunder, or any other security instrument given for the
Indebtedness, in the event of:
i. a default in the performance by Borrower of the terms of the Loan
Documents;
ii. the occurrence of an Event of Default as defined in any of the Loan
Documents; or
iii. a default under any additional security given for the Indebtedness.
3.1(e) Bank proceeding for collection of the Indebtedness against
Guarantor only.
3.1(f) Bank's failure to protect the security given for the Indebtedness
or for this instrument, from waste and/or diminution in value of any nature or
type whatsoever.
3.1(g) The discharge in bankruptcy of Borrower or of the Guarantor.
Further, Guarantor expressly agrees not to remove any claim filed against him
individually to Federal Bankruptcy Court and/or Federal District Court in the
event Guarantor should file and/or participate in Federal Bankruptcy proceedings
as more fully set forth in the first full sentence in Section 3.5 below.
3.1(h) Bank's purchase of any of the security given for the Indebtedness
or this instrument, at judicial or other public sale, or any subsequent resale
at public or private sale.
3.1(i) Bank's release of any portion of the security given for the
Indebtedness, and/or release of any portion of additional security.
3.1(j) Bank's release or agreement not to sue, without reservation, any
person against whom Bank or Guarantor has a right of recourse or Bank's
agreement to suspend the right of recourse against such person.
3.1(k) Bank's impairment of any security given for this instrument or the
Indebtedness.
3.1(l) The Bank's discharge of any party to the Loan Documents.
3
<PAGE>
3.2 Waivers. Guarantor hereby;
3.2(a) Absolutely and expressly waives all notice of and does hereby
consent to any renewal, modification, extension and the execution by Borrower or
its authorized agents of any Loan Documents pertaining thereto. Further
Guarantor expressly waives notice of Bank's acceptance of this Guaranty, of any
default in non-payment and/or non-performance by Borrower under the Loan
Documents, of presentment, protest and demand, and of all or any other matters
to which Guarantor might otherwise be entitled.
3.2(b) Waives diligence, presentment, protest, notice of dishonor, demand
for payment, extension of time of payment, non-payment at maturity, indulgences
and notices of every kind, and consents to: (i) Any and all forbearances and
extensions of the time of payment of the Indebtedness; (ii) Any and all changes
in the terms, covenants or conditions of the Loan Documents; (iii) Any and all
substitutions, exchanges or releases of all or any part of any security given
for the Indebtedness or for this instrument; (iv) the release or agreement not
to sue without reservation of rights of anyone liable in any way for repayment
of the Loan.
3.2(c) Waives any and all claims or defenses based upon lack of diligence
in:
i. collection of any amount of the payment of which is guaranteed
hereby; or
ii. protection or realization of security given for the Indebtedness or
for this instrument.
3.3 Nature of Remedies. No delay or omission on the part of Bank in the
exercise of any right or remedy shall operate as a waiver thereof. The remedies
available to Bank under this Guaranty shall be exercisable against Guarantor and
shall be in addition to, and exercisable in any combination with, any and all
remedies available by operation of law or under the other Loan Document.
3.4 Guarantor's Liability. Guarantor's liability under this Guaranty
shall be absolute, primary and direct. Bank shall not be required to pursue any
right or remedy it may have against Borrower under the Loan Documents or
otherwise, and shall not be required to first commence any action or obtain any
judgment against Borrower before enforcing this Guaranty against Guarantor.
Guarantor will, upon demand, tender to Bank the amount of all rents and all
other sums collected in the possession of the Guarantor, the payment of which by
Borrower is in default under the Loan Documents and will, upon demand, perform
all other obligations of Borrower, the performance of which by Borrower is in
default under the Loan Documents.
4
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Guarantor's liability under this Guaranty shall in no way be affected or
impaired by any of said indebtedness or of any security or collateral therefor.
Nothing except cash payment in full of all Indebtedness of the Borrower shall
release the Guarantor's liability under the Guaranty.
3.5 Continuing Guaranty. Guarantor agrees that this Guaranty shall
continue in full force and effect notwithstanding the institution by or against
the Borrower of bankruptcy, reorganization, readjustment, receivership or
insolvency proceedings of any kind or the disaffirmance of Loan Documents in
such proceedings or otherwise. In the event any payment by or on behalf of the
Borrower to Bank is held to constitute a preference under the bankruptcy laws,
or if for any other reason Bank is required to refund such payment or pay the
amount thereof to any other party, such payment by or on behalf of the Borrower
to Bank shall not constitute a release of the Guarantor from any liability
hereunder, but the Guarantor agrees to pay such amount to Bank upon demand.
Further, Guarantor agrees that this Guaranty shall be a continuing Guaranty and
shall not be discharged, impaired or affected by acts on the part of the
Borrower or other defenses which might constitute a legal or equitable discharge
of a surety or guarantor and agree that this Guaranty shall be valid and
unconditionally binding upon Guarantor. If this Guaranty is referred to any
attorney for collection after any default, and whether suit be brought or not,
the Guarantor agrees to pay a reasonable sum as attorneys' fees and also any and
all costs and expenses of suit.
3.6 Assignment. This Guaranty shall not be assignable by Guarantor nor
shall any of the duties under it be delegated by Guarantor. This Guaranty shall
inure to the benefit of, and be enforced by Bank, its transferees, successors,
assigns and any subsequent holder of the Loan Documents and shall be binding
upon, and enforceable against the Guarantor and the Guarantor's heirs, legal
representatives, successors and assigns, as fully as if such assignee,
transferee or holder were herein by name specifically given such rights, powers
and benefits, but Bank shall have an unimpaired right, prior and superior to
that of any assignee, transferee or holder to enforce this Guaranty for the
benefit of the Bank, as to so much of the Indebtedness as it has not sold,
assigned or transferred. In the event of the death of Guarantor, the obligations
of Guarantor shall continue in full force and effect against his estate,
personal representative, executor, successors and assigns.
3.7 Governing Law. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Illinois.
5
<PAGE>
3.8 Severability. Guarantor intends and believes that each provision in
the Guaranty comports with all applicable local, state and federal laws and
court decisions. However, if any provision or provisions in this Guaranty is
found by a court of law to be in violation of any applicable local, state or
federal ordinance, statute, law, administrative or judicial decision, or public
policy, and if such court should declare such portion, provision or provisions
of this Guaranty to be illegal, invalid, unlawful, void, voidable or
unenforceable as written, then it is the intent of Guarantor that such portion,
provision or provisions shall be given full force and effect to the fullest
possible extent that they are legal, valid and enforceable. The remainder of
this Guaranty shall be construed as if such illegal, invalid, unlawful, void,
voidable or unenforceable portion, provision or provisions were not contained
therein, and the rights, obligations and interest under the remainder of this
Guaranty shall continue in full force and effect.
3.9 Waiver of Right of Redemption. To the fullest extent allowed by law
and equity, Guarantor hereby waives any right of redemption and/or equity of
redemption granted to him by common law or by statute he may have in any of the
security given for the Indebtedness or for this instrument.
3.10 Headings. The various headings used in this Guaranty as headings for
sections or otherwise are for convenience only and shall not be used in
interpreting the text of the section in which they appear.
3.11 Jurisdiction/Service of Process. The Guarantor hereby submits to
personal jurisdiction in the State of Illinois for the enforcement of this
Guaranty and waives any and all personal rights to object to such jurisdiction
for the purposes of litigation to enforce this Guaranty. In the event such
litigation is commenced at any time when Guarantor is not permanently domiciled
in the State of Illinois, Guarantor agrees that service of process may be made
and personal jurisdiction over Guarantor obtained, by service of a copy of the
summons, complaint and other pleadings required to commence such litigation upon
appointed Agent for Service of Process in the State of Illinois, which Agent
Guarantor hereby designates to be:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Guarantor agrees that this appointment of an agent for service of process is
made for the mutual benefit of Guarantor and Bank and may not be revoked without
Bank's consent. Guarantor hereby agrees and consents that any such service of
process upon such agent shall be taken and held to be valid personal service
upon Guarantor whether or not
6
<PAGE>
Guarantor shall be then physically present, residing within, or doing business
within the State of Illinois, and that any such service of process shall be of
the same force and validity as if service were made upon Guarantor when
physically present, residing within, or doing business in the State of Illinois.
Guarantor waives all claim of error by reason of any such service. Guarantor
hereby consents to the jurisdiction of either the Circuit Court of DuPage
County, Illinois, or the United States District Court for the Northern District
of Illinois, Eastern Division, in any action, suit or proceeding which Bank may
at any time wish to file in connection with this Guaranty or any related matter.
3.12 Venue. Guarantor hereby agrees that an action, suit or proceeding to
enforce this Guaranty may be brought in any State or Federal Court which Bank
may select in its sole discretion and hereby waives any objection which
Guarantor may have to the laying of the venue of any such action, suit or
proceeding in any such Court.
3.13 No Waiver. No failure on the part of the Bank to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Bank of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power.
3.14 Borrower Defined. The term "Borrower" as used in this instrument
shall include the individual or individuals, association, partnership,
corporation, or Land Trustee named herein as Borrower; and
(a) any successor individual or individuals, association, partnership,
corporation, or Land Trustee to which all or substantially all of the business
or assets of said Borrower shall have been transferred;
(b) in the case of a partnership Borrower, any new partnership which shall
have been created by reason of the admission of any new partner or partners
therein or the dissolution of the existing partnership by the death, resignation
of other withdrawal of any partner, and
(c) in the case of a corporate Borrower, any other corporation into or
with which said borrower shall have been merged, consolidated, reorganized or
absorbed.
3.15 Complete and Exclusive Statement of Facts. There is no condition
precedent to the effectiveness of this Guaranty. The terms contained within this
Guaranty
7
<PAGE>
constitute a complete and exclusive statement of the agreement of the parties
hereto.
IN WITNESS WHEREOF, the undersigned has executed the Guaranty on the day
and year first above written.
GUARANTOR:
/s/ Joseph Khoshabe
---------------------------------
Joseph Khoshabe, Personally
-------------------
Subscribed and sworn to before me
this 21st day of August, 1997.
/s/ Debbie Kolze
- --------------------------------- "OFFICIAL SEAL"
Notary Public DEBBIE KOLZE
Notary Public, State of Illinois
My Commission Expires 11/22/00
My Commission Expires: 11/22/00
lasallefldr:guaranty:cds
8
<PAGE>
EXHIBIT 10(VI)
LEASE AGREEMENT
THIS AGREEMENT made this 20th day of June, 1991 between ENTERPRISE PROPERTIES,
INC., an Illinois Corporation, located at 600 Enterprise Drive, Oak Brook,
Illinois 60521, (hereinafter called the "Landlord"), and, United
Financial Mortgage Corp. a (an) Illinois Corporation having an office at 600
Enterprise Drive, Suite 206, Oakbrook, Illinois 60521 (hereinafter called the
"Tenant").
In consideration of the rents, covenants and agreements hereinafter contained,
the Landlord and Tenant hereby agree as follows:
LEASED PREMISES
LEASED PREMISES: The Landlord does demise and lease to the Tenant the premises
- ------ --------
(the "Leased Premises") located in a building (the "Building") having a
municipal address of 600 Enterprise Drive, Oak Brook, Illinois, and known as 600
Enterprise Drive (the Leased Premises, the Building, together with the lands
and property, present and future improvements, additions and changes thereto
being herein called the "Property"), the Leased Premises consisting of
approximately three thousand one hundred twenty-five (3,125) square feet on the
2nd floor, excluding the exterior surfaces of the exterior walls of the Leased
Premises.
TERM
TERM: TO HAVE AND TO HOLD the Leased Premises for and during the term of five
- ----
year(s) (the "Term") to be computed from the 1st day of September, 1991, and to
be fully complete and ended on the 31st day of August, 1996 unless otherwise
terminated.
DELAY IN OCCUPANCY: If the Leased Premises or any part thereof are not ready for
- ----- -- ---------
occupancy on the date of commencement of the Term, no part of the "Rent" (as
hereinafter defined) or only a proportionate part thereof, in the event that the
Tenant shall occupy a part of the Leased Premises, shall be payable for the
period prior to the date when the entire Leased Premises are ready for occupancy
and the full Rent shall accrue only after such last mentioned date. The Tenant
agrees to accept any such abatement of Rent in full settlement of all claims
which the Tenant might otherwise have by reason of the Leased Premises not being
ready for occupancy on the date of commencement of the Term, provided that when
the Landlord has completed construction of such part of the Leased Premises as
it is obliged hereunder to construct, the Tenant shall not be entitled to any
abatement of Rent for any delay in occupancy due to the Tenant's failure or
delay to provide plans or to complete any special installations or other work
required for its purposes or due to any other reason, nor shall the Tenant be
entitled to any abatement of Rent for any delay in occupancy if the Landlord has
been unable to complete construction of the Leased Premises by reason of such
failure or delay by reason of such failure or delay by the Tenant. A certificate
of the Landlord as to the date the Leased Premises were ready for occupancy and
such construction as the Landlord is obliged to complete is substantially
completed, or as to the date upon which the same would have been ready for
occupancy and completed respectively but for the failure or delay of the Tenant,
shall be conclusive and binding on the Tenant and
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Rent in full shall accrue and become payable from the date set out in the said
certificate. Notwithstanding any delay in occupancy, the expiration date of this
Lease shall remain unchanged.
OVERHOLDING: If at the expiration of the Term or sooner termination hereof, the
- -----------
Tenant shall remain in possession without any further written agreement or in
circumstances where a tenancy would thereby be created by implication of law or
otherwise, a tenancy from year to year shall not be created by implication of
law or otherwise, but the Tenant shall be deemed to be a monthly tenant only, at
double "Basic Rent" (as hereinafter defined) payable monthly in advance plus
"Additional Rent" (as hereinafter defined) and otherwise upon and subject to
the same terms and conditions as herein contained, excepting provisions for
renewal (if any) and leasehold improvement allowance (if any), contained herein,
and nothing, including the acceptance of any Rent by the Landlord, for periods
other than monthly periods, shall extend this Lease to the contrary except an
agreement in writing between the Landlord and the Tenant and the Tenant hereby
authorizes the Landlord to apply any moneys received from the Tenant in payment
of such monthly Rent.
RENT
BASIC RENT: The Tenant shall without deduction or right of offset Pay to the
- ----- ----
Landlord yearly and every year during the Term as rental (herein called "Basic
Rent"), the sum of Twenty-Nine Thousand Six Hundred Eighty-Seven and 40/100
Dollars ($29,687.40) of lawful money of the jurisdiction in which the Leased
Premises are located, in equal monthly installments of Two Thousand Four Hundred
Seventy-Three and 95/100 Dollars ($2,473.95) each in advance on the first day of
each month during the Term, the first payment to be made on the first day of
September 1991. ($9.50/s.f. gross)
BASIC RENT INCREASES:
- ----- ---- ---------
YEAR 2: $32,812.44 per year ($2,734.37 per month) ($10.50/s.f.)
YEAR 3: $35,156.16 per year ($2,929.68 per month) ($11.25/s.f.)
