SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ x ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 000-32409
UNITED MORTGAGE TRUST
(Exact Name of Registrant as Specified in its
Governing Instruments)
(a Maryland trust) (IRS Employer Identification
Number 75-6496585)
5740 Prospect Avenue
Suite 1000
Dallas, Texas 75206
(214) 237-9305
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ___
Number of shares of Registrant's shares of beneficial interest
outstanding as of June 30, 2005.
7,034,770
(i)
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
Unaudited Statements of Income
Unaudited Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Debentures
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
(ii)
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PART I -- FINANCIAL INFORMATION
UNITED MORTGAGE TRUST
BALANCE SHEETS
<Caption>
June 30, December 31,
2005 2004
----------------------------
(Unaudited) (Audited)
ASSETS
Cash And Cash Equivalents $ 2,475,551 $ 1,331,798
Mortgage investments:
Investment in trust receivables 8,422,203 17,749,231
Residential mortgages and contracts
for deed foreclosed 1,599,495 867,591
Interim mortgages 74,982,119 73,747,536
Interim mortgages foreclosed 1,655,234 2,025,830
Reserve for loan losses (1,102,760) (921,500)
----------- -----------
Total mortgage investments, net 85,556,291 93,468,688
Line-of-credit receivable, affiliate 29,976,739 28,721,639
Accrued interest receivable 566,353 630,531
Accrued interest receivable, affiliate 3,988,560 3,375,970
Receivable from affiliate 386,890 379,298
Equipment, less accumulated depreciation
of $9,930 and $8,156, respectively 15,926 17,700
Other assets 1,642,812 1,272,637
------------ ------------
Total Assets $124,609,122 $129,198,261
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line-of'credit, payable $ 8,665,943 $ 12,030,000
Distributions payable 937,000 937,846
Accounts payable and accrued
liabilities 61,064 75,098
----------- ------------
Total Liabilities 9,664,007 13,042,944
----------- ------------
Commitments and contingencies -- --
Shareholders' equity:
Shares of beneficial interest; $.01 par
value; 100,000,000 shares authorized;
7,775,404 and 7,683,050 shares
issued; 7,034,770 and 7,040,743
outstanding, respectively 77,754 76,831
Additional paid-in capital 136,583,133 134,750,434
Advisor's reimbursement 397,588 397,588
Cumulative distributions in excess
of earnings (7,462,143) (6,386,352)
----------- ------------
129,596,332 128,838,501
Less treasury stock, 740,634 and
642,307 shares, respectively,
at cost (14,651,217) (12,683,184)
----------- ------------
Total Shareholders' Equity 114,945,115 116,155,317
------------ ------------
Total Liabilities and Shareholders'
Equity $124,609,122 $129,198,261
------------ ------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</Table>
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UNITED MORTGAGE TRUST
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---------------------- ----------------------
Revenues:
Interest income $3,723,820 $3,190,536 $7,266,575 $6,495,154
Expense:
Reserve for and loss from sales
of foreclosed properties 345,000 409,646 1,723,540 658,977
Interest expense 88,957 1,500 112,941 28,875
Loan servicing fee 8,674 24,300 91,684 60,976
Trust administration fee 238,658 192,537 464,919 403,445
General and administrative 195,715 91,047 326,549 215,809
---------- ---------- ---------- ----------
877,004 719,030 2,719,633 1,368,082
---------- ---------- ---------- ----------
Net income $2,846,816 $2,471,506 $4,546,942 $5,127,072
========== ========== ========== ==========
Net income per share
of beneficial interest $0.40 $0.35 $0.65 $0.73
========== ========== ========== ==========
Weighted average
shares outstanding 7,030,468 7,064,757 7,034,043 7,054,972
========== ========== ========== ==========
Distributions per weighted
share outstanding $0.40 $0.46 $0.80 $0.92
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
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UNITED MORTGAGE TRUST
STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
June 30,
2005 2004
------------------------
Cash flows from operating activities:
Net income $ 4,546,942 $ 5,127,072
Adjustments to reconcile net income
to net cash provided by operating
activities:
Reserve for and loss from sales
of foreclosed properties 1,723,540 658,977
Depreciation and amortization 1,774 1,772
Net amortization of discount on
mortgage investments 7,605 20,477
Changes in assets and liabilities:
Accrued interest receivable (548,412) (646,202)
Other assets (370,175) (250,168)
Accounts payable and accrued
liabilities (14,034) (150,764)
Net cash provided by operating ----------- ----------
activities: 5,347,240 4,761,164
----------- ----------
Cash flows from investing activities:
Investment in residential mortgages
and contracts for deed (238,899) (1,225,004)
Principal receipts on residential
mortgages and contracts for deed 535,592 5,142,511
Proceeds from sale of mortgage
Loans-securitization 7,275,598 9,455,520
Line-of-credit receivable, affiliate (1,255,100) (12,186,632)
Investment in interim mortgages (38,857,869) (33,671,776)
Principal receipts on interim mortgages 37,466,830 34,901,861
Receivable from affiliate (7,592) (1,975,045)
Net cash provided by ----------- -----------
investing activities: 4,918,560 441,435
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest 1,833,622 2,074,065
Purchases of treasury stock (1,968,033) (1,479,736)
Shares redeemed -- (611,970)
Net borrowings (payments) on Line-
of-credit payable (3,364,057) --
Dividends (5,623,579) (6,468,874)
Net cash used in ----------- -----------
Financing activities: (9,122,047) (6,486,515)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,143,753 (1,283,916)
Cash and cash equivalents
at beginning of period 1,331,798 4,199,455
----------- -----------
Cash and cash equivalents at end
of period $ 2,475,551 $ 2,915,539
----------- -----------
Interest paid $ 52,312 $ 28,875
----------- -----------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
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UNITED MORTGAGE TRUST
Notes to Consolidated Financial Statements
June 30, 2005
1. Description of Business
The Company
United Mortgage Trust (the 'Company') is a Maryland real estate
investment trust which qualifies as a real estate investment trust (a
'REIT') under federal income tax laws. The Company invests exclusively
in first lien, fixed rate mortgages secured by single-family
residential property throughout the United States ('Mortgage
Investments') and in secured loans to affiliated partnerships that (a)
originate and acquire loans for the acquisition and development of
single-family home lots, which we refer to as land development loans,
and (b) enter into participation agreements with single-family
residential real estate developers which we refer to as equity
participations. Such loans are originated by others to the Company's
specifications or to specifications approved by the Company. Most, if
not all, of such loans are not insured or guaranteed by a federally
owned or guaranteed mortgage agency.
The Company completed its public offering of securities in October
2003, raising approximately $130,540,000 in net offering proceeds. In
November 2003, the Company received a merger proposal from UMT
Holdings, L.P, an entity organized by persons that include some of the
officers and owners of the Company and the Advisor. A committee
comprised of the Company's Independent Trustees is currently evaluating
the proposal.
2. Basis of Presentation
The accompanying unaudited financial statements were prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions to Form 10-Q of Regulation S-X. They do not include all
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. However, except as disclosed herein, there has been no
material change in information disclosed in the notes to the financial
statements for the year ended December 31, 2004 included in the
Company's 10-K filed with the Securities and Exchange Commission. The
interim unaudited financial statements should be read in conjunction
with those financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation, consisting
solely of normal recurring adjustments, were made. Operating results
for the three months and six months ended June 30, 2005 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2005.
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3. Line-of-Credit, Payable
On November 8, 2004, with Trustee approval, the Company entered into a
loan agreement with a bank providing the Company a $15,000,000 line-of-
credit with a three year term. The line-of-credit payable was
collateralized by certain interim mortgages. Interest is charged at the
higher of the Prime Rate and the Fed Funds Rate plus one half of one
percent on any given day. Interest on the outstanding balance was 6.75%
on June 30, 2005.
4. Related Party Transactions
a). Fees paid to the Advisor, a related party: On January 1, 2001, the
Company entered into an Advisory Agreement with the Advisor whereby the
Advisor provides the Company with day-to-day management and
administrative services subject to the supervision and review by the
Trustees. In consideration for these services, the Company paid the
Advisor a trust administration fee of $238,658 and $192,537 during the
2005 and 2004 quarters, respectively, and $464,919 and $403,445 during
the six month respective periods. The fee was calculated as 1/12th of
1/2 of 1% paid monthly of the first $50,000,000 of income producing
assets and 1/12th of 1% of income producing assets in excess of
$50,000,000, paid monthly.
b). Loan servicing fees paid to an affiliate: Under the terms of a
Mortgage Servicing Agreement with Prospect Service Corp. ('PSC')the
Company incurred loan servicing fees of $8,674 and $24,300 in the three
month period of 2005 and 2004, respectively and $28,111 and $60,976 in
the six month periods, respectively. In addition, during the six month
period of 2005, a $63,573 fee was paid to UMT Holdings, L.P. for
servicing a $3,000,000 loan package. The fee was paid when the borrower
paid the loan off.
c). Purchasing Mortgage Investments from affiliates:
The Company purchased interim mortgages during the comparable periods
from affiliates listed below:
<Table>
<Caption>
Three Months Six Months
Ended June 30, Ended June 30,
Affiliated Company 2005 2004 2005 2004
- --------------------- ---------------------- ------------------------
UMTH Lending $7,619,000 $3,346,000 $8,343,000 $8,492,000
Ready America Funding 5,453,000 6,319,000 9,178,000 8,160,000
Ready Mortgage Corp. 523,000 -- 912,000 450,000
REO Property Company 161,000 278,000 174,000 448,000
Capital Reserve Corp. 91,000 504,000 411,000 1,336,000
South Central Mortgage -- 2,200 -- 2,200
</Table>
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d). SCMI Recourse Agreement: South Central Mortgage, Inc. ('SCMI') has agreed
that, if the obligor on any Residential Mortgage or Contract for Deed sold to
the Company by SCMI or its Affiliates, and that has had less than 12 payments
made on it, defaults in the making of any payment or other obligation thereon
during the period ending before the 12th payment after the Company bought
that Residential Mortgage or Contract for Deed, then SCMI shall buy that
Mortgage Investment from the Company or advance on a month-to-month basis, all
lost interest, tax and insurance escrow payments, as well as any costs incurred
by it related to curing the default or obtaining title of the property securing
the defaulted obligation.
e.) Line-of-Credit Receivable, Affiliate: On January 1, 2005, but effective
September 30, 2004, the Company entered into a First Amended and Restated
Secured Line-of-credit Promissory Note and an Amended and Restated Security
Agreement (collectively, the 'Amendment') with United Development Funding,
L.P., ('UDF'). The Amendment amended the existing revolving line-of-credit
facility ('Loan') to extend the term an additional five years and to increase
the line-of-credit to $30 million. The purpose of the Loan is to finance
UDF's investments in real estate development projects. The Amendment has two
components: the Long Term Investment portion ('LTI') and the Bridge-Loan
Investment portion ('BLI').
The Loan is secured by the pledge of all of UDF's land development loans and
equity investments. Those UDF loans may be first lien loans or subordinate
loans. The LTI portion may not exceed $12,000,000 and bears interest at an
annualized percentage rate of 15% with interest payable monthly. The BLI
portion may not exceed $18,000,000 and is secured by the assignment of first
lien loans made by UDF to developers for the acquisition of pre-development
residential real estate. The BLI portion is additionally secured by the
pledge of all of UDF's land development loans and equity investments. The
BLI portion bears interest at an annualized percentage rate of 13.5% with
interest payable monthly.
The Loan is subordinate to UDF Senior Debt which consists of a loan guaranty
to Colonial Bank in the amount of approximately $8,750,000 and a $10,000,000
line-of-credit provided by Coppermark Bank.
UDF may use the Loan proceeds to finance either: (a) indebtedness associated
with any real estate development project upon which Borrower has a first
priority lien to the extent such indebtedness, including indebtedness
financed by funds advanced hereunder and indebtedness financed by funds
advanced from any other source, including without limitation Senior Debt,
exceeds 85% of the appraised value of such real estate development project;
or (b) indebtedness associated with any real estate development project upon
which Borrower has a junior priority lien to the extent such indebtedness,
including indebtedness financed by funds advanced hereunder and indebtedness
financed by funds advanced from any other source, including without
limitation Senior Debt, exceeds 80% of 85% of the appraised value of such
real estate development project.
The Amendment represents a further increase in the Company's loans to UDF and
in the land development loans made or to be made by UDF representing
approximately 25% of the Company's entire portfolio. The Company's Trustees
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have approved this change in the Company's investment policy represented by
the increase in the Loan based upon the changed interest rate environment
which has resulted in lower yields from the Company's traditional mortgage
investments as well as experience to date with loans made to UDF.
The Company monitors the line-of-credit for collectibility on a continuing
basis based on the affiliate's payment history. No valuation allowance or
charge to earnings was recorded for the periods ending June 30, 2005 and 2004
based on the Company's evaluation. Outstanding balances were $29,976,739 and
$28,721,639, at June 30, 2005 and December 31, 2004, respectively.
f.) A two percent fee in the amount of $145,512 in 2005 and $188,000 in 2004
was paid to the Advisor as compensation for facilitating the Bayview
securitization.
5. Investment In Trust Receivable
Prior to the Bayview securitization, all residential mortgages and contracts
for deed were transferred to a qualified special purpose entity, wholly-owned
by the Company.
6. Bayview Securitization
On January 28, 2005, United Mortgage Trust and two of its wholly-owned
subsidiaries, UMT LT Trust as the 'Seller' and UMT Funding Trust as the
'Depositor,' both Maryland real estate investment trusts, simultaneously
entered into agreements described below for the securitization of $9,700,797
principal amount of United Mortgage Trust mortgage loans through the private
issuance of $7,275,598 in 9.25% Class A Notes (the 'Notes'). The Notes,
together with $2,425,199 in Class B Certificates (the 'Certificates'),
collectively referred to as the 'Securities' were issued by Wachovia Bank as
Trustee (the 'Trustee') pursuant to a Trust Agreement dated as of January 1,
2005 between the Bank and the Depositor. The Class A Notes were then sold by
the Depositor to Bayview Financial, L.P. ('Bayview'), pursuant to a Purchase
Agreement dated as of January 26, 2005 (the 'Note Purchase Agreement')
between Bayview, the Depositor and United Mortgage Trust. The Notes were sold
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended.
The Securities evidence the entire beneficial ownership interest in a Trust
Fund created under the Trust Agreement, which consists of a pool of
performing first lien residential mortgage loans and contracts for deed (the
'Mortgage Loans') with an aggregate principal balance of $9,700,797 as of
January 1, 2005. United Mortgage Trust transferred the Mortgage Loans
(excluding the servicing rights) to the Seller as a capital contribution and
the Seller sold the Mortgage Loans to the Depositor pursuant to a Mortgage
Loan Sale Agreement dated as of January 1, 2005. The Mortgage Loan Sale
Agreement includes a right on the part of the Depositor to require the Seller
to repurchase certain Mortgage Loans upon the Seller's breach of a
representation or warranty with respect to certain characteristics of the
Mortgage Loans. United Mortgage Trust has agreed to guarantee the obligations
of the Seller under the Mortgage Loan Sale Agreement, including the
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obligation of the Seller to repurchase Mortgage Loans as to which the Seller
has breached a representation or warranty. The Class B Certificates give the
Depositor the right to receipt all remaining monthly interest after all
payments due on the Class A Notes and all principal and interest on the
Mortgage Loans after retirement of the Class A Notes. The Class B
Certificates will be retained by the Depositor.
Simultaneously with the Depositor's conveyance of the Mortgage Loans to the
Trustee and pursuant to the terms of a Servicing Rights Transfer Agreement
dated as of January 1, 2005 United Mortgage Trust, as owner of the servicing
rights to the Mortgage Loans, transferred the servicing rights to the
Mortgage Loans to Bayview and, pursuant to a SubServicing Agreement dated as
of January 1, 2005 PSC agreed with Bayview to act as sub-servicer of the
Mortgage Loans.
United Mortgage Trust intends to use the proceeds from this securitization
for general corporate purposes.
The Company did not record a servicing asset or liability for the servicing
rights retained as the fees that will be recorded will fairly compensate the
assigned servicer for the costs to be incurred with such service, and the
Company will pay all associated fees directly to PSC.
Gain or loss on the sale of the mortgage loans depends in part on the
previous carrying value of the loans involved in the transfer, allocated
between the assets sold and the retained interests based on their relative
fair market value at the date of transfer. To obtain fair values, quoted
market prices are used if available. However, quotes were not available for
the Company's retained interests, so the Company estimated fair value based
on the present value of future expected cash flows using management's best
estimate of the key assumptions: credit losses, prepayment speeds and
discount rates commensurate with the risks involved. The Company used an
expected weighted-average life of 5.5 years. Based on expected credit losses
of 1.5%, prepayment speed of 18.2% and a discount rate of 11.0%, no gain or
loss was recognized related to the sale of these mortgage loans as the
carrying value approximated the fair value at the date of the securitization.
The sensitivity to an immediate 10% and 20% adverse change in the assumptions
used to measure fair value of the securitized mortgage loans is as follows:
Prepayment speed assumption (annual rate):
Impact on fair value of 10% adverse change $ 15,000
Impact on fair value of 20% adverse change 30,000
Expected credit losses (over remaining life of loans):
Impact on fair value of 10% adverse change 12,000
Impact on fair value of 20% adverse change 24,000
Residual cash flows discount rate (annual):
Impact on fair value of 10% adverse change 221,000
Impact on fair value of 20% adverse change $433,000
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These sensitivities are hypothetical and should be used with caution.
Changes in fair value based on a 10 percent variation in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this
table, the effect of a variation in a particular assumption on the fair value
of the retained interest is calculated without changing any other assumption;
in reality, changes in one factor may result in changes in another (for
example, increases in market interest rates may result in lower prepayments
and increased credit losses), which might magnify or counteract the
sensitivities.
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following section contains statements that are not historical facts
and are forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Our actual results may
differ materially from those included in the forward-looking statements. We
intend these forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and are including this statement for purposes
of complying with those safe-harbor provisions. Forward-looking statements,
which are based on our assumptions and describe future plans, strategies and
expectations for ourselves, are generally identifiable by use of the words
'believe,' 'expect,' 'intend,' 'anticipate,' 'estimate,' 'project,'
'prospects,' or similar expressions as well as any statements referring to
the plan of liquidation or possibility thereof. Our ability to predict
results or the actual effect of our future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on our
operations and our future prospects on a consolidated basis include, without
limitation, the following: the possibility of a merger with UMT Holdings,
L.P. or other entity, changes in interest rates, economic conditions
generally and conditions in the real estate and mortgage markets
specifically; supply and demand for mortgages; legislative/regulatory changes
(including changes to laws governing the taxation of REITs); availability of
capital; competition; and policies and guidelines applicable to REITs. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Additional information concerning us and our business, including additional
factors that could materially affect our financial results, is included
herein and in our other filings with the SEC.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005
AND 2004
We were formed on July 12, 1996, however our business operations
commenced in March 1997 when the Securities and Exchange Commission issued an
order of registration for our initial public offering of shares. We completed
our public offering of our securities in October 2003, raising approximately
$130,540,000 in net offering proceeds. In November 2003, we received a merger
proposal from UMT Holdings, L.P, an entity organized by persons that include
some of our officers and owners and our Advisor. A committee comprised of our
Independent Trustees is currently evaluating the proposal.