YEAR 4: $36,718.68 per year ($3,059.89 per month) ($11.75/s.f.)
YEAR 5: $38,281.20 per year ($3,190.10 per month) ($12.25/s.f.)
Tenant may renew this lease for another 5 years at 5% increase per year.
ADDITIONAL RENT: The Tenant shall, without deduction or right of offset pay to
- ---------- ----
the Landlord yearly and every year during the Term as additional rental (herein
called "Additional Rent")
(a) the amounts of any Taxes payable by the Tenant to the Landlord pursuant
to the provisions of Schedule A attached hereto; and
(b) the amounts required to be paid to the Landlord pursuant to the provisions
of Schedule B attached hereto.
PAYMENT ADDITIONAL RENT: Additional Rent shall be paid and adjusted with
- ------- ---------- ----
reference to a fiscal period of twelve (12) calendar months ("Fiscal Period"),
which shall be a calendar year unless the Landlord shall from time to time have
selected a Fiscal Period which is not a calendar year by written notice to the
Tenant.
The Landlord shall advise the Tenant in writing of its estimate of the
Additional Rent to be payable by the Tenant during the Fiscal Period (or broken
portion of the Fiscal Period, as the case may be, if applicable at the
commencement or end of the Term of because of a change in Fiscal Period) which
commenced upon the commencement date of the Term and for each succeeding Fiscal
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<PAGE>
Period or broken portion thereof which commences during the Term. Such estimate
shall in every case be a reasonable estimate and, if requested by the Tenant,
shall be accompanied by reasonable particulars of the manner in which it was
calculated. The Additional Rent payable by the Tenant shall be paid in equal
monthly installments in advance at the same time as payment of Basic Rent is due
hereunder based on the Landlord's estimate as aforesaid. From time to time, the
Landlord may re-estimate, on a reasonable basis, the amount of Additional Rent
for any Fiscal Period or broken portion thereof, in which case the Landlord
shall advise the Tenant in writing of such re-estimate, and fix new equal
monthly installments for the remaning balance of such Fiscal Period or Broken
portion thereof. After the end of each such Fiscal Period or broken portion
thereof the Landlord shall submit to the Tenant a statement of the actual
Additional Rent Payable in respect of such Fiscal Period or broken portion
thereof and a calculation of the amounts by which the Additional Rent Payable by
the Tenant exceeds or is less than (as the case may be) the aggregate
installments paid by the Tenant on account of Additional Rent for such Fiscal
Period.
Within thirty (30) days after the submission of such statement either the Tenant
shall pay to the Landlord any amount by which the amount found payable by the
Tenant with respect to such Fiscal Period or broken portion thereof exceeds the
aggregate of the monthly payments made by it on account thereof during such
Fiscal Period or broken portion thereof, or the Landlord shall pay to the Tenant
any amount by which the amount found payable as aforesaid is less than the
aggregate of such monthly payments.
ACCRUAL OF RENT: Basic Rent and Additional Rent (herein collectively called
- ------- -- ----
"Rent") shall be considered as accruing from day to day, and Rent for an
irregular period of less than one year or less than one calendar month shall be
apportioned and adjusted by the Landlord for the Fiscal Periods of the Landlord
in which the tenancy created hereby commences and expires. Where the calculation
of Additional Rent for a period cannot be made until after the termination of
this Lease, the obligation of the Tenant to pay Additional Rent shall survive
the termination hereof and Additional Rent for such period shall be payable by
the Tenant upon demand by the Landlord. If the Term commences or expires on any
day other than the first of the last day of a month, Rent for such fraction of a
month shall be apportioned and adjusted as aforesaid and paid by the Tenant on
the commencement date of the Term.
RECOVERY OF RENT: Rent and any other amounts required to be paid by the Tenant
- -------- -- ----
to the Landlord under this Lease shall be deemed to be and be treated as rent
and payable and recoverable as rent, and the Landlord shall have all rights
against the Tenant for default in any payment of rent and other amounts as in
the case of arrears in rent.
LIMITATIONS: The information set out in statements, documents or other writings
- -----------
setting out the amount of Additional Rent submitted to the Tenant under or
pursuant to this Lease shall be binding on the Tenant and deemed to be accepted
by it and shall not be subject to amendment for any reason unless the Tenant
gives written notice to the Landlord within sixty (60) days of the Landlord's
submission of such statement, document, or writing identifying the statement,
document, or writing and setting out in reasonable detail the reason why such
statement, document or writing should not be binding on the Tenant.
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<PAGE>
SECURITY DEPOSIT
SECURITY DEPOSIT: The Tenant shall pay to the Landlord on execution of this
- -------- -------
Lease by the Tenant the sum of Two thousand four hundred seventy-three Dollars
and ninety-five cents ($2,473.95) as a deposit to the Landlord to stand as
security for the payment by the Tenant of any and all present and future debts
and liabilities of the Tenant to the Landlord and for the performance by the
Tenant of all of its obligations arising under or in connection with this Lease
(the "Debts, Liabilities and Obligations"). The Landlord shall not be required
to keep the deposit separate form its general funds. In the event of the
Landlord disposing of its interest in this Lease, the Landlord shall credit the
deposit to its successor and thereupon shall have no liability to the Tenant to
repay the security deposit to the Tenant. Subject to the foregoing and to the
Tenant not being in default under this Lease, the Landlord shall repay the
security deposit to the Tenant without interest at the end of the Term or sooner
termination of the Lease provided that all Debts, Liabilities and Obligations of
the Tenant to the Landlord are paid and performed in full, failing which the
Landlord may on notice to the Tenant elect to retain the security deposit and to
apply it in reduction of the Debts, Liabilities and Obligations and the Tenant
shall remain fully liable to the Landlord for payment and performance of the
remaining Debts, Liabilities and Obligations.
GENERAL COVENANTS
LANDLORD'S COVENANT: The Landlord covenants with the Tenant:
- ---------- --------
(a) for quiet enjoyment; and
(b) to observe and perform all the covenants and obligations of the Landlord
herein.
TENANTS' COVENANT: The Tenant covenants with the Landlord:
- ------- --------
(a) to pay Rent; and
(b) to observe and perform all the covenants and obligations of the Tenant
herein.
USE AND OCCUPANCY
The Tenant covenants with the Landlord:
USE: Not to use the Leased Premises for any purpose other than an office for the
- ---
conduct of Tenant's business which is management and operation of a mortgage
banking firm and other business as needed.
WASTE, NUISANCE, ETC.: Not to commit, or permit, any waste, injury or damage to
- ----- --------- ---
the property including the Leasehold Improvements and any trade fixtures
therein, any loading of the floors thereof in excess of maximum degree of
loading as determined by the Landlord acting reasonably, any nuisance therein or
any use or manner of use causing annoyance to other tenants occupants of the
Property or to the Landlord;
INSURANCE RISKS: Not to do, omit or permit to be done or omitted to be done upon
- --------- -----
the Property anything which would cause to be increased the Landlord's cost of
insurance or the costs of insurance of another tenant of the Property against
perils as to which the Landlord or such other tenant has insured or which shall
cause any policy of insurance on the Property to be subject to cancellation;
4
<PAGE>
COMPLIANCE WITH LAW: To comply at its own expense with all governmental laws,
- ---------- ---- ---
regulations and requirements pertaining to the occupation and use of the Leased
premises, the condition of the Leasehold Improvements, trade fixtures, furniture
and equipment installed by or on behalf of the Tenant therein and the making by
the Tenant of any repairs, changes or improvements therein;
RULES AND REGULATIONS: To observe and perform, and to cause its employees,
- ----- --- -----------
invitees and others over whom the Tenant can reasonably be expected to exercise
control to observe and perform, the Rules and Regulations contained in Schedule
"E" hereto, and such further and other reasonable rules and regulations and
amendments and additions therein as may hereafter be made by the Landlord and
notified in writing to the Tenant, except that no change or addition may be made
that is inconsistent with this Lease unless as may be required by governmental
regulation or unless the Tenant consents thereto. The imposition of such Rules
and Regulations shall not create or imply any obligation of the Landlord to
enforce them or create any liability of the Landlord for their non-enforcement
or otherwise.
ASSIGNMENT AND SUB-LETTING
NO ASSIGNMENT AND SUB-LETTING: The Tenant covenants that it will not assign this
- -- ---------- --- -----------
Lease or sub-let the Leased Premises in whole or in part without the prior
written consent of the Landlord, which consent the Landlord covenants not to
without unreasonably (i) as to any assignee or sub-lessee who is in a
satisfactory financial condition, agrees to use the Leased Premises for those
purposed permitted hereunder, and is otherwise satisfactory to the Landlord, and
(ii) as to any portion of the Leased Premises, which, in the Landlord's sole
judgement, is a proper and rational division of the Leased Premises, subject to
the Landlord's right of termination arising under this paragraph. Without
limitation, the Tenant shall for the purpose of this paragraph be considered to
assign or sub-let in any case where it permits the Leased Premises or any
portion thereof to be, or the Leased Premises or any portion thereof are,
occupied by persons other than the Tenant, its employees and others engaged in
carrying on the business of the Tenant, whether pursuant to assignment,
sub-letting, license or other right, or where of the foregoing occurs by
operation of law.
ASSIGNMENT OR SUB-LETTING PROCEDURES: The Tenant shall not assign this Lease or
- ---------- -- ----------- ----------
sub-let the whole or any part of the Leased Premises unless:
(a) it shall have received or procured a bona fide written offer to take an
assignment or sub-lease which is not inconsistent with this Lease, and the
acceptance of which would not breach any provision of this Lease if this
paragraph is complied with and which the Tenant has determined to accept
subject to this paragraph being complied with, and
(b) it shall have first requested and obtained the consent in writing of the
Landlord thereto.
Any request for consent shall be writing and accompanied by a copy of the offer
certified by the Tenant to be true and complete, and the Tenant shall
furnish to the Landlord all information available to the Tenant and requested by
the Landlord as to the responsibility, financial standing and business of the
proposed assignee or sub-tenant. Notwithstanding the provisions of sub-paragraph
(a), within twenty (20) days after the receipt by the Landlord of such request
for consent and of all information which the Landlord shall have requested
hereunder, the Landlord
5
<PAGE>
shall have the right upon written notice of termination submitted to the Tenant,
if the request is to assign this Lease or sub-let the whole of the Leased
Premises, to cancel and terminate this Lease, or if the request is to sub-let a
part of the Leased Premises only, to cancel and terminate this Lease with
respect to such part, in each case as of a termination date to be stipulated in
the notice of termination which shall be not less than sixty (60) days or more
than ninety (90) days following the giving of such notice. In such event the
Tenant shall surrender the whole or part, as the case may be, of the Leased
Premises in accordance with such notice of termination and Basic Rent and
Additional Rent shall be apportioned and paid to the date of surrender and, if a
part only of the Leased is surrendered, Basic Rent and Additional Rent shall
after the date of surrender abate proportionately. If such consent shall be
given the Tenant shall assign or sub-let, as the case may be, only upon the
terms set out in the offer submitted to the Landlord as aforesaid and not
otherwise.
ASSUMPTION OF OBLIGATIONS: No assignment or sub-letting of this Lease shall be
- ---------- -- ------------
effective unless the assignee or sub-lessee shall execute an assumption
agreement on the Landlord's form, assuming all the obligations of the Tenant
hereunder, and shall pay to the Landlord its reasonable fee for processing the
assignment or sub-letting.
TENANT'S CONTINUING OBLIGATIONS: The Tenant agrees that any consent to an
- -------- ---------- ------------
assignment or sub-letting of this Lease or Leased Premises, shall not thereby
release the Tenant of its obligations hereunder.
REPAIR & DAMAGE
TENANT'S REPAIRS: The Tenant covenants with the Landlord to repair, maintain
- -------- --------
and keep at the Tenant's own cost, except insofar as the obligation to repair
rests upon the Landlord pursuant to this paragraph, the Leased Premises,
including Leasehold Improvements in good and substantial repair, reasonable wear
and tear excepted, provided that these obligations shall not extend to
structural elements or to exterior glass or to repairs which the Landlord would
be required to make under this paragraph but for the exclusion therefrom or
defects not sufficient to impair the Tenant's use of the Leased Premises while
using them in a manner consistent with this Lease. The Landlord may enter the
Leased Premises at all reasonable times and view the condition thereof and the
Tenant covenants with the Landlord to repair, maintain and keep the Leased
Premises in good and substantial repair according to notice in writing,
reasonable notice to do so, the Landlord may effect the repairs and the Tenant
shall pay the reasonable cost thereof to the Landlord on demand. The Tenant
covenants with the Landlord that the Tenant will at the expiration of the Term
or sooner termination thereof peaceably surrender the Leased Premises and
appurtenances in good and substantial repair and condition, reasonable wear and
tear excepted.
INDEMNIFICATION: If any part of the Property become out of repair, damaged or
- ----------------
destroyed through the negligence of, or misuse by, the Tenant or its employees,
agents, invitees and/or their successors or assigns or others, the Tenant shall
pay the Landlord on demand the expense of repairs or replacements, including the
Landlord's reasonable administration charge thereof, necessitated by such
negligence or misuse.
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DAMAGE AND DESTRUCTION: It is agreed between the Landlord and the Tenant that:
- ------ --- ------------
In the event of damage to the Property or to any part thereof, if the damage is
such that the Leased Premises or any substantial part thereof is rendered not
reasonably capable of use and occupancy by the Tenant for the purposed of its
business for any period of time in excess of ten (10) days, then
(1) unless the damage was caused by the fault or negligence of the Tenant or
its employees, agents, invitees and/or their successors or assigns or
others from the date of occurrence of the damage and until the Leased
Premises are in the sole discretion of the Landlord again reasonably
capable for use and occupancy as aforesaid, the Rent payable pursuant to
this Lease shall abate from time to time in proportion to the part or parts
of the Leased Premises not reasonably capable of such use and occupancy,
and
(2) unless this Lease is terminated as hereinafter provided, the Landlord or
the Tenant as the case may be (according to the nature of the damage and
their respective obligations to repair as provided in this lease agreement)
shall repair such damage with all reasonable diligence, but to the extent
that any part of the Leased Premises is not reasonably capable of such use
and occupancy by reason of damage which the Tenant is obligated to repair
hereunder, any abatement of Rent to which the Tenant would otherwise be
entitled hereunder shall not extend later than the time by which, in the
reasonable opinion of the Landlord, repairs by the Tenant ought to have
been completed with reasonable diligence, and
If the Leased Premises are substantially damaged or destroyed by any cause other
than by Tenant or its employees, agents, invitees and/or their successors or
assigns, or others, and if in the reasonable opinion of the Landlord given in
writing within thirty (30) days of the occurrence the damage cannot reasonably
be repaired within one hundred and eighty (180) days after the occurrence
thereof, then the Lease shall terminate, in which event neither the Landlord nor
the Tenant shall be bound to repair as provided in this lease agreement, and the
Tenant shall instead deliver up possession of the Leased Premises to the
Landlord with reasonable expedition and Rent shall be apportioned and paid to
the date of the occurrence; and
If premises whether of the Tenant or other tenants of the Property comprising in
the aggregate half or more of the total number of square feet of rentable office
area in the Property or half or more of the total number of square feet of
rentable office area in the Building (as determined by the Landlord) or portions
of the Property which affect access or services essential thereto, are
substantially damaged or destroyed by any cause and if in the reasonable opinion
of the Landlord the damage cannot reasonably be repaired within one hundred and
eighty (180) days after the occurrence thereof, then the Landlord may, by
written notice to the Tenant given within thirty (30) days after the occurrence
of such damage or destruction, terminate this Lease, in which event neither the
Landlord nor the Tenant shall be bound to repair as provided in this lease
agreement, and the Tenant shall instead deliver up possession of the Leased
Premises to the Landlord with reasonable expedition but in any event within
sixty (60) days after delivery of such notice of termination, and Rent shall be
apportioned and paid to the date
7
<PAGE>
upon which possession is so delivered up (but subject to any abatement to which
the Tenant may be entitled under this lease agreement).