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<Page>
OFF BALANCE SHEET TRANSACTION
On January 28, 2005, United Mortgage Trust and two of its wholly-owned
subsidiaries, UMT LT Trust as the 'Seller' and UMT Funding Trust as the
'Depositor,' both Maryland real estate investment trusts, simultaneously
entered into agreements described below for the securitization of $9,700,797
principal amount of United Mortgage Trust mortgage loans through the private
issuance of $ 7,275,598 in 9.25% Class A Notes ('Notes'). The Notes, together
with $2,425,199 in Class B Certificates (the 'Certificates'), collectively
referred to as the 'Securities' were issued by Wachovia Bank as Trustee
pursuant to a Trust Agreement dated as of January 1, 2005 between the Bank
and the Depositor. The Class A Notes were then sold by the Depositor to
Bayview Financial, L.P. ('Bayview'), pursuant to a Purchase Agreement dated
as of January 26, 2005 (the 'Note Purchase Agreement') between Bayview, the
Depositor and United Mortgage Trust. The Notes were sold pursuant to an
exemption from the registration requirements of the Securities Act of 1933,
as amended.
The Securities evidence the entire beneficial ownership interest in a
Trust Fund created under the Trust Agreement, which consists of a pool of
performing first lien residential mortgage loans and contracts for deed (the
'Mortgage Loans') with an aggregate principal balance of $9,700,797 as of
January 1, 2005. United Mortgage Trust transferred the Mortgage Loans
(excluding the servicing rights) to the Seller as a capital contribution and
the Seller sold the Mortgage Loans to the Depositor pursuant to a Mortgage
Loan Sale Agreement dated as of January 1, 2005. The Mortgage Loan Sale
Agreement includes a right on the part of the Depositor to require the Seller
to repurchase certain Mortgage Loans upon the Seller's breach of a
representation or warranty with respect to certain characteristics of the
Mortgage Loans. United Mortgage Trust has agreed to guarantee the obligations
of the Seller under the Mortgage Loan Sale Agreement, including the
obligation of the Seller to repurchase Mortgage Loans as to which the Seller
has breached a representation or warranty. The Class B Certificates give the
Depositor the right to receipt all remaining monthly interest after all
payments due on the Class A Notes and all principal and interest on the
Mortgage Loans after retirement of the Class A Notes. The Class B
Certificates will be retained by the Depositor.
Simultaneously with the Depositor's conveyance of the Mortgage Loans to
the Trustee and pursuant to the terms of a Servicing Rights Transfer
Agreement dated as of January 1, 2005 United Mortgage Trust, as owner of the
servicing rights to the Mortgage Loans, transferred the servicing rights to
the Mortgage Loans to Bayview and, pursuant to a SubServicing Agreement dated
as of January 1, 2005 Prospect Service Corp agreed with Bayview to act as
sub-servicer of the Mortgage Loans.
LOANS PURCHASED
We did not acquire long-term assets during the second quarter 2005 or
2004. During the six-month periods of 2005 and 2004 we acquired 13 new
residential mortgages with an aggregate principal balance of $239,000 and 3
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residential mortgages with an aggregate unpaid principal balance of $124,000,
respectively. In addition, during the six month period of 2004, 32 contracts
for deed were refinanced into notes and deeds of trust and were retained by
us.
At the end of the June 2005 quarter, and with the culmination of the two
Bayview Securitizations (one in April 2004 and the other described above),
our mortgage portfolio changed significantly. We owned outright 45
residential mortgage loans and two rental properties. The balance of our
interest in residential mortgages (442 individual loans) were securitized and
held in trust on behalf of Bayview (Senior piece) and UMT LT Trust
(Subordinate piece). Adding the three categories, the total unpaid principal
balance on our books at June 30, 2005 was approximately $8,422,000, and the
yield was 8.86%. We used the proceeds from the sale of the securitizations to
pay down our line-of-credit; fund the UDF line-of-credit; and invest in
interim mortgage loans. The unpaid balance on the UDF line-of-credit was
approximately $30,000,000 and the yield for the quarter was 14.89%. Interim
mortgages totaled approximately $74,982,000 (976 active loans at the end of
the quarter) and the yield was 13.22%.
At the end of the June 30, 2004, and after the close of the first
Bayview Securitization, our mortgage portfolio in the aggregate consisted of
272 residential mortgages and 32 contracts for deed owned outright. The
balance of our interest in residential mortgages (275 notes) were securitized
and held in trust on behalf of Bayview (Senior piece) and UMT LT Trust
(Subordinate piece). Adding all three categories, the total unpaid principal
balance on our books at June 30, 2004 was approximately $16,267,000, and the
yield was 10.44%. We used the proceeds from the sale of the securitizations
to pay down our line-of-credit; fund the UDF line-of-credit; and invest in
interim mortgage loans. The unpaid balance on the UDF line-of-credit was
approximately $18,280,000 and the yield for the quarter was 13.77%. Interim
mortgages totaled approximately $70,247,000 (1,045 active loans at the end of
the quarter) and the yield was 12.22%.
The following table illustrates percentage of our portfolio dedicated to
each loan category:
- -------------------------------------------------------
June 30,
Loan Category 2005 2004
- -------------------------- --------------------
Interim Mortgages 66% 66%
UDF Line-of-credit 26% 17%
Securitized Loans 4% 3%
Residential Mortgages/CFDs 4% 14%
- -------------------------------------------------------
All of the properties that are security for the mortgage investments are
located in the United States. Each of the properties was adequately covered
by a mortgagee's title insurance policy and hazard insurance.
During the three and six months ended June 30, 2005 and 2004 our
investments generated approximately $3,724,000 and $3,191,000 and $7,267,000
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and $6,495,000 of interest income, respectively, 17% and 12% increases. The
rise was attributed to mortgage investments purchased between periods, and
the changing mix of the portfolio.
Operating expenses for the three-month and six-month periods were
approximately $877,000 and $719,000 and $2,720,000 and $1,368,000,
respectively, 22% and 99% increases, respectively. Increases can be primarily
attributed to the following three categories:
Loan losses - $345,000 compared to $410,000 for the comparable three
months (16% decrease) and $1,724,000 and $659,000 for the comparable
six-month periods (162% increase), which included actual losses incurred
of $403,000 and $454,000 for the comparable three-month periods and
$1,542,000 and $827,000 during the comparable six-month periods. Loan
losses increase or decrease depending on the number of foreclosed
properties sold is a given period and the price the property is sold for
versus our basis in the property.
Trust management fee - $239,000 and $193,000 for the comparable three
months (24% increase) and $465,000 and $403,000 for the comparable six-
month periods (15% increase). The trust management fee is calculated as
a percentage of income producing assets. It will therefore increase or
decrease when use of our credit line fluctuates and when our cash
balances increase or decrease, driving our asset base up and down.
General and administrative - $196,000 and $91,000 for the comparable
three months (115% increase) and $327,000 and $216,000 for the
comparable six-month periods (51% increase). The increase during the
comparable period was due to higher accounting service fee, legal fees,
amortization expense of securitization transaction costs, postage
expenses and printing expenses.
Interest expense - $89,000 and $1,500 for the comparable three months
(5,830% increase) and $113,000 and $29,000 for the comparable six-month
periods (290% increase). Increases and decrease in interest expense
related to usage of our credit facility and interest rates.
We are maintaining a loss reserve on interim mortgages of approximately
1% of cash flow for the six month period (1% of new funding of interim
mortgages) after losses are realized during the period. We are maintaining a
loss reserve on our long-term loans of approximately 45% of the value of
foreclosed properties.
Of the approximate $327,000,000 interim mortgages we have acquired, we
have recorded losses of $980,000, 0.30% of the total. Of the $54,000,000
residential mortgages and contracts for deed we have acquired, we have
recorded approximately $5,099,000 in losses, or 9.44% of the total. We
anticipate loan losses to continue and therefore are continuing to monitor
the adequacy of our loan loss reserve and we expect to adjust its level as
needed.
Our default rate as of June 30, 2005 and 2004 was 2.72% and 3.64% of
income producing assets. The most significant portion of our defaults, as a
percentage of type of asset is amongst residential mortgages and contracts
for deed.
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Operating expenses, less interest expense, as a percentage of income
were 21.16% and 22.49% for the comparable three-month periods and 35.87% and
20.62% for the comparable six-month periods, and operating expenses as a
percentage of invested assets were 0.70% and 0.60% and 2.18% and 1.20% for
the comparable three and six-month periods, respectively.
Net income for the three and six months ended June 30, 2005 and 2004 was
approximately $2,847,000 and $2,472,000, and $4,547,000 and $5,127,000, a 15%
increase between quarters and an 11% decrease between six-month periods,
respectively. Net income per weighted average share of beneficial interest
was $0.40 and $0.35 and $0.65 and $0.73, respectively, for the comparable
three and six months, an increase of 14% between quarters and a decrease of
11% between six-month comparable periods.
Distributions to shareholders per share of beneficial interest during the
comparable periods were $0.40 and $0.46 per share during the comparable
quarters, respectively and $0.80 and $0.92 for the comparable six month
periods, respectively. We intend to lower our dividend to a 7% annualized
rate for the third quarter of 2005 in order to recapture capital distributed
in the past.
CAPITAL RESOURCES AND LIQUIDITY FOR THE THREE MONTHS AND SIX MONTHS ENDED
June 30, 2005 AND 2004
We utilize funds made available from the sale of our shares, funds made
available on our bank line of credit and repayment of principal on our loans
to purchase Mortgage Investments.
- --------------------------------------------------------------------
For the Three Months ended
June 30,
2005 2004
----------------------------
Shares issued 44,900 55,800
Proceeds from dividend reinvestment $898,000 $1,116,000
Treasury shares purchased $(962,000) $(839,000)
Principal receipts from Residential
Mortgages and Contracts for Deed $102,000 $925,000
Principal receipts from
Interim Mortgages $18,263,000 $17,793,000
Net borrowings (payments on)
line-of-credit, payable $6,416,000 $9,456,000
- --------------------------------------------------------------------
- --------------------------------------------------------------------
For the Six Months ended
June 30,
2005 2004
----------------------------
Shares issued 92,000 114,000
Proceeds from dividend reinvestment $1,834,000 $2,074,000
Treasury shares purchased $(1,968,000) $(1,480,000)
Shares redeemed ' rescission offer -- $(612,000)
Principal receipts from Residential
Mortgages and Contracts for Deed $536,000 $5,143,000
Principal receipts from
Interim Mortgages $37,467,000 $34,902,000
Proceeds from the Bayview
Securitization $7,276,000 $9,456,000
Net borrowings (payments on)
line-of-credit, payable $(3,364,000) --
- --------------------------------------------------------------------
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As of June 30, 2005, we had issued an aggregate of 7,775,404 shares of
beneficial interest and repurchased into treasury, through our Share
Repurchase Plan, 740,634 shares. Total shares outstanding were 7,034,770.
Total capital raised was approximately $155,221,000.
As of June 30, 2004, we had issued an aggregate of 7,586,922 shares of
beneficial interest and repurchased into treasury, through our Share
Repurchase Plan, 520,864 shares. Total shares outstanding were 7,066,058.
Total capital raised was approximately $151,672,000.
On November 8, 2004, with Trustee approval, the Company entered into a
loan agreement with a bank providing the Company a $15,000,000 line-of-credit
with a three year term. The line-of-credit payable was collateralized by
certain interim mortgages. Interest is charged at the higher of the Prime
Rate and the Fed Funds Rate plus one half of one percent on any given day.
Interest on the outstanding balance was 6.75% on June 30, 2005 and 4.75% at
June 30, 2004.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
No change.
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that
information disclosed in our annual and periodic reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. In addition, we
designed these disclosure controls and procedures to ensure that this
information is accumulated and communicated to our management, including our
chief executive officer (our "CEO") and chief financial officer (our "CFO"),
to allow timely decisions regarding required disclosure. SEC rules require
that we disclose the conclusions of our CEO and CFO about the effectiveness
of our disclosure controls and procedures.
We do not expect that our disclosure controls and procedures will
prevent all errors or fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. In addition, the design of
disclosure controls and procedures must reflect the fact that there are
resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitation in a cost-
effective control system, misstatements due to error or fraud could occur and
not be detected.
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We evaluate the effectiveness of our disclosure controls and procedures
as of the end of each fiscal quarter. Based on our most recent evaluation,
our CEO and CFO believe, and have certified, that our disclosure controls and
procedures are effective to (1) ensure that material information relating to
us is made known to management, including the CEO and CFO, particularly
during the period when our periodic reports are being prepared, and (2)
provide reasonable assurance that our financial statements fairly present all
material respects our financial condition and results of operations.
Since the date of this most recent evaluation, there have been no
significant changes in our internal controls or in other factors that could
significantly affect the internal controls subsequent to the date we
completed our evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We are offering up to 511,000 shares of beneficial interest at $20 per
share through our dividend reinvestment plan. There are no commissions or
fees paid from the proceeds. We use proceeds from the plan primarily to
repurchase shares in our share redemption plan. Absent applications for
repurchase, we use the proceeds to buy mortgage investments.
The following table sets forth information relating to shares of
beneficial interest issued and the use of proceeds of the offering during the
three months and 6 months ended June 30, 2005:
Three months Six months
- ----------------------- ------------ ----------
Shares issued 44,900 92,400
Gross offering proceeds $898,000 $1,848,000
Item 3. Defaults Upon Senior Debentures.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
See Exhibit Index for a description of the documents that are filed as
Exhibits to this report on Form 10-Q or incorporated by reference herein.
-15-
EXHIBIT INDEX
Exhibit 10.1. Loan Agreement between the Company and Texas Capital
Bank, NA.
Exhibit 10.2. Loan Servicing Agreement between the Company and Prospect
Service Corp.
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
<Page>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there under
duly authorized.
UNITED MORTGAGE TRUST
(Registrant)
Date: August 8, 2005 /S/Christine A. Griffin
Christine A. Griffin
President
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Exhibit 10.1
LOAN AGREEMENT
Dated as of November 8, 2004
between
UNITED MORTGAGE TRUST
and
TEXAS CAPITAL BANK, NATIONAL ASSOCIATION
ARTICLE I
Definitions 1
Section 1.1 Definitions 1
Section 1.2 Accounting Matters 10
Section 1.3 Other Definitional Provisions 10
ARTICLE II
Advances and Letters of Credit 10
Section 2.1 Advances. 10
Section 2.2 General Provisions Regarding Interest; Etc. 11
Section 2.3 Administration Fee 12
Section 2.4 Use of Proceeds 12
Section 2.5 Letters of Credit 12
ARTICLE III
Payments 13
Section 3.1 Method of Payment 13
Section 3.2 Prepayments. 13
Section 3.3 Additional Costs in Respect of Letters of Credit 13
ARTICLE IV
Security 13
Section 4.1 Collateral 13
Section 4.2 Setoff 14
ARTICLE V
Conditions Precedent 14
Section 5.1 Initial Extension of Credit 14
Section 5.2 All Extensions of Credit 15
ARTICLE VI
Representations and Warranties 16
Section 6.1 Corporate Existence 16
Section 6.2 Financial Statements; Etc 16
Section 6.3 Action; No Breach 17
Section 6.4 Operation of Business 17
Section 6.5 Litigation and Judgments 17
Section 6.6 Rights in Properties; Liens 17
Section 6.7 Enforceability 17
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Section 6.8 Approvals 17
Section 6.9 Debt 17
Section 6.10 Taxes 18
Section 6.11 Use of Proceeds; Margin Securities 18
Section 6.12 ERISA 18
Section 6.13 Disclosure 18
Section 6.14 Subsidiaries, Ventures, Etc. 18
Section 6.15 Agreements 18
Section 6.16 Compliance with Laws 19
Section 6.17 Inventory 19
Section 6.18 Investment Company Act 19
Section 6.19 Public Utility Holding Company Act 19
Section 6.20 Environmental Matters. 19
Section 6.21 Intellectual Property 20
Section 6.22 Depository Relationship 20
Section 6.23 Solvency 20
Section 6.24 Investments and Guaranties 20
Section 6.25 Individual Mortgage Loans 20
ARTICLE VII
Affirmative Covenants 22
Section 7.1 Reporting Requirements 22
Section 7.2 Maintenance of Existence; Conduct of Business 24
Section 7.3 Maintenance of Properties 24
Section 7.4 Taxes and Claims 24
Section 7.5 Insurance 24
Section 7.6 Inspection Rights 24
Section 7.7 Eligible Mortgage Paper Tracking 24
Section 7.8 Keeping Books and Records 25
Section 7.9 Compliance with Laws 25
Section 7.10 Compliance with Agreements 25
Section 7.11 Further Assurances 25
Section 7.12 ERISA 25
Section 7.13 Title Insurance 25
Section 7.14 Insurance 25
Section 7.15 Appraisals 25
Section 7.16 Environmental 25
Section 7.17 Wells Fargo Debt 25
ARTICLE VIII
Negative Covenants 26
Section 8.1 Debt 26
Section 8.2 Limitation on Liens 26
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Section 8.3 Mergers, Etc 27
Section 8.4 Loans and Investments 27
Section 8.5 Transactions With Affiliates 28
Section 8.6 Restricted Payments 28
Section 8.7 Limitation on Issuance of Equity 28
Section 8.8 Disposition of Assets 28
Section 8.9 Sale and Leaseback 28
Section 8.10 Nature of Business 28
Section 8.11 Environmental Protection 28
Section 8.12 Accounting 29
Section 8.13 Servicing Rights 29
Section 8.14 Actions With Respect To Mortgage Collateral 29
Section 8.15 No Negative Pledge 29
Section 8.16 Payment on Subordinated Debt 29
Section 8.17 Proceeds of Loan 29
ARTICLE IX
Financial Covenants 29
Section 9.1 Tangible Net Worth 29
Section 9.2 Leverage Ratio 29
Section 9.3 Net Profit 29
ARTICLE X
Default 30
Section 10.1 Events of Default 30
Section 10.2 Remedies Upon Default 32
Section 10.3 Performance by Lender 32
Section 10.4 Servicing Rights 32
ARTICLE XI
Miscellaneous 32
Section 11.1 Expenses 32
Section 11.2 INDEMNIFICATION 33
Section 11.3 Limitation of Liability 33
Section 11.4 No Duty 33
Section 11.5 Lender Not Fiduciary 34
Section 11.6 Equitable Relief 34
Section 11.7 No Waiver; Cumulative Remedies 34
Section 11.8 Successors and Assigns 34
Section 11.9 Survival 34
Section 11.10 ENTIRE AGREEMENT; AMENDMENT 34
Section 11.11 Notices 34
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Section 11.12 Governing Law; Venue; Service of Process 35
Section 11.13 Counterparts 35
Section 11.14 Severability 35
Section 11.15 Headings 35
Section 11.16 Participations; Etc 35
Section 11.17 Construction 36
Section 11.18 Independence of Covenants 36
Section 11.19 WAIVER OF JURY TRIAL 36
Section 11.20 Arbitration. 36
Section 11.21 Additional Interest Provision 38
Section 11.22 Ceiling Election 39
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<Page>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), dated as of November 8, 2004, is
between UNITED MORTGAGE TRUST, a Maryland real estate investment trust
("Borrower"), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national
banking association (the "Lender").
R E C I T A L S:
Borrower has requested that Lender extend credit to Borrower as
described in this Agreement. Lender is willing to make such credit
available to Borrower upon and subject to the provisions, terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, all exhibits,
appendices and schedules hereto and in any note, certificate, report or
other Loan Documents made or delivered pursuant to this Agreement, the
following terms will have the meanings given such terms in this Section
1 or in the provision, section or recital referred to below:
"AAA" has the meaning for such term set forth in Section 11.20 of the
Agreement.
"Advance" means an advance by Lender to Borrower pursuant to Article II
or any advance made by Lender to cover any drawing under any Letters of
Credit.