INSURANCE AND LIABILITY
LANDLORD'S INSURANCE: The Landlord shall take out and keep in force during the
- ---------- ---------
Term insurance with respect to the Property except for the "Leasehold
Improvements" (as hereinafter defined) in the Leased Premises. The insurance to
be maintained by the Landlord shall be in respect of perils and to amounts and
on terms and conditions which from time to time are insurable at a reasonable
premium and which are normally insured by reasonably prudent owners of
properties similar to the Property, all as from time to time determined at
reasonable intervals by insurance advisors selected by the Landlord, and whose
opinion shall be conclusive. Unless and until the insurance advisors shall state
that any such perils are not customarily insured against by owners of properties
similar to the Property, the perils to be insured against by the Landlord shall
include, without limitation, public liability, boilers and machinery, fire and
extended perils and may include at the option of the Landlord losses suffered by
the Landlord in its capacity as Landlord through business interruption. The
insurance to be maintained by the Landlord shall contain a waiver by the insurer
of any rights of subrogation or indemnity or any other claim over which the
insurer might otherwise be entitled against the Tenant or the agents or
employees of the Tenant.
TENANT'S INSURANCE: The Tenant shall take out and keep in force during the
- -------- ----------
Term:
Comprehensive general public liability insurance all on an occurrence basis with
respect to the business carried on in or from the Leased Premises and the
Tenant's use and occupancy of the Leased Premises and of any other part of the
Property, with coverage for any one occurrence or claim of not less than Five
Hundred Thousand Dollars ($500,000) or such other amount as the Landlord may
reasonably require upon not less than one (1) month notice at any time during
the Term, which insurance shall include the Landlord as a named insured and
shall protect the Landlord in respect of claims by the Tenant as if the Landlord
were separately insured;
Insurance in respect of fire and such other perils as are from time to time in
the usual extended coverage endorsement covering the Leasehold Improvements,
trade fixtures, and the furniture and equipment in the Leased Premises for not
less than 80% of the full replacement cost thereof, and which insurance shall
include the Landlord as a named insured as the Landlord's interest may appear;
and
Insurance against such other perils and in such amounts as the Landlord may from
time to time reasonably require upon not less than ninety (90) days' written
notice, such requirement to be made on the basis that the required insurance is
customary at the time for prudent tenants of properties similar to the Property.
All insurance required to be maintained by the Tenant shall be on terms and with
insurers satisfactory to the Landlord. Each policy shall contain a waiver by the
insurer of any rights of subrogation or indemnity or any other claim over to
which the insurer might otherwise be entitled against the Landlord or the agents
or employees of the Landlord, and shall also contain an undertaking by the
insurer that no material change adverse to the Landlord or the Tenant will be
made, and the policy will not
8
<PAGE>
lapse or be canceled, except after not less than thirty (30) days' written
notice to the Landlord of the intended change, lapse or cancellation. The Tenant
shall furnish to the Landlord, if and whenever requested by it, certificates or
other evidences acceptable to the Landlord as to the insurance from time to time
effected by the Tenant and its renewal or continuation in force, together with
evidence as to the method of determination of full replacement cost of the
Tenant's Leasehold Improvements, trade fixtures, furniture and equipment, and if
the Landlord reasonably concludes that the full replacement cost has been
underestimated, the Tenant shall forthwith arrange for any consequent increase
in coverage required under this lease agreement. If the Tenant shall fail to
take out, renew and keep in force such insurance, or if the evidences submitted
to the Landlord are unacceptable to the Landlord (or no such evidences are
submitted within reasonable period after request therefore by the Landlord),
then the Landlord may give to the Tenant written notice requiring compliance
with this sub-paragraph and specifying the respects in which the Tenant is not
then in compliance with this sub-paragraph. If the Tenant does not within
forty-eight (48) hours provide appropriate evidence of compliance with this
sub-paragraph, the Landlord may (but shall not be obligated to) obtain some or
all of the additional coverage or other insurance which the Tenant shall have to
failed to obtain, without prejudice to any other rights of the Landlord under
this Lease or otherwise, and the Tenant shall pay all premiums and other
reasonable expenses incurred by the Landlord to the Landlord on demand.
LIMITATION OF LANDLORDS LIABILITY: The Tenant agrees that the Landlord shall
- ---------- -- --------- ----------
not be liable for any bodily injury or death of, or loss or damage to any
property belonging to, the Tenant or its employees, invitees or licensees or any
other person in, on or about the Property unless resulting from the actual
willful misconduct or gross negligence of the Landlord or its own employees. In
no event shall the Landlord be liable for any damage which is caused by steam,
water, rain or snow or other thing which may leak into, issue or flow from any
part of the Property or from the pipes or plumbing works, including the
sprinkler system (if any) therein or from any other place or for any damage
caused by or attributable to the condition or arrangement of any electric or
other wiring or of sprinkler heads (if any) or for any damage caused by anything
done or omitted by any other tenant.
INDEMNITY OF LANDLORD: Except with respect to claims or liabilities in respect
- --------- -- --------
of any damage which is Insured Damage to the extent of the cost of repairing
such Insured Damage, the Tenant agrees to indemnify and save harmless the
Landlord in respect of:
(a) All claims for bodily injury or death, property damage or other loss damage
arising from the conduct of any work or any act or omission of the Tenant
or any assignee, subtenant, agent, employee, contractor, invitee or
licensee of the Tenant, and in respect of all costs, expenses and
liabilities incurred by the Landlord in connection with or arising out of
all such claims, including the expenses of any action or proceeding
pertaining thereto; and
(b) Any loss, cost, (including, reasonable, lawyers' fees and disbursements),
expense or damage suffered by the Landlord arising from any breach by the
Tenant of any of its covenants and obligations under this Lease.
DEFINITION OF "INSURED DAMAGE": For purposes of this Lease, "Insured Damage"
- ---------- -- -----------------
means that part of any damage occurring to the Property of which the entire cost
of repair (or the entire cost
9
<PAGE>
of repair other than a deductible amount properly collectible by the Landlord as
part of the Additional Rent) is actually recovered by the Landlord under a
policy or policies of insurance from time to time effected by the Landlord
pursuant to this lease agreement. Where an applicable policy of insurance
contains an exclusion for damages recoverable from a third party, claims as to
which the exclusion applies shall be considered to constitute Insured Damage
only if the Landlord successfully recovers from the third party.
EVENTS OF DEFAULT AND REMEDIES
EVENTS OF DEFAULT AND REMEDIES: In the event of the happening of any one of the
- ------ -- ------- --- ---------
following events:
(a) The Tenant shall have failed to pay an installment of Basic Rent or of
Additional Rent or any other amount payable hereunder when due, and such
failure shall be continuing for a period of more than five (5) days after
the date such installment or amount was due;
(b) There shall be a default of or with any condition, covenant, agreement or
other obligation on the part of the Tenant to be kept, observed or
performed hereunder (other than a condition, covenant, agreement or other
obligation to pay Basic Rent, Additional Rent or any other amount of money)
and such default shall be continuing for a period of more than fifteen (15)
days after written notice by the Landlord to the Tenant specifying the
default and requiring that it discontinue;
(c) If any policy of insurance upon the Property or any part thereof from time
to time effected by the Landlord shall be canceled or about to be canceled
by the insurer by reason of the use or occupation of the Leased Premises by
the Tenant or any assignee, sub-tenant or licensee of the Tenant or anyone
permitted by the Tenant to be upon the Leased Premised and the Tenant after
receipt of notice in writing from the Landlord shall have failed to take
such immediate steps in respect of such use or occupation as shall enable
the Landlord to reinstate or avoid cancellation (as the case may be) of
such policy of insurance,
(d) The Leased Premises shall not, without the prior written consent of the
Landlord, be used by any other persons than the Tenant or its permitted
assigns or sub-tenants or for any purpose other than that for which they
were leased or occupied or by any persons whose occupancy is prohibited by
this Lease,
(e) The Leased Premises shall be vacated or abandoned, or remain unoccupied
without the prior written consent of the Landlord for fifteen (15)
consecutive days or more while capable of being occupied,
(f) The balance of the Term of this lease or any of the goods and chattels of
the Tenant located in the Leased Premises, shall at any time be seized in
execution or attachment, or
(g) The Tenant shall make any assignment for the benefit of creditors or become
bankrupt or insolvent or take the benefit of any statute for bankrupt or
insolvent debtors or, if a corporation, shall take any steps or suffer any
order to be made for its winding-up or other termination of its corporate
existence; or a trustee, receiver or receiver-manager or agent or other
like person shall be appointed of any of the assets of the Tenant,
10
<PAGE>
The Landlord shall have the following rights and remedies all of which are
cumulative and not alternative and not to the exclusion of any other or
additional rights and remedies in law or equity available to the Landlord by
statute or otherwise:
(a) To remedy or attempt to remedy any default of the Tenant, and in so doing
to make any payments due or alleged to be due by the Tenant to third
parties and to enter upon the Leased Premises to do any work or other
things therein, and in such event all reasonable expenses of the Landlord
in remedying or attempting to remedy such default shall be payable by the
Tenant to the Landlord on demand;
(b) With respect to unpaid overdue Rent, to the payment by the Tenant of the
Rent and of interest (which said interest shall be deemed included herein
in the term "Rent") thereon at a rate equal to the lesser of three percent
(3%) above the prime commercial loan rate charged to borrowers having the
highest credit rating from time to time by the Landlord's principal bank
from the date upon which the same was due until actual payment thereof and
the maximum amount allowed under the laws of the jurisdiction in which the
Building is located;
(c) To terminate this Lease forthwith by leaving upon the Leased Premises or by
affixing to an entrance door to the Leased Premises notice terminating the
Lease and to immediately thereafter cease to furnish any services hereunder
and enter into and upon the Leased Premises or any part thereof in the name
of the whole and the same to have again, repossess and enjoy as of its
former estate, anything in this Lease contained to the contrary
notwithstanding; and
(d) To enter the Leased Premises as agent of the Tenant and as such agent to
relet them and to receive the rent therefore and as the agent of the Tenant
to take possession of any furniture or other property thereon and upon
giving ten (10) days' written notice to the Tenant to store the same at the
expense and risk of the Tenant or to sell or otherwise dispose of the same
at public or private sale without further notice and to apply the proceeds
thereof and any rent derived from reletting the Leased Premises upon
account of the Rent due and to become due under this Lease and the Tenant
shall be liable to the Landlord for the deficiency if any.
(e) To collect reimbursement(s) from Tenant for any cost or expense including
court costs, attorney's fees, etc. relative to the Tenants failure to
perform any of its obligations hereunder.
ADDITIONAL PROVISIONS
RELOCATIONS OF LEASED PREMISES: The Landlord shall have the right at any time
- ----------- -- ------ ---------
upon sixty (60) days' written notice (the "Notice of Relocation") to relocate
the Tenant to other premises in the Property (the "Relocated Premises") and the
following terms and conditions shall be applicable:
(a) The Relocated Premises (which term shall mean the Leased Premises after
relocation) shall contain approximately the same as, or greater rentable
area than, the Leased Premises;
(b) The Landlord shall provide at its expense leasehold improvements in the
Relocated Premises equal to the standards of the "Leasehold Improvements"
(as hereinafter defined) in the
11
<PAGE>
Leased Premises which been completed or which the Landlord is obliged
herein to provide in the Leased Premises;
(c) The Landlord shall pay for the reasonable moving costs (if any) from the
Leased Premises to the Relocated Premises of the Tenant's trade fixtures
and furnishings;
(d) As compensation for all other costs, expenses and damages which the Tenant
may suffer or incur in connection with the relocation including disruption
and loss of business, Basic Rent and Additional Rent for the Relocated
Premises for the Period of the first one (1) month of occupancy shall
abate;
(e) Basic Rent and "Tenant's Proportionate Share" (as hereinafter defined) of
Additional Rent for the Relocated Premises shall be no greater than the
Basic Rent and Tenant's Proportionate Share of Additional Rent for the
Leased Premises, notwithstanding the Relocated Premises may contain a
greater rentable area;
(f) All other terms and conditions of the Lease shall apply to the Relocated
Premises except as are inconsistent with the terms and conditions of this
sub-paragraph.
SUBORDINATION AND ATTORNMENT: This Lease and all rights of the Tenant hereunder
- ------------- --- ----------
are subject and subordinate to all underlying leases and charges or mortgages
now or hereafter existing (including charges and mortgages by way of debenture,
note, bond, deeds of trust and mortgage and all instruments supplemental
thereto) which may now or hereafter affect the Property or any part thereof and
to all renewals, modifications, consolidations, replacements and extensions
thereof provided the lessor, chargee or mortgagee as a tenant upon all the terms
of this Lease. The Tenant agrees to execute promptly whenever requested by the
Landlord or by the holder of any such lease, charge or mortgage an instrument of
subordination or attornment, as the case may be as may be required of it.
CERTIFICATES: The Tenant agrees that it shall promptly whenever requested by
- ------------
the Landlord from time to time execute and deliver to the Landlord, and if
required by the Landlord, to any lessor, chargee or mortgagee (including any
trustee) or other person designated by the Landlord, an acknowledgment in
writing as to the then status of this Lease, including as to whether it is in
full force and effect, is modified or unmodified, confirming the Basic Rent and
Additional Rent payable hereunder and the state of the accounts between Landlord
and Tenant, the existence or nonexistence of defaults, and any other matters
pertaining to this Lease as to which the Landlord shall request an
acknowledgment.
INSPECTION OF AND ACCESS TO THE LEASED PREMISES: The Landlord shall be
- ---------- -- --- ------ -- --- ------ --------
permitted at any time and from time to time to enter and to have its authorized
agents, employees and contractors enter the Leased Premises for the purposes of
inspection, window cleaning, maintenance, providing janitor service, making
repairs, alterations or improvements to the Leased Premises or the Property, or
to have access to utilities and services (including all ducts and access panels
(if any), which the Tenant agrees not to obstruct) and the Tenant shall provide
free and unhampered access for the purpose, and shall not be entitled to
compensation for any inconvenience, nuisance or discomfort caused thereby. The
Landlord and its authorized agents and employees shall be permitted entry to the
Leased Premises for the purpose of exhibiting them to prospective tenants. The
Landlord in exercising its rights under this paragraph shall do so to the
extent reasonably necessary so as to minimize interference with the Tenant's use
and enjoyment of the Leased Premises provided that in an emergen-
12
<PAGE>
cy the Landlord or persons authorized by it may enter the Leased Premises
without regard to minimizing interference.
DELAY: Except as herein otherwise expressly provided, if and whenever and to
- -----
the extent that either the Landlord or the Tenant shall be prevented, delayed or
restricted in the fulfillment of any obligation hereunder in respect of the
supply or provision of any service or utility, the making of any repair, the
doing of any work or any other thing (other than the payment of moneys required
to be paid by the Tenant to the Landlord hereunder) by reason of:
(a) strikes or work stoppages;
(b) being unable to obtain any material, service, utility or labor required to
fulfill such obligation;
(c) any statute, law or regulation of, or inability to obtain any permission
from any government authority having lawful jurisdiction preventing,
delaying or restricting such fulfillment; or
(d) other unavoidable occurrence,
the time for fulfillment of such obligation shall be extended during the period
in which such circumstance operates to prevent, delay or restrict the
fulfillment thereof, and the other party to this Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby occasioned,
provided that nevertheless the Landlord will use its best efforts to maintain
services essential to the use and enjoyment of the Leased Premises and provided
further that if the Landlord shall be prevented, delayed or restricted in the
fulfillment of any such obligation hereunder by reason of any of the
circumstances set out in sub-paragraphs (a), (b), (c), or (d) listed above and
to fulfill such obligation could not, in the reasonable opinion of the landlord,
be completed without substantial additions to or renovations of the Property,
the Landlord may on sixty (60) days' written notice to the Tenant terminate this
Lease.
WAIVER: If either the Landlord or the Tenant shall overlook, excuse, condone or
- ------
suffer any default, breach, non-observance, improper compliance or
non-compliance by the other of any obligation hereunder, this shall not operate
as a waiver of such obligation in respect of any continuing or subsequent
default, breach, or non-observance, and no such waiver shall be implied but
shall only be effective if expressed in writing.
SALE, DEMOLITION AND RENOVATION: The term "Landlord" as used in this Lease,
- ---- ---------- --- ----------
means only the owner for the time being of the Property, so that in the event of
any sale or sales to transfer or transfers of the Property, or the making of any
lease or lease or leases thereof, or the sale or sales or the transfer or
transfers or the assignment or assignments of any such lease or leases, previous
landlords shall be and hereby are relieved of all covenants and obligations of
Landlord hereunder. It shall be deemed and construed without further agreement
between the parties, or their successors in interest, or between the parties and
the transferee or acquirer, at any such sale, transfer of assignment, or lessee
on the making of any such lease, that the transferee, acquirer or lessee has
assumed and agreed to carry out any and all of the covenants and obligations of
Landlord hereunder to Landlord's exoneration, and Tenant shall thereafter be
bound to and shall attorn to such transferee, acquirer or lessee, as the case
may be, as Landlord under this Lease;
13
<PAGE>
Notwithstanding anything contained in this Lease to the contrary, in the event
the Landlord intends to demolish or to renovate substantially all the Building,
then the Landlord, upon giving the Tenant one hundred and eighty (180) days'
written notice, shall have the right to terminate this Lease and this Lease
shall thereupon expire on the expiration of one hundred and eighty (180) days
from the date of the giving of such notice without compensation of any kind to
the Tenant.
PUBLIC TAKING: The Landlord and Tenant shall co-operate, each with the other,
- ------ ------
in respect of any Public Taking of the Leased Premises or any part thereof so
that the Tenant may receive the Maximum award to which it is entitled in law for
relocation costs and business interruption and so that the Landlord may receive
the maximum award for all other compensation arising from or relating to such
Public Taking (including all compensation for the value of the Tenant's
leasehold interest subject to the Public Taking) which shall be the property of
the Landlord, and the Tenant's rights to such compensation are hereby assigned
to the Landlord. If the whole or any part of the Leased Premises is Publicly
Taken, as between the parties hereto, their respective rights and obligations
under this Lease shall continue until the day on which the Public Taking
authority takes possession thereof. If the whole or any part of the Leased
Premises is Publicly Taken, the Landlord shall have the option, to be exercised
by written notice to the Tenant, to terminate this Lease and such termination
shall be effective on the day the Public Taking authority takes possession of
the whole or the portion of the Property Publicly Taken. Rent and all other
payments shall be adjusted as of the date of such termination and the Tenant
shall, on the date of such Public Taking, vacate the Leased Premises and
surrender the same to the Landlord, with the Landlord having the right to
reenter and repossess the Leased Premises discharged of this Leased and to
remove all persons therefrom. In this paragraph, the words "Public Taking" shall
include expropriation and condemnation and shall include a sale by the Landlord
to an authority with powers of expropriation or taking and "Publicly Taken"
shall have a corresponding meaning.
REGISTRATION OF LEASE: The Tenant agrees with the Landlord not to register this
- ------------ -- -----
Lease in any recording office and not to register notice of this Lease in any
form without the prior written consent of the Landlord. If such consent is
provided such notice of Lease or caveat shall be in such form as the Landlord
shall have approved and upon payment of the Landlord's reasonable fee for same
and all applicable transfer or recording taxes or charges. The Tenant shall
remove and discharge at Tenant's expense registration of such a notice or caveat
at the expiration or earlier termination of the Term, and in the event of
Tenant's failure to so remove or discharge such notice or caveat after ten (10)
days' written notice by Landlord to Tenant, the Landlord may in the name and on
behalf of the Tenant execute a discharge of such a notice or caveat in order to
remove and discharge such notice of caveat and for the purpose thereof the
Tenant hereby irrevocably constitutes and appoints any officer of the Landlord
the true and lawful attorney of the Tenant.
LEASE ENTIRE AGREEMENT: The Tenant acknowledges that there are no covenants,
- ----- ------ ---------
representations, warranties, agreements or conditions express or implied,
collateral or otherwise forming part of or in any way affecting or relating to
this Lease save as expressly set out in this Lease and Schedules attached hereto
and that this Lease and such Schedules constitute the entire agreement between
the Landlord and the Tenant and may not be modified except as herein explicitly
provided or except by agreement in writing executed by the Landlord and the
Tenant.
14
<PAGE>
NOTICES: Any notice, advice, document or writing required or contemplated by
- -------
any provision hereof shall be given in writing and if to the Landlord, either
delivered personally to an officer of the Landlord or mailed by prepaid mail
addressed to the Landlord at the said local office address of the Landlord shown
above, and if to the Tenant, either delivered personally to the Tenant (or to an
officer of the Tenant, if a corporation) or mailed by prepaid mail addressed to
the Tenant at the Leased Premises, or if an address of the Tenant is shown in
the description of the Tenant above, to such address. Every such notice, advice,
document or writing shall be deemed to have been given when delivered
personally, or if mailed as aforesaid, upon the fifth day after being mailed.
The Landlord may from time to time by notice in writing to the Tenant designate
another address as the address to which notices are to be mailed, to it, or
specify with greater particularity the address and persons to which such notices
are to be mailed any may require that copies of notices be sent to an agent
designated by it. The Tenant may, if an address of the Tenant is shown in the
description of the Tenant above, from time to time by notice in writing to the
Landlord, designated another address as the address to which notices are to be
mailed to it, or specify with greater particularity the address to which such
notices are to be mailed.
INTERPRETATION: In this Agreement "herein," "hereof," "hereby," "hereunder,"
- --------------
"hereto," "hereinafter" and similar expressions refer to this Lease and not to
any particular paragraph, clause or other portion thereof, unless there is
something in the subject matter or context inconsistent therewith; and the
parties agree that all of the provisions of this Lease are to be construed as
covenants and agreements as through words importing such covenants and
agreements were used in each separate paragraph hereof, and that should any
provision or provisions of this Lease by illegal or not enforceable it or they
shall be considered separate and severable from the Lease and its remaining
provisions shall remain in force and be binding upon the parties hereto as
though the said provision or provisions had never been included, and further
that the captions appearing for the provisions of this Lease have been inserted
as a matter of convenience and for reference only and in no way define, limit or
enlarge the scope or meaning of this Lease or of any provision hereof.
EXTENT OF LEASE OBLIGATIONS: This Agreement and everything herein contained
- ------ -- ----- -----------
shall endure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors, assigns and other legal representatives,
as the case may be, of each and every of the parties hereto, subject to the
granting of consent by the Landlord to any assignment or sublease, and every
reference herein to any party hereto shall include the heirs, executors,
administrators, successors, assigns and other legal representatives of such
party, and where there is more than one tenant or there is a male or female
party the provisions hereof shall be read with all grammatical changes thereby
rendered necessary and all covenants shall be deemed joint and several.
USE AND OCCUPANCY PRIOR TO TERM: If the Tenant shall for any reason use or
- --- --- --------- ----- -- ----
occupy the Leased Premises in any way prior to the commencement of the Term
without there being an existing lease between the Landlord and Tenant under
which the Tenant has occupied the Leased Premises, then during such prior use or
occupancy the Tenant shall be Tenant of the Landlord and shall be subject to the
same covenants and agreements in this Lease mutates mutandis.
15
<PAGE>
SCHEDULES: The provisions of the following Schedules attached hereto shall form
- ---------
part of this Lease as if the same were embodied herein:
Schedule "A" - Taxes Payable by Landlord and Tenant
Schedule "B" - Services & Costs
Schedule "C" - Rules & Regulations
Schedule "D" - Leasehold Improvements
Schedule "E" - Option to Renew
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
DATED: 6/20/91
----------------------------
Landlord: ENTERPRISE PROPERTIES, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: Authorized Agent
Tenant: UNITED FINANCIAL MORTGAGE CORP.
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: President
16
<PAGE>
SCHEDULE "A"
TAXES PAYABLE BY LANDLORD AND TENANT
TENANT'S TAXES: The Tenant covenants to pay all Tenant's Taxes, as and when the
- -------- -----
same become due and payable. Where any Tenant's Taxes are payable by the
Landlord to the relevant taxing authorities, the Tenant covenants to pay the
amount thereof to the Landlord.
The Tenant covenants to pay to the Landlord the Tenant's Proportionate Share of
the excess of the amount of the Landlord's Taxes in each Fiscal Period over the
Landlord's Taxes in the "Base Year" (as hereinafter defined), if applicable, or
over the "Tax Contribution" amount (as hereinafter defined), if applicable.
The Tenant covenants to pay to the Landlord the Tenant's Proportionate Share of
the costs and expenses (including legal and other professional fees and interest
and penalties on deferred payments) incurred in good faith by the Landlord in
contesting, resisting or appealing any of the taxes.
LANDLORD'S TAXES: The Landlord covenants to pay all Landlord's Taxes subject to
- ---------- -----
the payments on accounts of Landlord's Taxes required to be made by the Tenant
elsewhere in this Lease. The Landlord may appeal any official assesment or the
amount of any Taxes or other taxes based on such assesment and relating to the
Property. In connection with any such appeal, the Landlord may defer payment of
any Taxes or other taxes, as the case may be, payable by it to the extent
permitted by law, and the Tenant shall co-operate with the Landlord and provide
the Landlord with all relevant information reasonably required by the Landlord
in connection with any such appeal.
SEPARATE ALLOCATION: In the event that the Landlord is unable to obtain from the
- -------- ----------
taxing authorities any separate allocation of Landlord's Taxes, Tenant's Taxes
or assesment as required by the Landlord to make calculations of Additional Rent
under this Lease, such allocation shall be made by the Landlord acting
reasonably and shall be conclusive.
INFORMATION: Whenever requested by the Landlord, the Tenant shall deliver to it
- -----------
receipts for payment of all the Tenant's Taxes and furnish such other
information in connection therewith as the Landlord may reasonably require.
TAX ADJUSTMENT: If the Building has not been taxed as a completed and fully
- --- ----------
occupied building for any Fiscal Period, the Landlord's Taxes will be determined
by the Landlord as if the Building had been taxed as a complete and fully
occupied building for any such Fiscal period.
DEFINITION: In this Lease:
- ----------
"Landlord's Taxes" shall mean the aggregate of all Taxes attributable to the
Property or the Landlord in respect thereof including, without limitation, any
amounts imposed, assessed, levied or charged in substitution for or in lieu of
any such Taxes, but excluding such taxes as capital gains taxes, corporate,
income, profit or excess profit taxes to the extent such taxes are not levied in
lieu of any of the foregoing against the Property of the Landlord in respect
thereof.
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"Taxes" shall mean all taxes, rates, duties, levies, fees, charges, local
improvement rates, capital taxes, and assessments whatsoever including fees,
rents, and levies for air rights and encroachments on or over municipal
property imposed, assessed, levied or charged by any school, municipal,
regional, state, provincial, federal, parliamentary or other body, corporation,
authority, agency or commission provided that any such local improvements rate,
assessed and paid prior to or in the Base Year shall be excluded from the Base
Year and any year during the Term and provided further that "Taxes" shall not
include any special utility, levies, fees or charges imposed, assessed, levied
or charged which are directly associated with initial construction of the
Property.
"Tenant's Taxes" shall mean the aggregate of:
(a) all Taxes (whether imposed upon the Landlord or the Tenant) attributable to
the personal property, trade fixtures, business, income, occupancy or sales
of the Tenant or any other occupant of the Leased Premises, and to any
Leasehold Improvements or Fixtures installed by or on behalf of the Tenant
within the Leased Premises, and to the use by the Tenant of any of the
Property; and
(b) the amount by which Taxes (whether imposed upon the Landlord or the Tenant)
are increased above the Taxes which would have otherwise been payable as a
result of the Leased Premises or the Tenant or any other occupant of the
Leased Premises being taxed or assessed in support of separate schools.
"Tenant's Proportionate Share" shall mean N/A percent (N/A%) subject to
adjustment as determined solely by the Landlord and notified to the Tenant in
writing for physical increases or decreases in the total rentable area of the
Property provided that total rentable area of the Property and the rentable area
of the Leased Premises shall exclude areas designated (whether or not rented)
for parking and for storage.
"Based Year" as used in this Schedule shall mean calendar year 19N/A
"Tax Contribution" as used in this Schedule shall mean that certain portion of
the annual rental per square foot (paid by tenant) shall be allocated towards
the Taxes as hereinabove defined. For purposes of this lease, the Tax
Contribution shall mean N/A per square foot.
Tenant is leasing on a gross basis.