"Advance Request Form" means a certificate, in a form approved by
Lender, properly completed and signed by Borrower requesting a
Revolving Credit Advance.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that
directly or indirectly beneficially owns or holds five percent (5%) or
more of any class of voting stock of such Person; or (c) five percent
(5%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Person in question. The term
"control" means the possession, directly or indirectly, of the power to
direct or cause direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or
otherwise; provided, however, in no event shall Lender be deemed an
Affiliate of Borrower or any of its Subsidiaries or Affiliates.
"Agreement" has the meaning set forth in the Introductory Paragraph
hereto, as the same may, from time to time, be amended, modified,
restated, renewed, waived, supplemented, or otherwise changed, and
includes all schedules, exhibits and appendices attached or otherwise
identified therewith.
"Allonge" means an Allonge to a Mortgage Note in form and substance
similar to Exhibit E.
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"Borrowing Base" means, at any time, an amount equal eighty to percent
(80%) of the aggregate principal amount of the loans outstanding under
the Eligible Mortgage Loans.
"Borrowing Base Report" means, as of any date of preparation, a
certificate setting forth the Borrowing Base (in a form acceptable to
Lender in substantially the form of Exhibit A attached hereto) prepared
by and certified by the chief financial officer of Borrower.
"Borrower" means the Person identified as such in the Introductory
Paragraph hereof, and its successors and assigns.
"Business Day" has the meaning assigned to it in the Notes.
"Capital Lease Obligation" shall mean the amount of Debt under a lease
of Property by a Person that would be shown as a liability on a balance
sheet of such Person prepared for financial reporting purposes in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" has the meaning for such term set forth in Section 4.1 of
this Agreement.
"Collateral Agent" means Michele A. Cadwell, P.C., a Texas professional
corporation or such other person who agrees to hold the Possession
Mortgage Paper for the benefit of Lender pursuant to a Bailment
Agreement satisfactory to Lender.
"Commitment" means the obligation of Lender to make Revolving Credit
Advances pursuant to Section 2.1 in an aggregate principal amount at
any time outstanding up to but not exceeding Fifteen Million Dollars
($15,000,000), subject, however, to termination pursuant to Section
10.2.
"Compliance Certificate" means a certificate, substantially in the form
of Exhibit B attached hereto, prepared by and executed by the chief
financial officer of Borrower.
"Constituent Documents" means (i) in the case of a corporation, its
articles or certificate of incorporation and bylaws; (ii) in the case
of a general partnership, its partnership agreement; (iii) in the case
of a limited partnership, its certificate of limited partnership and
partnership agreement; (iv) in the case of a trust, its trust
agreement; (v) in the case of a joint venture, its joint venture
agreement; (vi) in the case of a limited liability company, its
articles of organization and operating agreement or regulations; and
(vii) in the case of any other entity, its organizational and
governance documents and agreements.
"Debt" means as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money, (b) all obligations
of such Person evidenced by bonds, notes, debentures, or other similar
instruments, (c) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable
of such Person arising in the ordinary course of business that are not
past due by more than ninety (90) days, (d) all Capital Lease
Obligations of such Person, (e) all Debt or other obligations of others
Guaranteed by such Person, (f) all obligations secured by a Lien
existing on property owned by such Person, whether or not the
obligations secured thereby have been assumed by such Person or are
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non-recourse to the credit of such Person, (g) any other obligation for
borrowed money or other financial accommodations which in accordance
with GAAP would be shown as a liability on the balance sheet of such
Person, (h) any repurchase obligation or liability of a Person with
respect to accounts, chattel paper or notes receivable sold by such
Person, (i) any liability under a sale and leaseback transaction that
is not a Capital Lease Obligation, (j) any obligation under any so
called "synthetic leases", (k) any obligation arising with respect to
any other transaction that is the functional equivalent of borrowing
but which does not constitute a liability on the balance sheets of a
Person, (l) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds and similar instruments, and (m) all
liabilities of such Person in respect of unfunded vested benefits under
any Plan.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an
Event of Default.
"Default Interest Rate" has the meaning assigned to it in the Notes.
"Disclosure Schedule" means the schedule of the same name attached
hereto.
"Dispute" means any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or
equitable, now existing or hereafter arising under or in connection
with, or in any way pertaining to, this Agreement and each other
document, contract and instrument required hereby or now or hereafter
delivered to Lender in connection herewith, or any past, present or
future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the
foregoing documents, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or
other remedies pursuant to any of the foregoing documents.
"Dollars" and "$" mean lawful money of the United States of America.
"Eligible Mortgage Loans" means, at any time, any Mortgage Loan of
Borrower, created in the ordinary course of business, acceptable to
Lender and satisfies the following conditions:
(a) All Mortgage Paper evidencing and securing a Second Tier Loan made
with the proceeds of such Mortgage Loan have been assigned,
transferred, endorsed and delivered to Borrower pursuant to such form
documents, instruments and agreements previously approved by Lender;
(b) The Mortgage Paper is effectively pledged to Lender and in respect
of which Lender has a first perfected Lien not subject to any other
Liens or claims of any kind;
(c) The Possession Mortgage Paper has been delivered to Collateral
Agent, or such other person designated by Lender;
(d) The outstanding principal balance of the Mortgage Paper is not
greater than $200,000;
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(e) The Mortgage Paper is secured by a first and prior deed of trust or
mortgage lien encumbering a site-built single-family residence;
(f) The Mortgage Paper is not secured by a "contract for deed";
(g) The Mortgage Paper is not more than thirty (30) days past due;
(h) The Mortgage Paper has not been modified or amended to waive or
defer more than one scheduled payment thereunder;
(i) The original maturity of the Mortgage Paper may not exceed twelve
months from its origination and, together with any extension thereof,
may not exceed eighteen months in the aggregate;
(j) The outstanding principal amount of the Mortgage Paper may not
exceed eighty percent (80%) of the anticipated value of the property
secured thereby after improvements and repairs are made thereto;
(k) Each of the related Mortgage Note and Mortgage is genuine and is
the legal, valid, binding and enforceable obligations of the maker
thereof, not subject to a right of rescission, set-off, counterclaim or
defense;
(l) The related Mortgage Note has not been extinguished under relevant
state law in connection with a judgment of foreclosure or foreclosure
sale or otherwise;
(m) The related mortgaged property is not the subject to a foreclosure
proceeding; and
(n) The mortgagor is not subject to a bankruptcy or insolvency
proceeding.
"Eligible Mortgage Paper" all Mortgage Paper relating to Eligible
Mortgage Loans.
"Environmental Laws" means any and all federal, state, and local laws,
regulations, judicial decisions, orders, decrees, plans, rules,
permits, licenses, and other governmental restrictions and requirements
pertaining to health, safety, or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ' 9601 et seq., the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. ' 6901 et seq., the
Occupational Safety and Health Act, 29 U.S.C. ' 651 et seq., the Clean
Air Act, 42 U.S.C. ' 7401 et seq., the Clean Water Act, 33 U.S.C. '
1251 et seq., and the Toxic Substances Control Act, 15 U.S.C. ' 2601 et
seq., as the same may be amended or supplemented from time to time.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs, and
expenses, (including, without limitation, all reasonable fees,
disbursements and expenses of counsel, expert and consulting fees and
costs of investigation and feasibility studies), fines, penalties,
sanctions, and interest incurred as a result of any claim or demand, by
any Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order or agreement with any Governmental
Authority or other Person, arising from environmental, health or safety
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<Page>
conditions or the Release or threatened Release of a Hazardous
Material into the environment, resulting from the past, present, or
future operations of such Person or its Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published
interpretations thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning
of Section 414(b) of the Code) as Borrower or is under common control
(within the meaning of Section 414(c) of the Code) with Borrower.
"Event of Default" has the meaning specified in Section 10.1.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or
in statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as
of the date in question. Accounting principles are applied on a
"consistent basis" when the accounting principles applied in a current
period are comparable in all material respects to those accounting
principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt
or other obligation of any other Person as well as any obligation or
liability, direct or indirect, contingent or otherwise, of such Person
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation or liability (whether arising
by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to operate Property, to
take-or-pay, or to maintain net worth or working capital or other
financial statement conditions or otherwise) or (b) entered into for
the purpose of indemnifying or assuring in any other manner the obligee
of such Debt or other obligation or liability of the payment thereof or
to protect the obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means Todd Etter and any other Person who from time to time
guarantees all or any part of the Obligations.
"Guaranty" means a written guaranty of each Guarantor in favor of
Lender, in form and substance satisfactory to Lender, as the same may
be amended, modified, restated, renewed, replaced, extended,
supplemented or otherwise changed from time to time.
"Hazardous Material" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which
is or becomes listed, regulated, or addressed under any Environmental
Law, including, without limitation, asbestos, petroleum, and
polychlorinated biphenyls.
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"Letter of Credit" means any letter of credit issued by Lender for the
account of or at the direction of Borrower pursuant to Article II of
this Agreement.
"Letter of Credit Liabilities" means, at any time, the aggregate face
amounts of all outstanding Letters of Credit, plus any amounts drawn
under any Letters of Credit for which Lender has not been fully
reimbursed by Borrower (unless Lender, in its sole discretion, has
cleared the drawn amount by means of an Advance under the Revolving
Credit Note, in which case the drawn amount would not constitute a
Letter of Credit Liability).
"Letter of Credit Request Form or Application" means a certificate or
agreement, in a form acceptable to Lender, properly completed and
signed by Borrower requesting issuance of a Letter of Credit and
containing provisions for fees for the issuance of Letters of Credit,
repayment of drawn letters of credit, the interest rate applicable to
drawn and unpaid Letters of Credit, and such other matters as Lender
may require.
"Leverage Ratio" means, at any particular time, the ratio of
Consolidated Liabilities to Consolidated Tangible Net Worth.