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SCHEDULE "B"
SERVICES AND COSTS
The Landlord covenants with the Tenant:
INTERIOR CLIMATE CONTROL: To maintain in the Leased Premises conditions of
- -------- ------- --------
reasonable temperature and comfort in accordance with good standards applicable
to normal occupancy of premises for office purposed subject to governmental
regulations during hours to be determined by the Landlord (but to be at least
the hours from 8:00 a.m to 6:00 p.m from Monday to Friday inclusive with the
exception of holidays, Saturdays and Sundays), such conditions to be maintained
by means of a system for heating and cooling, filtering and circulating air; the
Landlord shall have no responsibility for any inadequacy of performance of the
said system if the occupancy of the Leased Premises or the electrical power or
other energy consumed on the Leased Premises for all purposes exceeds reasonable
amounts as determined by the Landlord or the Tenant installs partitions or other
installations in locations which interfere with the proper operation of the
system of interior climate control or if the window covering on exterior windows
is not kept fully closed;
JANITOR SERVICE: To provide janitor and cleaning services to the Leased Premises
- ------- --------
and to common areas of the Building consisting of reasonable services in
accordance with the standards of similar office buildings;
ELEVATORS, LOBBIES, ETC.: To keep available the following facilities for use by
- ---------- -------- -----
the Tenant and its employees and invitees in common with other persons entitled
thereto:
(a) passenger and freight elevator service to each floor upon which the Leased
Premises are located provided such service is installed in the Building and
provided that the Landlord may prescribe the hours during which and the
procedures under which freight elevator service shall be available and may
limit the number of elevators providing service outside normal business
hours;
(b) common entrances, lobbies, stairways and corridors giving access to the
Building and the Leased Premises, including such other areas from time to
time which may be provided by the Landlord for common use and enjoyment
within the Property;
(c) the washrooms as the Landlord may assign from time to time which are
standard to the Building, provided that the Landlord and the Tenant
acknowledge that where an entire floor is leased to the Tenant or some
other tenant the Tenant or such other tenant, as the case may be, may
exclude others from the washrooms thereon.
ELECTRICITY: The Landlord covenants with the Tenant to furnish electricity to
- ------------
the Leased Premises (except Leased Premises which have separate meters) for
normal office use for lightning and for office equipment capable of operating
from the circuits available to the Leased Premises and standard to the Building
during hours to be determined by the Landlord (but to be at least the hours from
8:00 a.m. to 6:00 p.m. from Monday to Friday inclusive with the exception of
holidays, Saturdays and Sundays) and during such other hours that the Tenant
elects at its sole cost and expense subject to governmental regulations;
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The amount of electricity consumed on the Leased Premises in excess of
electricity required by the Tenant for normal office use shall be as determined
by the Landlord acting reasonably or by a metering device installed by the
Tenant at the Tenant's expense. The Tenant shall pay the Landlord for any such
excess electricity on demand.
The Tenant covenants to pay to the Landlord the Tenant's Proportionate Share of
all electricity consumed on the Property (except the amounts recovered from and
paid by tenants separately metered.
In calculating electricity costs for any Fiscal Period, if less than one hundred
percent (100%) of Building is occupied by tenants, then the amount of such
electricity costs shall be deemed for the purposes of this Schedule to be
increased to an amount equal to the like electricity costs which normally would
be expected by the Landlord to have been incurred had such occupancy been one
hundred percent (100%) during such entire period.
The Landlord shall maintain and keep in repair the facilities required for the
provision of the interior climate control, elevator (if installed in the
Building), and other services referred to in sub-paragraph (a) and (c) of
paragraph 3 of this Schedule in accordance with the standards of office
buildings similar to the Building but reserves the right to stop the use of any
of these facilities and the supply of the corresponding services when necessary
by reason of accident or breakdown or during the making of repairs, alterations
or improvements, in the reasonable judgment of the Landlord necessary or
desirable to be made, until repairs, alterations or improvements shall have been
completed to the satisfaction of the Landlord.
ADDITIONAL SERVICES: The Landlord may (but shall not be obliged) on request of
- ---------- ---------
the Tenant supply services or materials to the Leased Premises and the Property
which are not provided for under this Lease and which are used by the Tenant
(the "Additional Services") including, without limitation,
(a) replacement to tubes and ballasts;
(b) carpet shampooing;
(c) drapery cleaning;
(d) locksmithing;
(e) removal of bulk garbage;
(f) picture hanging; and
(g) special security arrangement.
When Additional Services are supplied or furnished by the Landlord, accounts
therefore shall be rendered by the Landlord and shall be payable by the Tenant
to the Landlord on demand. In the event the Landlord shall elect not to supply
or furnish Additional Services, only persons with prior written approval by the
Landlord (which approval shall not be unreasonably withheld) shall be permitted
by the Landlord or the Tenant to supply or furnish Additional Services to the
Tenant and the supply and furnishing shall be subject to the reasonable rules
fixed by the Landlord with which the Tenant undertakes to cause compliance and
to comply.
OPERATING CHARGES PAYABLE: The Tenant covenants to pay to the Landlord the
- --------- ------- --------
Tenant's Proportionate Share of the excess of the amount of the Operating Costs
in each Fiscal Period over the Operating Costs in the "Base Year" (as
hereinafter defined) if applicable, or over the "Operating Costs Contribution"
amount (as hereinafter defined), if applicable.
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In this Lease "Operating Costs" shall mean all costs incurred or which will be
incurred by the Landlord in the maintenance, operation, administration and
management of the Property including without limitation:
(a) cost of heating, ventilating and air-conditioning;
(b) cost of water and sewer charges;
(c) cost of insurance carried by the Landlord pursuant to the Insurance and
Liability paragraph of this Lease and cost of any deductible amount paid by
the Landlord in connection with each claim made by the Landlord under such
insurance;
(d) costs of building office expenses, including telephone, rent
stationery and supplies;
(e) cost of fuel, electricity, and other forms of energy;
(f) costs of all elevator and escalator (if installed in the Building)
maintenance and operation;
(g) costs of operating staff, management staff and other administrative
personnel, including salaries, wages and fringe benefits;
(h) cost of providing security;
(i) cost of providing janitorial services, window cleaning, and garbage
removal;
(j) cost of supplies and materials;
(k) cost of decoration of common areas;
(l) cost of landscaping;
(m) cost of maintenance and operation of the parking area;
(n) cost of consulting engineering fees;
(o) cost of replacements, additions and modifications unless otherwise included
under Operating Cost under sub-paragraph (p), and cost of repair; and
(p) cost of each "Major Expenditure" (as hereinafter defined) as amortized over
the period of the Landlord's reasonable estimate of the economic life of
the Major Expenditure, but not to exceed fifteen years, using equal monthly
installments of principal and interest at ten percent (10%) per annum
compounded semi-annually, where "Major Expenditure" shall mean any single
expenditure incurred during or subsequent to the Fiscal Period in which the
Lease commences, for replacement of machinery, equipment, building
elements, systems or facilities used in connection with the Property, or
for modifications or additions to the Property, if one of the Principal
purposes of such modification or addition was to reduce energy consumption
or Operating Costs or was required by governmental regulation, which
expenditure is more that ten percent (10%) of the total Operating Costs for
the previous Fiscal Period.
In this Lease there shall be excluded from Operating Costs the following:
(a) interest on debt and capital retirement of debt;
(b) such of the Operating Cost as are recovered from insurance proceeds; and
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(c) costs as determined by the Landlord of acquiring tenants for the Property.
In calculating Operating Costs for any Fiscal Period including the Base Year, if
less than one hundred percent (100%) of Building is occupied by tenants, then
the amount of such Operating Costs shall be deemed for the purposes of this
Schedule to be increased to an amount equal to the like Operating Costs which
normally would be expected by the Landlord to have been incurred had such
occupancy been one hundred percent (100%) during such entire period.
In this Lease "Tenant's Proportionate Share" shall mean N/A percent
(N/A %) subject to adjustment as determined solely by the Landlord and
notified to the Tenant in writing for physical increases or decreases in the
total rentable area of the Property provided that total rentable area of the
Property and the rentable area of the Leased Premises shall exclude areas
designated (whether or not rented) for parking and for storage.
"Base Year" shall mean calendar year 19 N/A
"Operating Cost Contribution" as used in this Schedule shall mean that certain
portion of the annual rental per square foot paid by tenant shall be allocated
towards the Operating Costs as hereinabove defined.
For purposes of this lease the Operating Costs Contribution shall mean N/A per
square foot.
Tenant is leasing on a gross basis
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SCHEDULE "C"
RULES AND REGULATIONS
1. The sidewalks, entry passages, elevators, (if installed in the Building),
hallways, courts, corridors and common stairways shall not be obstructed
by the Tenant or used for any other purpose than for ingress and egress to
and from the Leased Premises. The Tenant will not place or allow to be
placed in the Building corridors or public stairways any waste paper, dust,
garbage, refuse or anything whatever.
2. The washroom plumbing fixtures and other water apparatus shall not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. The expense of any damage resulting by misuse by the Tenant shall
be borne by the Tenant.
3. The Tenant shall permit window cleaners to clean the windows of the Leased
Premises during normal business hours.
4. No birds or animals shall be kept in or about the Property nor shall the
Tenant operate or permit to be operated any musical or sound-producing
instruments or device or make or permit any improper noise inside or
outside the Leased Premises which may be heard outside such Leased
Premises.
5. No one shall use the Leased Premises for residential purposes, or for the
storage of personal effects or articles other than those required for
business purposes.
6. All persons entering and leaving the Building at any time other than during
normal business hours shall register in the books which may be kept by the
Landlord at or near the night entrance and the Landlord will have the right
to prevent any person from entering or leaving the Building or the Property
unless provided with a key to the premises to which such person seeks
entrance and a pass in a form to be approved by the Landlord. Any persons
found in the Building at such times without such keys and passes will be
subject to the surveillance of the employees and agents of the Landlord.
7. No dangerous or explosive materials shall be kept or permitted to be kept
in the Leased Premises.
8. The Tenant shall not permit any cooking in the Leased Premises. The Tenant
shall not install or permit the installation or use any machine dispensing
goods for sale in the Leased Premises without the prior written approval of
the Landlord. Only persons authorized by the Landlord shall be permitted to
deliver or to use the elevators (if installed in the Building) for the
purpose of delivering food or beverages to the Leased Premises.
9. Tenant shall not use the premises for any immoral or illegal purposes; use
the Premises to engage in the manufacture or sale, or, permit the use of
any spirituous, fermented, intoxicating or alcoholic beverages on the
Premises.
10. Tenant shall not install any equipment utilizing an ammonia process or any
other noxious process necessitating venting.
11. Tenant shall not bring firearms into the Premises.
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<PAGE>
12. Tenant shall keep doors and other means of entry to the Premises closed and
secure.
13. The Tenant shall not bring in or take out, position, construct, install or
move any safe, business machine or other heavy office equipment, furniture,
materials or supplies without first obtaining the prior written consent of
the Landlord. In giving such consent, the Landlord shall have the right in
its sole discretion, to prescribe the weight permitted and the position
thereof, and the use and design of planks, skids or platforms to distribute
the weight thereof. All damage done to the Building by moving or using any
such heavy equipment or other office equipment, furniture, materials or
supplies shall be repaired at the expense of the Tenant. The moving of all
heavy equipment or other office equipment, furniture, materials or supplies
shall occur only at time consented to by the Landlord and the persons
employed to move the same in and out of the Building must be acceptable to
the Landlord. Safes and other heavy office equipment, furniture, materials
or supplies will be moved through the halls and corridors only upon steel
bearing plates. No freight or bulky matter of any description will be
received into or taken out of the Building or carried in the elevators
except during hours approved by the Landlord.
14. The Tenant shall give the Landlord prompt notice of any accident to or any
defect in the plumbing, heating, air-conditioning, ventilating, mechanical
or electrical apparatus or any other part of the Building.
15. The parking of automobiles shall be subject to the charges and reasonable
regulations of the Landlord. The Landlord shall not be responsible for
damage to or theft of any car, its accessories or contents whether the same
be the result of negligence or otherwise.
16. The Tenant shall not mark, drill into or in any way deface the walls,
ceilings, partitions, floors or other parts of the Leased Premises and the
Building.
17. Except with the prior written consent of the Landlord, no tenant shall use
or engage any person or persons other than the janitor or janitorial
contractor of the Landlord for the purpose of any cleaning of the Leased
Premises.
18. If the Tenant desires any electrical or communications wiring, the Landlord
reserves the right to direct qualified persons as to where and how the
wires are to be introduced, and without such directions no borings or
cutting for wires shall take place. No other wires or pipes of any kind
shall be introduced without the prior written consent of the Landlord.
19. The Tenant shall not place or cause to be placed any additional locks upon
any doors of the Leased Premises without the approval of the Landlord and
subject to any conditions imposed by the Landlord. Additional keys may be
obtained from the Landlord at the cost of the Tenant.
20. The Tenant shall be entitled to have its name shown upon the directory
board of the Building and at one of the entrance doors to the Leased
Premises, all at the Tenant's expense, but the Landlord shall in its sole
discretion design the style of such identification and allocate the space
on the directory board for the Tenant.
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21. The Tenant shall keep the sun blinds (if any) in a closed position at all
times. The Tenant shall not interfere with or obstruct any perimeter
heating, air- conditioning or ventilating units.
22. The Tenant shall not conduct, and shall not permit any, canvassing in the
Building to solicit business or for any other reason.
23. Tenant shall report all peddlers, solicitors and beggars immediately to the
office of the Building or as Landlord otherwise requests.
24. Tenant shall not waste water or energy and agrees to cooperate fully with
Landlord to assure the most effective operation of the Building's heating
and air conditioning, and shall refrain from adjusting any controls other
than room thermostats installed for Tenant's use, and shall keep public
corridor doors closed.
25. Tenant shall not make noises, cause disturbances, or vibrations or use or
operate any electrical or electronic devices that emit sound or other waves
or disturbances, or that create a fire hazard, or create odors, any of
which may be offensive to other tenants and occupants of the Building or
that would interfere with the operation of any device or equipment or radio
or television reception within the Building or elsewhere, and shall not
place or install any projections, antennae, aerials or similar devices
outside the Premises.
26. The Tenant shall take care of the rugs and drapes (if any) in the Leased
Premises and shall arrange for the carrying-out of regular spot cleaning
and shampooing of carpet and dry cleaning of drapes in a manner acceptable
to the Landlord.
27. The Tenant shall permit the periodic closing of lanes, driveways and
passages for the purpose of preserving the Landlord's rights over such
lanes, driveways and passages.
28. The Tenant shall not place or permit to be placed any sign, advertisement,
notice or other display on any part of the exterior of the Leased Premises
or elsewhere if such sign, advertisement, notice or other display is
visible from outside the Leased Premises without the prior written consent
of the Landlord which may be arbitrarily withheld. The Tenant, upon request
of the Landlord, shall immediately remove any sign, advertisement, notice
or other display which the Tenant has placed or permitted to be placed
which, in the opinion of the Landlord, is objectionable, and if the Tenant
shall fail to do so, the Landlord may remove the same at the expense of the
Tenant.
29. Tenant shall return to the Landlord any and all keys, locks, parking
permits, materials, or other property leased to the Tenant as part of this
lease agreement upon expiration of said lease, upon vacating of the
premises, or upon demand by the Landlord.
30. Tenant shall cooperate with the Landlord in providing information to the
Landlord which protects the security and interest of either party. Such
information shall include, but not be limited to, emergency phone lists,
automobile lists, key registers, etc. All such information requested of the
Tenant shall be kept in strict confidence and used solely for the purposes
intended.
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31. The Landlord shall have the right to make such other and further reasonable
rules and regulations and to alter the same as in its judgment may from
time to time be needful for the safety, care, cleanliness and appearance of
the Leased Premises and the Building and for the preservation of good order
therein, and the same shall be kept and observed by the tenants, their
employees and servants. The Landlord also has the right to suspend or
cancel any or all of these rules and regulations herein set out.
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SCHEDULE "D"
LEASEHOLD IMPROVEMENTS
DEFINITION OF LEASEHOLD IMPROVEMENTS: For purposes of this Lease, the term
- ---------- -- --------- ------------
"Leasehold Improvements" includes, without limitation, all fixtures,
improvements, installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant, or any previous occupant of
the Leased Premises, in the Leased Premises and by or on behalf of other
tenants in other premises in the Building (including the Landlord if an occupant
of the Building), including all partitions, doors and hardware however affixed,
and whether or not movable, all mechanical, electrical and utility installations
and all carpeting and drapes with the exception only of furniture and equipment
not of the nature of fixtures.
INSTALLATION OF IMPROVEMENTS AND FIXTURES: The Landlord shall include in the
- ------------ -- ------------ --- --------
Leased Premises the "Landlord's Work" (as hereinafter defined). The Tenant shall
not make, erect, install or alter any Leasehold Improvements in the Leased
Premised without having requested and obtained the Landlord's prior written
approval. The Landlord's approval shall not, if given, under any circumstances
be construed as a consent to the Landlord having its estate charged with the
cost of work. The Landlord shall not unreasonably withhold its approval to any
such request, but failure to comply with the Landlord's reasonable requirements
from time to time for the Building shall be considered sufficient reason for
refusal. In making, erecting, installing or altering any Leasehold Improvements
the Tenant shall not, without the prior written approval of the Landlord, alter
or interfere with any installations which have been made by the Landlord or
others and in no event shall alter or interfere with window coverings (if any)
or other light control devices (if any) installed in the Building. The Tenant's
request for any approval hereunder shall be in writing and accompanied by an
adequate description of the contemplated work and, where appropriate, working
drawings and specifications thereof. If the Tenant requires from the Landlord
drawings or specifications of the Building in connection with Leasehold
Improvements, the Tenant shall pay the cost thereof to the Landlord on demand.
Any reasonable costs and expenses incurred by the Landlord in connection with
the Tenant's Leasehold Improvements shall be paid by the Tenant to the Landlord
on demand. All work to be performed in the Leased Premises shall be performed by
competent contractors and sub-contractors of whom the Landlord shall have
approved in writing prior to commencement of any work, such approval not to be
unreasonably withheld (except that the Landlord may require that the Landlord's
contractors and sub-contractors be engaged for any mechanical or electrical
work) and by workmen who have labor union affiliations that are compatible with
those affiliations (if any) of workmen employed by the Landlord and its
contractors and sub-contractors. All such work including the delivery, storage
and removal of materials shall be subject to the reasonable supervision of the
Landlord, shall be performed in accordance with any reasonable conditions or
regulations imposed by the Landlord including, without limitation, payment on
demand of a reasonable fee of the Landlord for such supervision, and shall be
completed in good and workmanlike manner in accordance with the description of
the work approved by the Landlord and in accordance with all laws, regulations
and by-laws of all regulatory authorities. Copies of required building permits
or authorizations shall be obtained by the Tenant at its expense and copies
thereof shall be provided to the Landlord. No locks shall be installed on the
entrance doors or in any doors in the Leased Premises that are not keyed to the
Building master key system.
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LIENS AND ENCUMBRANCES ON IMPROVEMENTS AND FIXTURES: In connection with the
- ----- --- ------------ -- ------------ --- --------
making, erection, installation or alteration of Leasehold Improvements and all
other work or installations made by or for the Tenant in the Leased Premises the
Tenant shall comply with all the provisions of the mechanics' lien and other
similar statutes from time to time applicable thereto (including and proviso
requiring or enabling the retention by way of holdback, shall promptly pay all
accounts relating thereto. The Tenant will not create any mortgage, conditional
sale agreement or other encumbrance in respect of its Leasehold Improvements or,
without the written consent of the Landlord, with respect to its trade fixtures
nor shall the Tenant take any action as a consequence of which any such
mortgage, conditional sale agreement or other encumbrance would attach to the
Property or any part thereof. If and whenever any mechanics' or other lien for
work, labor, services or materials supplied to or for the Tenant or for the
cost of which the Tenant may be in any way liable or claims therefore shall
arise or be filed or any such mortgage, conditional sale agreement or other
encumbrance shall attach, the Tenant shall within twenty (20) days after
submission by the Landlord of notice thereof procure the discharge thereof,
including any certificate of action registered in respect of any lien, by
payment or giving security or in such other manner as may be required or
permitted by law, and failing which the Landlord may avail itself of any of its
remedies hereunder for default of the Tenant and may make any payments or take
any steps or proceedings required to procure the discharge of any such liens or
encumbrances, and shall be entitled to be repaid by the Tenant on demand for any
such payments and to be paid on demand by the Tenant for all costs and expenses
in connection with steps or proceedings taken by the Landlord and the Landlord's
right to reimbursement and to payment shall not be affected or impaired if the
Tenant shall then or subsequently establish or that any lien or encumbrances so
discharged was without merit or excessive or subject to any abatement, set-off
or defense. The Tenant agrees to indemnify the Landlord from all claims, costs
and expenses which may be incurred by the Landlord in any proceedings brought by
any person against the Landlord alone or with another or others for or in
respect of work, labor, services or materials supplied to or for the Tenant.
REMOVAL OF IMPROVEMENTS AND FIXTURES: All Leasehold Improvements in or upon the
- ------- -- ------------ --- --------
Leased Premises shall immediately upon their placement be and become the
Landlord's property without compensation therefore to the Tenant. Except to the
extent otherwise expressly agreed by the Landlord in writing, no Leasehold
Improvements, furniture or equipment shall be removed by the Tenant from the
Leased Premises either during or at the expiration or sooner termination of the
Term except that:
(a) The Tenant shall, prior to the end of the Term, remove such of the
Leasehold Improvements and trade fixtures in the Leased Premises as the
Landlord shall require to be removed; and
(b) The Tenant may, at the times appointed by the Landlord and subject to
availability of elevators (if installed in the Building), remove its
furniture and equipment at the end of the Term, and also during the Term in
the usual and normal course of its business where such furniture or
equipment has become excess for the Tenant's purposes or the Tenant is
substituting therefore new furniture and equipment.
The Tenant shall, in the case of every removal, make good at the expense of the
Tenant any damage caused to the Property by the installation and removal. In
the event of the nonremoval by the end of the Term, or sooner termination of
this Lease, of such
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trade fixtures or Leasehold Improvements required by the Landlord of the Tenant
to be removed, the Landlord shall have the option, in addition to its other
remedies under this Lease to declare to the Tenant that such trade fixtures and
the property of the Landlord and the Landlord upon such a declaration may
dispose such trade fixtures and retain any proceeds of disposition as security
for the Debts, Liabilities and obligations and the tenant shall be liable to the
Landlord for any expenses incurred by the Landlord.
For the purpose of this Lease,
(a) The term "Tenant's Work" shall mean all work required to be done to complete
the Leased Premises for occupancy by the Tenant excluding the "Landlord
Work" (as hereinafter defined).
(b) The term "Landlord's Work" shall mean:
The Landlord agrees to perform the following Tenant's Work in the Leased
Premises:
SEE ATTACHMENT "A"
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SCHEDULE "E"
Option to Renew
------ -- -----
(a) The Landlord covenants with the Tenant that if the Tenant duly and
regularly pays the Rent and any and all amounts required to be paid
pursuant to this Lease and performs each and every covenant, proviso and
agreement on the part of the Tenant to be paid, rendered, observed and
performed herein, the Landlord will at the expiration of the then expiring
term on written notice by the Tenant to the Landlord given by the Tenant
not more than two (2) months prior to the expiration of the then expiring
term and received by the Landlord not less than two (2) months prior to the
expiration of the then expiring term grant to the Tenant a Five year
renewal of lease of the Leased Premises (the "Five Year Renewal Term") on
the same terms and conditions as in the standard lease agreement then, at
the commencement of the Five Year Renewal Term, being used by the Landlord
for the Building save and except the right of further renewal, Landlord's
Work (if any), Basic Rent, tenant improvement allowance (if any) and Basic
Rent Fee Period (if any).
(b) The Basic Rent for the Five Year Renewal Term shall be determined by
negotiations between the parties hereto, and it is agreed that during such
negotiations in respect of Basic Rent, they will be guided by fair market
rental levels for similar premises in similar buildings prevailing at the
beginning of the Five Year Renewal Term but in no event shall the Basic
Rent per annum be lower than the Basic Rent per annum for the last year of
Term just ending. If the parties hereto are unable to agree in writing as
to the Basic Rent for the Five Year Renewal Term prior to one (1) month
before the expiration of the Lease, this Lease shall end on the expiration
of the Term and this Option to Renew and any Subsequent options to renew
shall be null and void.
(c) The Tenant agrees to execute the Landlord's standard lease agreement or
lease amendment then, at the commencement of the Five Year Renewal Term,
being used by the Landlord for the Building to give effect to this Five
Year Option to Renew if exercised by the Tenant. The Tenant shall execute
such agreement prior to the commencement date of the Five Year Renewal
Term.
(d) Notwithstanding the above, if the Tenant does not exercise the Five Year
Option to Renew in accordance with Schedule "E" then this Five Year Option
to Renew is null and void.
(e) Tenant may renew this lease for the Five Year Renewal Term under the same
provisions as provided herein at the rate of 5% per year increase over the
then current base rate.
14
<PAGE>
ATTACHMENT "A" Page 1 of 2 Pages
[FLOOR PLAN APPEARS HERE]
<PAGE>
PROPOSED IMPROVEMENTS FOR
UNITED FINANCIAL MORTGAGE CORP.
SUITE 206
ATTACHMENT "A"
Page 2 of 2 Pages
REVISED 6/11/91
SPECIFICATIONS:
1. Build out suite per attached drawing dated 6/11/91.
2. Provide marble tile flooring in reception seating area with glass front
window for reception station, custom, built-in reception desk counter to
accommodate two people, small raised counter (marble topped) at rear of
station near door.
3. Provide kitchen area with double stainless steel sink, counter area, full
size refridgerator, linoleum tile flooring throughout.
4. Provide storage area with built-in shelving along back wall, counter area
for office machines with shelving above for office supplies, linoleum tile
flooring throughout.
5. Provide one private office with wood parquet flooring.
6. Provide two conference rooms with insulated walls for sound-proofing.
7. General and Sales areas will have partition walls as indicated, approx. 5"
in height.
8. Replace ceiling tiles throughout office.
9. Provide parabolic light louvers for florescent lighting fixtures.
10. Provide new vertical blinds.
11. Paint entire office.
12. New carpeting throughout office, except where indicated.
13. Entry door shall be double-door.
NOTES:
Office furniture sizes used in drawing are as follows:
General Office - 60"x30" desks with returns
Sales Office - 60"x33" desks
Kitchen - 48" round table
File Cabinets - 32" wide in sales area, 42" wide in general area
(Office furniture and fixtures as indicated on drawing is for comparison only
and is not provided by Enterprise Properties, Inc., other than that stated in
the above specifications.)
<PAGE>
AMENDMENT TO LEASE
This Amendment made this 12th day of June, 1995 shall amend the Master Lease
dated June 20, 1991 by and between United Financial Mortgage Corp. Tenant, and
Enterprise Properties Inc. as follows:
1. Landlord and Tenant agree to expand Tenant's existing space by
approximately 1,682 rentable square feet, bringing the total square footage to
4,807. The expansion space is commonly known as suite 212. The term of this
Lease extension shall be co-terminus with existing Lease termination date which
is February 28, 2003.
2. Tenant's new Base Rent for the additional premises shall be as follows::
July 1, 1995 - February 28, 1998 $14.25 $1,997.37 per month
March 1, 1998 - February 28, 1999 $14.68 $2,057.65 per month
March 1, 1999 - February 28, 2000 $15.12 $2,119.38 per month
March 1, 2000 - February 28, 2001 $15.57 $2,182.39 per month
March 1, 2001 - February 28, 2002 $16.03 $2,247.87 per month
March 1, 2002 - February 28, 2003 $16.51 $2,314.28 per month
3. In connection with the Master Lease, Tenant shall have the option to cancel
this Lease Expansion on February 28, 1998 by giving Landlord ninety (90) days
prior written notice.
4. Landlord agrees to connect expansion space with existing space either by
way of the corridor or by opening a wall connected to the expansion space.
Additionally, Landlord shall repaint the entire premises and shall complete any
patching that shall be needed. The costs for such improvements shall be borne by
Landlord. All future improvements required by Tenant shall be approved by
Landlord and paid for by Tenant. Landlord shall pay for one glass framed window
into existing conference room.
5. Landlord agrees to forthwith address Tenant's concerns regarding the
existing difficulties with the HVAC system and to use its best efforts to adjust
same in accordance with existing standards for commercial space. It is
understood and agreed that acceptable temperatures should range from 68 degrees
to 75 degrees. In the event temperature differences arise, within 48 hours after
receipt of written notice thereof, Landlord shall take steps necessary to adjust
same. In the event that Landlord is unable to maintain temperatures within these
guidelines for extended periods then Tenant shall have the right, with 60 days
prior written notice, to terminate this Lease.
<PAGE>
page -2-
6. Landlord agrees to allow Tenant to advertise its company name through a
sign to be installed on the front lawn of the building. This sign shall have
room for several Tenants to insert its company name as well. Tenant agrees to
pay its prorata share of the monument sign and all of the cost of the company
name.
7. All other terms and conditions set forth in the Master Lease and not
amended herein shall remain in full force and effect.
Landlord Tenant
The Enterprise L.L.C. United Financial Mortgage Corp.
Signed /s/ Dennis Broderick Signed /s/ Joe Khoshabe
--------------------------- ------------------------
Dennis Broderick Joe Khoshabe
Date: 6/16/95 Date: 6/16/95
--------------------------- ------------------------
<PAGE>
Rental Abatement Rider
It is agreed by and between Landlord, Eight Hundred L.L.C. and United Financial
Mortgage, Inc. that beginning July 1, 1995 Tenant shall pay half (1/2) rent, or
$998.69 until December 31, 1995.
This agreement shall supersede the Amendment to Lease dated June 12th, 1995.
All other terms and conditions per the Master Lease and Amendment to Lease shall
remain in full force and effect.
Signed:
Landlord: Tenant:
Enterprise L.L.C. United Financial Mortgage, Inc.