"Liabilities" means, at any particular time, all amounts which, in
conformity with GAAP, would be included as liabilities on a balance
sheet of a Person.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
charge, hypothecation, assignment, preference, priority, or other
encumbrance of any kind or nature whatsoever (including, without
limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law, or otherwise.
"Loan Documents" means this Agreement and all promissory notes,
security agreements, deeds of trust, assignments, letters of credit,
guaranties, and other instruments, documents, and agreements executed
and delivered pursuant to or in connection with this Agreement, as such
instruments, documents, and agreements may be amended, modified,
renewed, restated, extended, supplemented, replaced, consolidated,
substituted, or otherwise changed from time to time.
"Material Adverse Effect" means any material adverse effect on (a) the
business, assets, financial condition, results of operations or
prospects of Borrower and its Subsidiaries taken as a whole, (b) the
business, assets, financial condition, results of operations or
prospects of Borrower individually, (c) the validity or enforceability
of any of the Loan Documents or the Liens, rights and/or remedies of
Lender thereunder, or (d) the ability of any Obligated Party to pay and
perform its indebtedness, liabilities and/or obligations under any of
the Loan Documents.
"Maximum Lawful Rate" means, at any time, the maximum rate of interest
which may be charged, contracted for, taken, received or reserved by
Lender in accordance with applicable Texas law (or applicable United
States federal law to the extent that such law permits Lender to
charge, contract for, receive or reserve a greater amount of interest
than under Texas law). The Maximum Lawful Rate shall be calculated in
a manner that takes into account any and all fees, payments, and other
charges in respect of the Loan Documents that constitute interest under
applicable law. Each change in any interest rate provided for herein
based upon the Maximum Lawful Rate resulting from a change in the
Maximum Lawful Rate shall take effect without notice to Borrower at the
time of such change in the Maximum Lawful Rate.
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"Mortgage" means a mortgage or deed of trust, on standard forms in form
and substance satisfactory to Lender, securing a Mortgage Note and
granting a perfected first priority lien on residential real property
consisting of land and a single-family dwelling thereon.
"Mortgage Assignment" means an instrument duly executed and in
recordable form assigning a Mortgage, in blank and all like intervening
instruments that have been executed with respect to such Mortgage and
which is in form and substance similar to Exhibit D hereto.
"Mortgage Collateral" all Mortgage Notes (a) which are made payable to
the order of Borrower or have been endorsed (without restriction or
limitation) payable to the order of Borrower, (b) in which Lender has
been granted and continues to hold a perfected first priority security
interest, (c) which are in form and substance acceptable to Lender in
its reasonable discretion, (d) and which are secured by Mortgages.
"Mortgage Loan" means a site-built single-family residence mortgage
loan which is evidenced by a Mortgage Note and secured by a Mortgage,
together with the rights and obligations of a holder thereof and
payments thereon and proceeds therefrom.
"Mortgage Note" means a promissory note or other evidence of
indebtedness evidencing the indebtedness of an Obligor under a Mortgage
Loan.
"Mortgage Paper" with respect to any Mortgage Loan, the Mortgage Note,
Mortgage and all other documents, instruments and agreements relating
to such Mortgage Loan.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by
Borrower or any ERISA Affiliate and which is covered by Title IV of
ERISA.
"Notes" means, collectively, all promissory notes (and "Note" means any
of such Notes) executed at any time by Borrower and payable to the
order of Lender, as amended, renewed, replaced, extended, supplemented,
consolidated, restated, modified, otherwise changed and/or increased
from time to time.
"Obligated Party" means the Guarantor or any other Person who is or
becomes party to any agreement that guarantees or secures payment and
performance of the Obligations or any part thereof.
"Obligations" means all obligations, indebtedness, and liabilities of
Borrower, each Guarantor and any other Obligated Party to Lender or
Affiliates of Lender, or both, now existing or hereafter arising,
whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, the obligations, indebtedness, and
liabilities under this Agreement, any Swap Contract, the other Loan
Documents (including, without limitation, all Letter of Credit
Liabilities), any cash management or treasury services agreements and
all interest accruing thereon (whether a claim for post-filing or post-
petition interest is allowed in any insolvency, reorganization or
similar proceeding) and all attorneys' fees and other expenses incurred
in the enforcement or collection thereof.
"Obligor" means the Person or Persons obligated to pay the indebtedness
which is the subject of a Mortgage Loan.
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"Origination Fee" means $150,000.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Person" means any individual, corporation, limited liability company,
business trust, association, company, partnership, joint venture,
Governmental Authority, or other entity, and shall include such
Person's heirs, administrators, personal representatives, executors,
successors and assigns.
"Plan" means any employee benefit or other plan established or
maintained by Borrower or any ERISA Affiliate and which is covered by
Title IV of ERISA.
"Possession Mortgage Paper" means with respect to any Eligible Mortgage
Loan, the Mortgage Note, Allonge, Mortgage, Mortgage Assignments
relating thereto and any and all other documents, instruments and
agreement which evidence the pledge, assignment, transfer, endorsement
and delivery of such Mortgage Documents from a Second Tier Lender to
Borrower.
"Principal Office" means the principal office of Lender, presently
located at 2100 McKinney Avenue, Suite 900, Dallas, Texas 75201.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible or mixed, of such Person, or any other
assets owned, operated or leased by such Person.
"Related Indebtedness" has the meaning set forth in Section 11.21 of
this Agreement.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching,
or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of property owned by such Person, including,
without limitation, the movement of Hazardous Materials through or in
the air, soil, surface water, ground water, or property.
"Remedial Action" means all actions required to (a) clean up, remove,
treat, or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or
minimize the further Release of Hazardous Materials so that they do not
migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment, or (c) perform pre-remedial studies
and investigations and post-remedial monitoring and care.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Revolving Credit Advance" means any Advance made by Lender to Borrower
pursuant to Section 2.1(a) of this Agreement.
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"Revolving Credit Note" means the promissory note of Borrower payable
to the order of Lender, in substantially the form of Exhibit C hereto,
and all amendments, extensions, renewals, replacements, and
modifications thereof.
"Second Tier Lenders" UMTH Lending Company, L.P., UMTH Lending Company,
FL, L.P., Ready America Funding, LP, Residential Development
Corporation, HomeVestors Investments, Inc., and Capital Plus, Inc.
"Second Tier Loans" Mortgage Loans made by Second Tier Lenders
evidenced by Eligible Mortgage Paper that is pledged and assigned to
Borrower.
"Security Agreement" means the Security Agreement of Borrower in favor
of Lender, in form and substance satisfactory to Lender, as the same
may be amended, restated, supplemented, modified, or changed from time
to time.
"Security Documents" means each and every Security Agreement, Guaranty,
pledge, mortgage, deed of trust or other collateral security agreement
required by or delivered to Lender from time to time to secure the
Obligations or any portion thereof.
"Subordinated Debt" means any Debt of Borrower (other than the
Obligations) that has been subordinated to the Obligations by written
agreement, in form and content satisfactory to Lender.
"Subsidiary" means (a) any corporation of which at least a majority of
the outstanding shares of stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any
other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by Borrower or one or
more of the Subsidiaries or by Borrower and one or more of the
Subsidiaries; and (b) any other entity (i) of which at least a majority
of the ownership, equity or voting interest is at the time directly or
indirectly owned or controlled by one or more of Borrower and the
Subsidiaries and (ii) which is treated as a subsidiary in accordance
with GAAP. Notwithstanding the foregoing, the term "Subsidiary" shall
not include United Development Funding, a Nevada limited partnership or
United Development Funding II, a Nevada limited partnership.
"Swap Contract" means any agreement (including related confirmations
and schedules) between Borrower and Lender or any Affiliate of Lender
now existing or hereafter entered into which is, or relates to, a rate
swap, basis swap, forward rate transaction, cap transaction, floor
transaction, collar transaction or any other similar transactions
(including any option with respect to any of these transactions) or any
combination thereof.
"Tangible Net Worth" means, at any particular time, all amounts which,
in conformity with GAAP, would be included as stockholders' equity on a
balance sheet of a Person; provided, however, there shall be excluded
therefrom: (a) any amount at which the equity of such Person appears
as an asset on such Person's balance sheet, (b) goodwill, including any
amounts, however designated, that represent the excess of the purchase
price paid for assets or stock over the value assigned thereto, (c)
patents, trademarks, trade names, and copyrights, (d) deferred
expenses, (e) loans and advances to any stockholder, director, officer,
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or employee of the Person or any Affiliate of Person, Borrower, and
(f) all other assets which are properly classified as intangible
assets.
"Termination Date" means 11:00 A.M. Dallas, Texas time on November 8,
2007, or such earlier date on which the Commitment terminates as
provided in this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas and/or any other jurisdiction, the laws of which may be
applicable to or in connection with the creation, perfection or
priority of any Lien on any Property created pursuant to any Loan
Document.
"Wells Fargo Debt" means the letters of credit issued by Wells Fargo
Bank, N.A. for the benefit of Borrower in the aggregate face amount of
$1,453,122.00.
SECTION 1.2 ACCOUNTING MATTERS. Any accounting term used in this
Agreement or the other Loan Documents shall have, unless otherwise
specifically provided therein, the meaning customarily given such term
in accordance with GAAP, and all financial computations thereunder
shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial
covenants and calculations in the Loan Documents shall be made in
accordance with GAAP as in effect on the date of this Agreement unless
Borrower and Lender shall otherwise specifically agree in writing.
That certain items or computations are explicitly modified by the
phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing.
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. All definitions contained
in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof", "herein", and
"hereunder" and words of similar import referring to this Agreement
refer to this Agreement as a whole and not to any particular provision
of this Agreement. Unless otherwise specified, all Article and Section
references pertain to this Agreement. Terms used herein that are
defined in the UCC, unless otherwise defined herein, shall have the
meanings specified in the UCC.
ARTICLE II
ADVANCES AND LETTERS OF CREDIT
SECTION 2.1 ADVANCES.
(a) Revolving Credit Advances. Subject to the terms and conditions of
this Agreement, Lender agrees to make one or more Revolving Credit
Advances to Borrower from time to time from the date hereof to and
including the Termination Date in an aggregate principal amount at any
time outstanding up to but not exceeding the amount of the Commitment,
provided that the aggregate amount of all Revolving Credit Advances at
any time outstanding shall not exceed the lesser of (i) the amount of
the Commitment minus all outstanding Letter of Credit Liabilities or
(ii) the Borrowing Base minus all outstanding Letter of Credit
Liabilities. Subject to the foregoing limitations, and the other terms
and provisions of this Agreement, Borrower may borrow, repay, and
reborrow hereunder.
(b) The Revolving Credit Note. The obligation of Borrower to repay the
Revolving Credit Advances and interest thereon shall be evidenced by
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the Revolving Credit Note executed by Borrower, payable to the order of
Lender, in the principal amount of the Commitment as originally in
effect, and dated the date hereof.
(c) Repayment of Revolving Credit Advances. Borrower shall repay the
unpaid principal amount of all Advances on the Termination Date, unless
sooner due by reason of acceleration by Lender as provided in this
Agreement.
(d) Interest. The unpaid principal amount of the Revolving Credit Note
shall, subject to the following sentence, bear interest as provided in
the Revolving Credit Note. If at any time the rate of interest
specified in the Revolving Credit Note would exceed the Maximum Lawful
Rate but for the provisions thereof limiting interest to the Maximum
Lawful Rate, then any subsequent reduction shall not reduce the rate of
interest on the Revolving Credit Advances below the Maximum Lawful Rate
until the aggregate amount of interest accrued on the Revolving Credit
Advances equals the aggregate amount of interest which would have
accrued on the Revolving Credit Advances if the interest rate had not
been limited by the Maximum Lawful Rate. Accrued and unpaid interest
on the Revolving Credit Advances shall be payable as provided in the
Revolving Credit Note and on the Termination Date.
(e) Borrowing Procedure. Borrower shall give Lender notice of each
Revolving Credit Advance by means of an Advance Request Form containing
the information required therein and delivered (by hand or by
mechanically confirmed facsimile) to Lender no later than 1:00 p.m.
(Texas time) on the day on which the Revolving Credit Advance is
desired to be funded. Advances shall be in a minimum amount of
$10,000. Lender at its option may accept telephonic requests for such
Advances, provided that such acceptance shall not constitute a waiver
of Lender's right to require delivery of an Advance Request Form in
connection with subsequent Advances. Any telephonic request for a
Revolving Credit Advance by Borrower shall be promptly confirmed by
submission of a properly completed Advance Request Form to Lender, but
failure to deliver an Advance Request Form shall not be a defense to
payment of the Advance. Lender shall have no liability to Borrower for
any loss or damage suffered by Borrower as a result of Lender's
honoring of any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it
telephonically, by facsimile or electronically and purporting to have
been sent to Lender by Borrower and Lender shall have no duty to verify
the origin of any such communication or the identity or authority of
the Person sending it. Subject to the terms and conditions of this
Agreement, each Revolving Credit Advance shall be made available to
Borrower by depositing the same, in immediately available funds, in an
account of Borrower designated by Borrower maintained with Lender at
the Principal Office.
(f) Intentionally Deleted.
SECTION 2.2 GENERAL PROVISIONS REGARDING INTEREST; ETC.
(a) Any outstanding principal of any Advance and (to the fullest extent
permitted by law) any other amount payable by Borrower under this
Agreement or any other Loan Document that is not paid in full when due
(whether at stated maturity, by acceleration, or otherwise) shall bear
interest at the Default Interest Rate for the period from and including
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the due date thereof to but excluding the date the same is paid in
full. Additionally, upon the occurrence of an Event of Default (and
from the date of such occurrence) all outstanding and unpaid principal
amounts of all of the Obligations shall, to the extent permitted by
law, bear interest at the Default Interest Rate until such time as
Lender shall waive in writing the application of the Default Interest
Rate to such Event of Default situation. Interest payable at the
Default Interest Rate shall be payable from time to time on demand.
(b) Computation of Interest. Interest on the Advances and all other
amounts payable by Borrower hereunder shall be computed on the basis of
a year of 360 days and the actual number of days elapsed (including the
first day but excluding the last day) unless such calculation would
result in a usurious rate, in which case interest shall be calculated
on the basis of a year of 365 or 366 days, as the case may be.
SECTION 2.3 ADMINISTRATION FEE. In the event Lender takes physical
possession of the Eligible Mortgage Paper, Borrower shall pay Lender an
administration fee in the amount of $2,000 each month, due and payable
on the first of each month.
SECTION 2.4 USE OF PROCEEDS. The proceeds of the Revolving Credit
Advances shall be used by Borrower for working capital purposes and to
make Loans, or to refinance Loans previously made by Borrower, to the
Second Tier Lenders for the purpose of making Second Tier Loans,
provided the Eligible Mortgage Paper evidencing and securing each
Second Tier Loans is collaterally assigned and pledged to Borrower and,
subsequently, to Lender, in form and substance satisfactory to Lender.
Section 2.5 Letters of Credit. Subject to the terms and conditions of
this Agreement, Lender agrees to issue one or more Letters of Credit
for the account of Borrower from time to time from the date hereof to
and including the Termination Date; provided, however, that the
outstanding Letter of Credit Liabilities shall not at any time exceed
the lesser of (a) Two Million Five Hundred Thousand and No/100
($2,500,000), (b) an amount equal to the amount of the Commitment minus
the outstanding Advances, or (c) the Borrowing Base minus the
outstanding Revolving Credit Advances. Each Letter of Credit shall not
have an expiration date beyond the Termination Date, shall be payable
in Dollars, shall have a minimum face amount of $50,000, must support a
transaction that is entered into in the ordinary course of Borrower's
business, must be satisfactory in form and substance to Lender, will be
subject to the payment of such Letter of Credit fees as Lender may
require, including, without limitation, an issuance fee of 1% per annum
of the face amount of each Letter of Credit, and shall be issued
pursuant to such documents and instruments executed by Borrower
(including, without limitation, a Letter of Credit Application as then
in effect) as Lender may require.
Each payment by Lender pursuant to a drawing under a Letter of Credit
is due and payable ON DEMAND, and at the sole option of Lender, can be
charged by Lender as (and will be deemed to be) a Revolving Credit
Advance by Lender to Borrower under the Note and this Agreement as of
the day and time such payment is made by Lender and in the amount of
such payment.
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ARTICLE III
PAYMENTS
SECTION 3.1 METHOD OF PAYMENT. All payments of principal, interest,
and other amounts to be made by Borrower under this Agreement and the
other Loan Documents shall be made to Lender at the Principal Office in
Dollars and immediately available funds, without setoff, deduction, or
counterclaim, and free and clear of all taxes at the time and in the
manner provided in the Notes.
SECTION 3.2 PREPAYMENTS.
(a) Voluntary Prepayments. Borrower may prepay all or any portion of
the Revolving Credit Note to the extent and in the manner provided for
therein.
(b) Mandatory Prepayment. Borrower must pay on DEMAND the amount by
which at any time the unpaid principal balance of the Revolving Credit
Note, plus the aggregate Letter of Credit Liabilities, exceed the
Borrowing Base.
SECTION 3.3 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a
result of any Regulatory Change there shall be imposed, modified, or
deemed applicable any tax, reserve, special deposit, or similar
requirement against or with respect to or measured by reference to
Letters of Credit issued or to be issued hereunder or Lender's
commitment to issue Letters of Credit hereunder, and the result shall
be to increase the cost to Lender of issuing or maintaining any Letter
of Credit or its commitment to issue Letters of Credit hereunder or
reduce any amount receivable by Lender hereunder in respect of any
Letter of Credit (which increase in cost, or reduction in amount
receivable, shall be the result of Lender's reasonable allocation of
the aggregate of such increases or reductions resulting from such
event), then, upon demand by Lender, Borrower agrees to pay Lender,
from time to time as specified by Lender, such additional amounts as
shall be sufficient to compensate Lender for such increased costs or
reductions in amount. A statement as to such increased costs or
reductions in amount incurred by Lender, submitted by Lender to
Borrower, shall be conclusive as to the amount thereof, provided that
the determination thereof is made on a reasonable basis.
ARTICLE IV
SECURITY
SECTION 4.1 COLLATERAL. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or
cause to be executed and delivered all of the Security Documents
required by Lender covering the Property and collateral described in
such Security Documents, including, without limitation, delivery of all
Possession Mortgage Paper of Borrower to the Collateral Agent (which,
together with any other Property and collateral described in the
Security Agreement, and any other property which may now or hereafter
secure the Obligations or any part thereof, is sometimes herein called
the "Collateral"). Borrower shall execute and cause to be executed
such further documents and instruments, including without limitation,
UCC financing statements, as Lender, in its sole discretion, deems
necessary or desirable to create, evidence, preserve, and perfect its
liens and security interests in the Collateral.
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SECTION 4.2 SETOFF. If an Event of Default shall have occurred and be
continuing, Lender shall have the right to set off and apply against
the Obligations in such manner as Lender may determine, at any time and
without notice to Borrower, any and all deposits (general or special,
time or demand, provisional or final) or other sums at any time
credited by or owing from Lender to Borrower whether or not the
Obligations are then due. As further security for the Obligations,
Borrower hereby grants to Lender a security interest in all money,
instruments, and other property of Borrower now or hereafter held by
Lender, including, without limitation, property held in safekeeping.