/s/ Dennis Broderick /s/ Joe Khoshabe
- ------------------------------ ----------------------------------
Dennis Broderick Joe Khoshabe
Date: Date:
6/16/95 6/16/95
- ------------------------------ ----------------------------------
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE MADE THIS 14th DAY OF APRIL, 1993, BY AND BETWEEN
BENNETT & KAHNWEILER MANAGEMENT COMPANY, INC., AN ILLINOIS CORPORATION, AS
RECEIVER/LANDLORD (HEREINAFTER "LANDLORD"), AND UNITED FINANCIAL MORTGAGE
CORPORATION, AN ILLINOIS CORPORATION, AS TENANT (HEREINAFTER "TENANT").
WHEREAS, ENTERPRISE PROPERTIES, INC., an Illinois corporation, as
"Landlord," and United Financial Mortgage Corporation, as "Tenant," entered into
a certain Lease Agreement dated June 20, 1991, for that certain area consisting
of approximately 3,125 square feet of the second floor of the building commonly
known as 600 Enterprise Drive, Oak Brook, Illinois, (hereinafter called the
"LEASE"); and
WHEREAS, BENNETT & KAHNWEILER MANAGEMENT COMPANY, INC., was appointed as
Receiver by order of the Circuit Court of the Eighteenth Judicial Circuit,
DuPage County, Illinois, on September 17, 1992, and continues to act as Receiver
pursuant to said court order; and
WHEREAS, LANDLORD and TENANT have entered into a First Amendment to Lease,
(hereinafter "FIRST AMENDMENT") dated January 12, 1993, amending the aforestated
LEASE; and
WHEREAS, the respective LANDLORD and TENANT have determined that it is in
the best interest of the respective parties for the TENANT to perform the work
which is contemplated and referred to within the FIRST AMENDMENT, and
WHEREAS, the parties have agreed upon the terms and conditions under which
TENANT shall perform said work, and wish to enter into this Second Amendment to
Lease (hereinafter "SECOND AMENDMENT") to memorialize the said agreement.
NOW THEREFORE, in consideration of the mutual terms, conditions and
provisions herein contained, the respective parties agree as follows:
1. Recitals Incorporated: The aforestated Recitals are hereby
---------------------
incorporated herein by reference and are deemed to be restated herein.
2. Conflicting Terms: In the event of a conflict between the terms of
-----------------
this SECOND AMENDMENT and the terms of the FIRST AMENDMENT or the LEASE, or
between the FIRST AMENDMENT and the LEASE, the terms of this SECOND AMENDMENT
shall prevail over the terms of the FIRST AMENDMENT or the LEASE, and the terms
of the FIRST AMENDMENT shall prevail over the terms of the LEASE.
3. LANDLORD'S Contribution for Construction: LANDLORD shall provide the
----------------------------------------
gross sum of Forty-Four Thousand and no/100 ($44,000.00) Dollars for the
construction improvements to be made to the demised premises pursuant to
Schedule "D" and Attachment "A" of the LEASE, except as it is modified by
Exhibit "A" to the FIRST AMENDMENT (hereinafter "TENANT'S WORK"). From that sum
shall be deducted the sum of One-Thousand Eight-Hundred Twenty-Five and no/100
($1,825.00) which has been expended to date by LANDLORD for construction
drawings in connection with TENANT'S WORK.
The remaining sum of Forty-Two Thousand One-Hundred Seventy-Five and no/100
($42,175.00) shall be paid to TENANT as follows:
a. The sum of Fifteen-Thousand and no/100 ($15,000.00) upon the
execution of this SECOND AMENDMENT; and
b. The sum of Twenty-two Thousand Seven-Hundred Seventy-Five and
no/100 ($22,775.00) upon substantial completion of TENNANT'S WORK, minus
minor punchlist items, along with tender to LANDLORD of partial
contractors' and subcontrac-
<PAGE>
tors' mechanics' lien waivers and contractors' and subcontractors'
affidavits, and
c. The balance of Four-Thousand Four-Hundred and no/100 ($4,400.00)
Dollars upon full completion of TENANT'S WORK, and tender to LANDLORD of
final contractors' and subcontractors' mechanics' lien waivers along with
contractors' and subcontractors' affidavits.
4. Tenant's Requirements for Construction: TENANT shall perform
--------------------------------------
TENANT'S WORK in accordance with Schedule "D" and Attachment "A" of the LEASE,
except as it is modified by Exhibit "A" to the FIRST AMENDMENT.
With regard to both TENANT'S WORK, and any other work to be performed by
TENANT during the pendency of the LEASE, and all amendments, extensions and
renewals thereof, TENANT shall make no alterations, modifications, decorations,
additions or improvements in or to the demised premises without LANDLORD'S prior
written consent, but LANDLORD agrees such consent shall not be unreasonably
withheld or delayed. All such work shall be done at such times and in such
manner as shall minimize any inconvenience to other occupants of the building.
As a condition precedent to the receipt of LANDLORD'S consent, TENANT shall
deliver to LANDLORD written plans and specifications of all such work, to the
extent such plans and specifications have not already been approved, in writing,
by LANDLORD, along with a list of all contractors and subcontractors to be
engaged in the project. All such contractors and subcontractors shall be
licensed and bonded by the Village of Oak Brook, and shall be subject to
approval by the LANDLORD, which approval shall not be unreasonably withheld or
delayed. TENANT, and all contractors and subcontractors of TENANT, shall comply
with all governmental rules and regulations in connection with such work and
shall, prior to the commencement of any work, procure all required municipal and
other governmental permits and authorizations. No modifications, alterations,
decorations, additions or improvements shall at any time be made which shall
impair the structural soundness, or diminish the value, of the building, and all
work shall be done in a good and workmanlike manner, and in compliance with the
building and zoning laws, and with all other laws, ordinances, orders, rules,
regulations and requirements of all federal, state and municipal governments and
all governmental subdivisions thereof.
At all times when any change, improvement or alteration is in progress,
whether with regard to the TENANT'S WORK or otherwise, there shall be maintained
at TENANT'S expense, workmen's compensation insurance and $3,000,000
single-limit liability insurance for the mutual benefit of LANDLORD and TENANT,
expressly covering the additional hazards due to the change or alteration. Prior
to the commencement of TENANT'S WORK, or any work subsequent hereto, TENANT
shall deliver to LANDLORD a Certificate of Insurance, in the form, and from an
insurance company, reasonably satisfactory to LANDLORD, naming as additional
insureds LANDLORD, TENANT, Enterprise Properties, Inc., Household Mortgage
Services, and such other parties as LANDLORD shall reasonably require.
TENANT shall prevent any lien, encumbrance or obligation from being created
against, or imposed upon, the building or leased premises, and will discharge
all liens, encumbrances and charges for services rendered or material furnished
immediately after said liens occur or said charges become due and payable. In
the event any lien or encumbrance upon LANDLORD'S title results from any act or
neglect of TENANT, and TENANT fails to remove said lien within (10) days after
receipt of LANDLORD'S notice to do so, LANDLORD may, without further notice,
provide for a bond insuring over said lien, encumbrance or obligation, or remove
the lien, encumbrance or obligation by paying the full amount thereof or
otherwise and without any investigation or contest of the validity thereof, and
LANDLORD shall have the
2
<PAGE>
right to deduct said sum from the sums being provided pursuant to Paragraph 3
above. In the event said sums, minus the retainage of Four-Thousand Four-Hundred
and no/100 ($4,400.00) Dollars, are insufficient to pay for the aforestated
bond, or for satisfaction of said liens, encumbrances or obligations, TENANT
shall reimburse LANDLORD, immediately upon request from LANDLORD, the amount
paid by LANDLORD for said bond or paid to satisfy said lien, encumbrance or
obligation, including LANDLORD'S costs, expenses and reasonable attorney's fees,
said reimbursement being due as additional rent.
As TENANT shall be fully responsible for all construction of the demised
premises to make it suitable for TENANT'S use, as set forth above, TENANT
acknowledges that it has inspected the demised premises, and is accepting same
in "as is" condition. TENANT further acknowledges that LANDLORD has made no
representation, written or oral, express or implied, to undertake to make any
modification or construction of the demised premises for the benefit of TENANT.
All of the TENANT'S WORK shall be fully completed within ninety (90) days
of the execution of this SECOND AMENDMENT. In the event TENANT fails to complete
all of TENANT'S WORK, or shall fail to provide all final lien waivers and
contractors' affidavits required herein within that time, LANDLORD shall have
the right, without notice, to enter onto the demised premises and shall have all
of such TENANT'S WORK completed at LANDLORD'S direction. In that event, the
costs and expenses of completion of the TENANT'S WORK shall first be deducted
from the sums remaining to be paid to TENANT pursuant to Paragraph 3, above. In
the event said sums, are insufficient to pay for the completion of TENANT'S
WORK, TENANT shall pay LANDLORD, immediately upon request from LANDLORD, the
amount paid by LANDLORD to fully complete said TENANT'S WORK, including
LANDLORD'S costs, expenses and reasonable attorney's fees, said reimbursement
being due as additional rent.
5. Storage Space: LANDLORD hereby grants TENANT a license to use Suite
-------------
103 at 600 Enterprise Drive, Oak Brook, Illinois, for storage purposes for the
month April, 1993, free of charge. In the event TENANT continues to occupy said
Suite 103 for storage purposes thereafter, the parties acknowledge that said
occupancy shall be on the basis of a month-to-month tenancy at the rental rate
of Three Hundred Fifty Eight and no/100 ($358.00) Dollars per month, gross rent.
Either party shall have the right to terminate said tenancy upon service of a
proper 30-day Termination of Tenancy Notice to the other party.
6. Occupancy of Additional Space: LANDLORD hereby rents and leases to
-----------------------------
TENANT Suite 208 at 600 Enterprise Drive, Oak Brook, Illinois, on a
month-to-month tenancy basis at the rental of Four Hundred Fifty Five and no/100
($455.00) Dollars per month, gross rent. Said tenancy shall commence as of the
occupancy of Suite 208 by TENANT, not earlier than April 1, 1993, nor later than
April 15, 1993, and if TENANT occupies said premises commencing subsequent to
April 15, 1993, TENANT shall pay rents as of April 15, 1993. The rental for
April, 1993 shall be prorated on a per diem basis commencing as of the date of
actual occupancy by TENANT. Either party shall have the right to terminate said
tenancy upon service of a proper 30-day Termination of Tenancy Notice to the
other party.
7. Court Approval: It is expressly understood and agreed by all parties
--------------
that LANDLORD is acting as a court-appointed Receiver, and as such, this SECOND
AMENDMENT is subject to, and contingent upon, the review and approval of the
Court which has appointed said Receiver. Therefore, no contract is implied, and
this document shall not be binding upon either party unless, and until, it has
been approved by the Circuit Court of the Eighteenth Judicial Circuit, DuPage
County, Illinois.
8. Full Force and Effect: All other terms and Conditions of the LEASE and
---------------------
the FIRST AMENDMENT shall remain in full force
3
<PAGE>
and effect, as if herein set forth at length.
In WITNESS WHEREOF, the respective parties have placed their hands and
seals on the day and date first above written.
LANDLORD: TENANT:
BENNETT & KAHNWEILER MANAGEMENT UNITED FINANCIAL MORTGAGE
CO., INC., as Receiver, CORPORATION, an Illinois
corporation,
by:\s\ Mitchell T. Figiel
--------------------------
Its V.P. Project Mgt. by:\s\ Joseph Khoshabe
------------------------- --------------------------
Its As President
-------------------------
<PAGE>
EXHIBIT 10(VII)
(ADVISOR WARRANT)
This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Warrant Stock") may be sold, transferred or assigned, only if registered by the
Company under the Securities Act of 1933 (the "Act") and applicable state
securities laws, or if the Company has received the favorable opinion of counsel
to the Holder, which opinion and counsel shall be satisfactory to counsel to the
Company, to the effect that such registration or qualification of the Warrant or
the Warrant Stock is not necessary in connection with such sale, transfer or
assignment.
WARRANT TO PURCHASE COMMON STOCK
VOID AFTER 5:00 P.M. DENVER TIME, ON AUGUST 31, 2000
United Financial Mortgage Corp.
This is to certify that, FOR VALUE RECEIVED, Rocco Cappiello or registered
assigns ("Holder") is entitled to purchase, subject to the provisions of this
Warrant, from United Financial Mortgage Corp. ("Company"), One Hundred and
Ninety Five thousand (195,000) shares of the common stock of the Company
("Common Stock") at the price of $0.50 per share. The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time in accordance
with the terms of this Warrant. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock"; and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time, is hereinafter sometimes
referred to as the "Exercise Price".
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
-------------------
at any time or from time to time on or after November 15, 1994 but no later than
5:00 P.M. Denver Time, on April, 30, 1999 or, if April 30, 1999 is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, with
the Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares of Warrant Stock specified in such form,
together with any federal and state taxes applicable to such exercise. If this
Warrant should be exercised in part only, the Company, upon surrender of this
Warrant for cancellation, shall execute and shall deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the shares of
Warrant Stock purchasable hereunder. Upon receipt of this Warrant by the Company
or at the office of its stock transfer agent, if any, in proper form for
exercise, the Holder shall be deemed to be the Holder of record of the shares of
Warrant Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares shall not then be actually delivered to the Holder.
<PAGE>
The Exercise Price may be decreased at the discretion of the Company's
Board of Directors by giving notice of such decrease to the Holder of this
Warrant. The expiration date of this Warrant may be extended by the Company's
Board of Directors giving notice of such extension to the Holder of this
Warrant. There is no minimum number of shares which must be purchased upon the
exercise of this Warrant.
2. Reservation of Shares of Warrant Stock. The Company hereby agrees that,
--------------------------------------
at all times, there shall be reserved for issuance and/or delivery upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant.
3. Fractional Shares. No fractional shares of Warrant Stock or scrip
-----------------
representing fractional shares of Warrant Stock shall be issued upon the
exercise of this Warrant. With respect to any fraction of a share of Warrant
Stock for upon any exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share determined as follows:
(a) If the Common Stock is publicly traded, the average daily closing
prices for 30 consecutive trading days immediately preceding the date of
exercise of this Warrant. The closing price for each day shall be the last sale
price regular-way or, in case no such sale takes place on such date, the average
of the closing bid and asked prices regular-way, on the principal national
securities exchange in which the Company's Common Stock is listed or admitted to
trading, or if it is not listed or admitted to trading on any national
securities exchange, the last sale price of such Common Stock on the
consolidated transaction reporting system of the National Association of
Securities Dealers ("NASD"), if such last sale information is reported on such
system, or if not so reported, the average of the closing bid and asked prices
of such Common Stock on the National Association of Securities Dealers Automatic
Quotation system ("NASDAQ"), or any comparable system, or if the Common Stock is
not listed on NASDAQ, or a comparable system, the average of the closing bid and
asked prices as furnished by two members of the NASD selected from time to time
by the Company for that purpose.
(b) If the Company's Common Stock is not publicly traded, the current
value shall be an amount, not less than the book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company,
such determination to be final and binding on the Holder.
4. Exchange,Assignment or Loss of Warrant. This Warrant is exchangeable,
--------------------------------------
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Warrant Stock
purchasable hereunder. Any assignment shall be made subject to the provisions of
Section 8 by surrender of this Warrant to the Company or at the office of its
stock transfer agent, if, any, with the Assignment Form annexed hereto duly
executed and with funds sufficient to pay any transfer tax; whereupon, the
Company, without charge, shall execute and
2
<PAGE>
shall deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or may be combined with other Warrants which carry the same rights upon
presentation hereof at the office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
the denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants issued in
substitution for or replacement of this Warrant or into which this Warrant may
be divided or exchanged. Upon receipt by the COmpany of evidence satisfactory to
it of the loss, theft, destruction, or mutilation of this Warrant, and (in the
case of loss, theft, or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and will deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed or mutilated and shall be at any time enforceable by anyone.
5. Rights of the Holder. The Holder, by virtue hereof, shall not be
--------------------
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. Adjustments.
-----------
(a) Stock Dividends and Stock Splits. In case the Company shall
--------------------------------
effect a stock dividend, stock split or reverse stock split of the outstanding
share of Common Stock, the Exercise Price shall be proportionately decreased in
the case of a stock dividend or sock split or increased in the case of a reverse
stock split (on the date that such transaction shall become effective) by
multiplying the Exercise Price in effect immediately prior to the stock dividend
of stock split by a fraction, the denominator of which is the number of shares
of Common Stock outstanding immediately after such stock dividend or stock
split, and the numerator of which is the number of shares of Common Stock
outstanding immediately prior to such stock dividend or stock split.
(b) Consolidations and Mergers. In case of any consolidations or
--------------------------
merger of the Company with or into another corporation (other than a merger with
a subsidiary, in which merger the Company is the continuing corporation) (other
than a merger with a subsidiary, in which merger the Company is the continuing
corporation) or in the case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety, the
Company shall cause effective provision to be made so that the Holder shall have
the right thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, or conveyance as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock theretofore
purchasable upon the exercise of this Warrant had such consolidation, merger,
sale or conveyance not taken place. The foregoing provision shall similarly
apply to successive consolidations, mergers, sales, or conveyances.
3
<PAGE>
(c) No Adjustment for Small Amounts. Anything in this Section to
-------------------------------
the contrary notwithstanding the Company shall not be required to give effect to
any adjustment in the Exercise Price unless and until the net effect of one or
more adjustments, determined as above provided, shall have required a change of
the Exercise Price by at least $0.01, but when the cumulative net effect of more
than one adjustment so determined shall be to change the actual Exercise Price
by at least $0.01, such change in the exercise Price thereupon be given effect.
(d) Number of Shares Adjusted. Upon any adjustment of the Exercise
-------------------------
Price, the Holder shall thereafter (until another such adjustment) be entitled
to purchase, at the new Exercise Price, the number of shares, calculated to the
nearest full share, obtained by multiplying the number of shares of Warrant
Stock initially issuable upon exercise of this Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the new
Exercise Price.
(e) Common Stock Defined. Whenever reference is made in this
--------------------
Section to the issue or sale of shares of Common stock, the term "Common Stock"
shall mean the Common of the Company of the class authorized as of the date
hereof and any other class of stock ranking on a parity with such Common Stock.
However, shares issuable upon exercise of the Warrant shall include only shares
of the class designated by the Company as Common Stock as of the date hereof.
(f) Statement on Warrants. Irrespective of any adjustments in the
---------------------
Exercise Price or the number or kind of shares purchasable upon the exercise of
the Warrants, the Warrant Certificates theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the Warrants initially issuable pursuant to this Agreement.
7. Registration Rights.
-------------------
(a) Piggyback Rights. If at any time on or before April 30, 1999
----------------
the Company files a registration statement (defined for purposes of this Section
7 to include a Notification under Regulation A) under the Securities Act of
1933, as amended (the "Securities Act":) which relates to an offering of
securities of the Company (except a registration statement on Form S-4, Form S-
8, a registration on any form that does not permit secondary sales or a
registration of any securities of the Company in the form of an initial public
offering) or any securities of the Company held by any shareholder, the Company
shall cause such registration statement and the prospectus included therein to
also, at the written request to the Company by the Holder of the Warrant,
Warrant Stock, include and relate to, and meet the requirements of the
Securities Act with respect to the Warrant Stock held by any such requesting
Holder so as to permit the public sale thereof in accordance with the Securities
Act. Notwithstanding anything herein to the contrary, the registration rights
granted in this subsection (a) shall not apply to any shares of Warrant Stock
which have not been purchased through exercise of this Warrant by the Warrant
termination date set forth in Section 1 hereof. The Company shall give written
notice to
4
<PAGE>
the Holder of its intention to file a registration statement under the
Securities Act relating to a current offering of the securities of the Company,
at least 20 days prior to the filing of such registration statement, and the
written request provided for in the first sentence of this subsection shall ??
made by the Holder at least 10 days prior to the date specified in the notice as
the date on which the Company intends to file such registration statement.
Neither delivery of such notice by the Company nor of such request by the Holder
shall in any way obligate the Company to file such registration statement and,
notwithstanding the filing of such registration statement, the Company may, at
any time prior to the effective date hereof, determine not to offer the
securities to which such registration statement relates, without liability to
the Holder, except that the Company shall pay such expenses incurred in
connection with the preparation and filing of such registration statement, as
set forth in subsection (d) hereof.
(b) Demand Rights. If, on any one occasion during the period
-------------
commencing six (6) months after the effective date of a registration statement
relating to the initial public offering of the Company and continuing through
the completion of the exercise period for this Advisor Warrant, the Company
shall receive a written request from persons who in the aggregate own (or upon
exercise of all Advisor Warrants then outstanding would own) a majority of the
shares underlying all the Advisor Warrants, the Company, as promptly as possible
after the receipt of such notice, shall file a registration statement with
respect to the offering and sale or other disposition of the Warrant Stock with
respect to which it shall have received such notice. Within five (5) business
days after receiving any request contemplated by this 7(b), the Company shall
give written notice to all other holders of the Advisor Warrants, advising each
of them that the Company is proceeding with such registration and offering to
include therein all or any portion of any such person's Warrant Shares, provided
that the Company receives a written request to do so from such person within
thirty (30) days after receipt by him or it of the Company's notice. The Company
agrees to use its best efforts to cause the registration statement to become
effective as promptly as possible. In no event shall the Company be required to
file a registration statement pursuant to the requirements of this Section 7(b)
more than once.
(c) In each instance in which the Company shall take any action to
permit a public sale or other distribution of the Warrant Stock, the prior
exercise of the Warrant shall not be required and the Company shall;
(i) supply to the Holder one executed copy of each registration
statement and as many copies of the preliminary, final and other
prospectuses which shall have been prepared in conformity with the
requirements of the Securities Act and the rules and regulations
promulgated thereunder and such other documents as the Holder shall
reasonably request;
(ii) cooperate in taking such action as may be necessary to
register or qualify the Holder's Warrant Stock under the securities
act or blue sky law of one state jurisdiction as the Holder shall
designate and the Company shall do any and all other acts and things
which may be necessary or advisable to enable the Holder to consummate
such proposed sale or other
5
<PAGE>
disposition of the Warrant Stock in such jurisdiction; and
(iii) keep effective for a period of not less than (x) 12 months
after the initial effectiveness of any registration or qualification
filed pursuant to the requirements of subsection 9a) or (y) 90 days
after the effectiveness of registration or qualification filed
pursuant to subsection (b). The Company shall cooperate in taking
such other action as may be necessary to permit the public sale or
other disposition of the Warrant Stock by the Holder.
(d) The Company in its discretion may include other securities of the
Company in any registration statement filed pursuant to subsection 9a) or (b) of
this Section 7. The Company shall comply with the requirements of subsections
(a) and (b) of this Section at its own expense, including all costs to
register/qualify the securities under the securities laws of the state as the
Holder designates; but excluding underwriting commissions, transfer taxes and
underwriter's expense allowance attributable to the Warrant Stock being offered
by the Holder and excluding any legal fees and expenses of legal counsel to the
Holder attributable to the sale of Holder's Warrant Stock.
8. Transfer to Comply with the Securities Act of 1933.
--------------------------------------------------
(a) This Warrant and/or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be sold, transferred or
assigned except to a person who, in the opinion of counsel for the Company, is a
person to whom this Warrant or such Warrant Stock may legally be transferred
pursuant to Section 4 hereof without registration and without the delivery of a
current prospectus under the Security Act with respect thereto and then only
against receipt of an agreement of such person to comply with the provisions of
this Section 8 with respect to any resale or other disposition of such
securities.
(b) The Company may cause the following legend or one similar thereto
to be set forth one each certificate representing Warrant Stock or any other
security issued or issuable upon exercise of this Warrant not therefore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section 7 hereof, unless counsel for the Company is of the opinion
as to any such certificate that such legend is unnecessary:
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 (the "Act") and are
"restricted securities" as that term is defined in Rule 144 under the
Act. The shares may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective registration statement
under Act or pursuant to an exemption from registration under the Act,
the availability of which is to be established to the satisfaction of
the Company.
6
<PAGE>
9. Applicable Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of Illinios.
UNITED FINANCIAL MORTGAGE CORP.
BY:____________________________
Joseph Khoshabe, President
7
<PAGE>
PURCHASE FORM
Date:______________, 19
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ______________ shares of Warrant Stock and hereby makes
payment of $_____ in payment of the actual exercise price thereof.
_____________________________________________________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please type or print in block letters.)
Address_________________________________________________________________________
________________________________________________________________________________
Signature_______________________________________________________________________
_____________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED_________________________________________________________
hereby sells, assigns and transfer unto:
Name____________________________________________________________________________
(Please type or print in block letters.)
Address_________________________________________________________________________
the right to purchase the Common stock represented by this Warrant to the extent
of ___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________________________________________
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
_____________________________________
Signature
Dated: ___________________,199
8
<PAGE>
Exhibit 10(ix)
CONSOLIDATED DEMAND PROMISSORY NOTE
OF
JOSEPH E. KURCZODYNA
$80,000.00 September 5, 1997
WHEREAS, United Financial Mortgage Corp. ("Lender") made various loans
("Loans") to Mr. Joseph E. Kurczodyna ("Borrower") as follows:
<TABLE>
<CAPTION>
Date of Loan Principal Amount
------------ ----------------
<S> <C>
March, 1994 $ 7,500.00
May, 1994 $25,000.00
September, 1994 $12,500.00
November, 1994 $ 5,000.00
November, 1996 $ 2,500.00
February, 1997 $10,000.00
----------
Total $62,500.00
</TABLE>
WHEREAS, Lender and Borrower have agreed that accrued interest on said
Loans is $17,500.00 ("Accrued Interest").
WHEREAS, Lender and Borrower have agreed to consolidate said Loans and the
Accrued Interest into a revised demand promissory note ("Note") in accordance
with the terms hereof.
WHEREAS, Lender and Borrower have agreed that prior Loans and each
promissory note dated prior hereto between the parties shall be cancelled
concurrently with the Borrower's execution hereof.
In consideration of the foregoing, and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged by
Borrower; Borrower promises to pay to the order of Lender at 600 Enterprise
Drive, Suite 206, Oak Brook, Illinois 60521 or at such other place as the Lender
may designate in writing, the principal sum of Eighty Thousand Dollars
($80,000.00) plus accrued interest at the annual rate of nine percent (9%) as
follows: the principal and accrued interest of this Demand Promissory Note
shall be payable upon demand of the Lender.
Lender agrees that the prior Loans and each promissory note dated prior
hereto between the parties automatically shall be cancelled concurrently with
Borrower's execution hereof.
As additional security for Borrower's repayment of the Loan evidenced by
this Note, Borrower entered into an Assignment of a Deed of Trust, dated
September 9, 1994 on certain vacant land in the State of Colorado.
Prepayments of accrued interest and principal may be made hereon by the
Borrower at any time without the payment of any penalty.
BORROWER:
____________________________
Joseph E. Kurczoydyna
Agreed to:
UNITED FINANCIAL MORTGAGE CORP.
By:______________________________
Joseph Khoshabe, President
<PAGE>
EXHIBIT 23(I)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the heading "Experts" and to
the use of our report dated June 11, 1997 in Amendment No. 1 to the Registration
Statement on Form SB-2 (Registration No. _____________), the related Prospectus
of United Financial Mortgage Corp., and all amendments thereto.
/s/ Craig Shaffer
-----------------
Craig Shaffer and Associates, Ltd., C.P.A.
Palatine, Illinois
August 28, 1997
<PAGE>
EXHIBIT 23(II)
CONSENT OF COUNSEL
The undersigned hereby consents to the reference to his firm under the
caption "Experts" in Amendment No. 1 to the Registration Statement, and any
amendments thereto.
/s/ Robert S. Luce
------------------
Robert S. Luce
Palatine, Illinois
August 28, 1997
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
UNITED FINANCIAL MORTGAGE CORPORATION
REGISTRATION STATEMENT
I hereby appoint Robert S. Luce or any other person occupying the office of
Legal Counsel, Chief Financial Officer, Treasurer, Secretary or Assistant
Secretary with the Registrant at the time any action hereby authorized shall be
taken to act as my attorney-in-fact and agent for all purposes specified in this
Power of Attorney. I hereby authorize each person identified by name or office
in the preceding sentence (each of whom is herein called my "authorized
representative") acting alone to sign and file on my behalf in all capacities I
may at any time have (including but not limited to the position of director or
any officership position) the registration statement prepared under the
Securities Act of 1933, as amended. I hereby authorize each authorized
representative in my name and on my behalf to execute every document and take
every other action which such authorized representative deems necessary or
desirable in connection with the registration statement identified in this Power
of Attorney and any sale of securities or other transactions accomplished by
means of any such registration statement.
For purposes of this Power of Attorney, United Financial Mortgage
Corporation shall be deemed the Registrant.
This Power of Attorney applies to the following registration statements
which may be filed under the Securities Act of 1933 by the Registrant: (i) a
registration statement registering up to $5,980,000 of equity securities, and/or
warrants; and (ii) any subsequent registration statement which may be filed to
register additional securities in the same classes as those covered by the
registration statement specified in clause (i) or additional classes of equity
securities or warrants which employ a prospectus used in common with the
registration statement specified in clause (i) and which does not materially
increase the dollar amount of the securities to be offered.
<PAGE>
This instrument shall remain in effect until and unless I shall give
written notice to the Chief Executive Office, Legal Counsel or Chief Financial
Officer of the Registrant of my election to revoke this instrument. No such
revocation shall be effective to revoke the authority for any action taken
pursuant to this Power of Attorney prior to such delivery of such revocation.
This instrument shall be governed by the internal law of the state of Illinois.
Dated: September 10, 1997
Signature Title
- --------- -----
/s/ Joseph Khoshabe President, Chief Executive Officer/
- ------------------- and sole director of United
Joseph Khoshabe Financial Mortgage Corp.