In addition to Lender's right of setoff and as further security for the
Obligations, Borrower hereby grants to Lender a security interest in
all deposits (general or special, time or demand, provisional or final)
and other accounts of Borrower now or hereafter on deposit with or held
by Lender and all other sums at any time credited by or owing from
Lender to Borrower. The rights and remedies of Lender hereunder are in
addition to other rights and remedies (including, without limitation,
other rights of setoff) which Lender may have. Notwithstanding the
foregoing, Lender shall not be entitled to set off and apply against
the Obligations any deposits maintained in any accounts with Lender
that are titled "escrow" account in which Borrower has deposited funds
that are being held for the benefit of a third party.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 INITIAL EXTENSION OF CREDIT. The obligation of Lender to
make the initial Advance under any Note or issue the initial Letter of
Credit is subject to the condition precedent that Lender shall have
received on or before the day of such Advance or Letter of Credit all
of the following, each dated (unless otherwise indicated) the date
hereof, in form and substance satisfactory to Lender:
(a) Resolutions. Resolutions of the Board of Directors (or other
governing body) of Borrower certified by the Secretary or an Assistant
Secretary (or other custodian of records) of Borrower which authorize
the execution, delivery, and performance by Borrower of this Agreement
and the other Loan Documents to which Borrower is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
an authorized officer or representative certifying the names of the
individuals or other Persons authorized to sign this Agreement and each
of the other Loan Documents to which Borrower is or is to be a party
(including the certificates contemplated herein) on behalf of Borrower
together with specimen signatures of such Persons;
(c) Constituent Documents. The Constituent Documents for Borrower as
of a date acceptable to Lender;
(d) Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation or organization of
Borrower as to the existence and good standing of Borrower, each dated
within ten (10) days prior to the date of the initial Advance or Letter
of Credit;
(e) Notes. The Notes executed by Borrower;
(f) Security Documents. The Security Documents executed by Borrower
and other Obligated Parties;
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(g) Financing Statements. UCC financing statements executed by
Borrower and covering such Collateral as Lender may request;
(h) Guaranty. The Guaranty executed by the Guarantor;
(i) Insurance Matters. Copies of insurance certificates describing all
insurance policies required by Section 7.5, together with loss payable
and lender endorsements in favor of Lender with respect to all
insurance policies covering Collateral;
(j) UCC Search. The results of a UCC search showing all financing
statements and other documents or instruments on file against Borrower
in the office of the Secretary of State of Maryland, such search to be
as of a date no more than ten (10) days prior to the date of the
initial Advance or the Letter of Credit;
(k) Opinion of Counsel. A favorable opinion of Andrews Kurth LLP,
legal counsel to Borrower and the Guarantor, as to such other matters
as Lender may reasonably request;
(l) Bailment Agreement. Lender shall have received a Bailment
Agreement, in form and substance satisfactory to Lender, executed by
Collateral Agent.
(m) Origination Fee. The Origination Fee shall have been paid in full
to Lender; and
(n) Attorneys' Fees and Expenses. Evidence that the costs and expenses
(including reasonable attorneys' fees) referred to in Section 11.1, to
the extent incurred, shall have been paid in full by Borrower.
(o) Additional Items. The additional items set forth on Schedule
5.1(n).
SECTION 5.2 ALL EXTENSIONS OF CREDIT. The obligation of Lender to make
any Advance or issue any Letter of Credit (including the initial
Advance and the initial Letter of Credit) is subject to the following
additional conditions precedent:
(a) Request for Advance or Letter of Credit. Lender shall have
received in accordance with this Agreement, as the case may be, an
Advance Request Form or Letter of Credit Request Form pursuant to
Lender's requirements dated the date of such Advance or Letter of
Credit and executed by an authorized officer of Borrower;
(b) Form of Eligible Mortgage Paper. Lender has approved the
form/content of any and all Eligible Mortgage Paper to be pledged to
Lender;
(c) Assignment of Eligible Mortgage Paper. All Eligible Mortgage Paper
of Borrower has been assigned to Lender as follows:
(i) All Eligible Mortgage Paper evidencing and securing a Second
Tier Loan has been collaterally assigned to Borrower and,
subsequently, to Lender, in form and substance satisfactory to
Lender, including, without limitation, the execution by Borrower of
a Mortgage Assignment;
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(ii) all Mortgage Notes relating to Eligible Mortgage Loans have
been properly endorsed by Borrower to Lender with full recourse
against Borrower with such endorsement being evidenced by an
Allonge affixed to each Mortgage Note, and executed by Borrower in
form/content acceptable to Lender;
(iii) the Possession Mortgage Paper has been delivered to
Collateral Agent; and
(d) No Default, Etc. No Default or material adverse change or effect
shall have occurred and be continuing, or would result from or after
giving effect to such Advance or Letter of Credit;
(e) Representations and Warranties. All of the representations and
warranties contained in Article VI hereof and in the other Loan
Documents shall be true and correct on and as of the date of such
Advance with the same force and effect as if such representations and
warranties had been made on and as of such date; and
(f) Additional Documentation. Lender shall have received such
additional approvals, opinions, or documents as Lender or its legal
counsel may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, and except as set forth
on the Disclosure Schedule, Borrower represents and warrants to Lender
that:
SECTION 6.1 CORPORATE EXISTENCE. Borrower and each of its Subsidiaries
(a) is an organization duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation or
organization; (b) has all requisite power and authority to own its
assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business in all jurisdictions in
which the nature of its business makes such qualification necessary and
where failure to so qualify would have a material adverse effect on its
business, condition (financial or otherwise), operations, prospects, or
properties. Borrower has the power and authority to execute, deliver,
and perform its obligations under this Agreement and the other Loan
Documents to which it is or may become a party.
SECTION 6.2 FINANCIAL STATEMENTS; ETC. Borrower has delivered to
Lender audited consolidated financial statements of Borrower and its
Subsidiaries as at and for the fiscal year ended 2003 and unaudited
consolidated financial statements of Borrower and its Subsidiaries for
the six (6) month period ended June 30, 2004. Such financial
statements are true and correct, have been prepared in accordance with
GAAP, and fairly and accurately present, on a consolidated basis, the
financial condition of Borrower and its Subsidiaries as of the
respective dates indicated therein and the results of operations for
the respective periods indicated therein. Neither Borrower nor any of
its Subsidiaries has any material contingent liabilities, liabilities
for taxes, unusual forward or long-term commitments, or unrealized or
anticipated losses from any unfavorable commitments except as referred
to or reflected in such financial statements. There has been no
material adverse change in the business, condition (financial or
otherwise), operations, prospects, or properties of Borrower or any of
its Subsidiaries since the effective date of the most recent financial
statements referred to in this Section. All projections delivered by
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Borrower to Lender have been prepared in good faith, with care and
diligence and use assumptions that are reasonable under the
circumstances at the time such projections were prepared and delivered
to Lender and all such assumptions are disclosed in the projections.
SECTION 6.3 ACTION; NO BREACH. The execution, delivery, and
performance by Borrower of this Agreement and the other Loan Documents
to which Borrower is or may become a party and compliance with the
terms and provisions hereof and thereof have been duly authorized by
all requisite action on the part of Borrower and do not and will not
(a) violate or conflict with, or result in a breach of, or require any
consent under (i) Constituent Documents of Borrower or any of its
Subsidiaries, (ii) any applicable law, rule, or regulation or any
order, writ, injunction, or decree of any Governmental Authority or
arbitrator, or (iii) any agreement or instrument to which Borrower or
any of its Subsidiaries is a party or by which any of them or any of
their Properties is bound or subject, or (b) constitute a default under
any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of Borrower
or any Subsidiary.
SECTION 6.4 OPERATION OF BUSINESS. Borrower and each of its
Subsidiaries possess all licenses, permits, franchises, patents,
copyrights, trademarks, and tradenames, or rights thereto, necessary to
conduct their respective businesses substantially as now conducted and
as presently proposed to be conducted, and Borrower and each of its
Subsidiaries are not in violation of any valid rights of others with
respect to any of the foregoing.
SECTION 6.5 LITIGATION AND JUDGMENTS. There is no action, suit,
investigation, or proceeding before or by any Governmental Authority or
arbitrator pending, or to the knowledge of Borrower, threatened against
or affecting Borrower or any of its Subsidiaries, that would, if
adversely determined, have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or
properties of Borrower or any of its Subsidiaries or the ability of
Borrower to pay and perform the Obligations. There are no outstanding
judgments against Borrower or any Subsidiary of Borrower.
SECTION 6.6 RIGHTS IN PROPERTIES; LIENS. Borrower and each of its
Subsidiaries have good and indefeasible title to or valid leasehold
interests in their respective Properties, including the Properties
reflected in the financial statements described in Section 6.2 and the
Mortgage Collateral, and none of the Properties or Mortgage Collateral
of Borrower or any Subsidiary is subject to any Lien, except as set
forth on Schedule 6.6 hereto.
SECTION 6.7 ENFORCEABILITY. This Agreement constitutes, and the other
Loan Documents to which Borrower is party, when delivered, shall
constitute legal, valid, and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms,
except as limited by bankruptcy, insolvency, or other laws of general
application relating to the enforcement of creditors' rights.
SECTION 6.8 APPROVALS. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third
party is or will be necessary for the execution, delivery, or
performance by Borrower of this Agreement and the other Loan Documents
to which Borrower is or may become a party or the validity or
enforceability thereof.
SECTION 6.9 DEBT. Borrower and its Subsidiaries have no Debt, except
existing Debt as disclosed in Schedule 6.9 hereto.
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SECTION 6.10 TAXES. Borrower and each Subsidiary have filed all tax
returns (federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales tax returns, and
have paid all of their respective liabilities for taxes, assessments,
governmental charges, and other levies that are due and payable.
Borrower knows of no pending investigation of Borrower or any
Subsidiary by any taxing authority or of any pending but unassessed tax
liability of Borrower or any Subsidiary.
SECTION 6.11 USE OF PROCEEDS; MARGIN SECURITIES. Neither Borrower nor
any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations
G, T, U, or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock.
SECTION 6.12 ERISA. Borrower and each Subsidiary are in compliance in
all material respects with all applicable provisions of ERISA. Neither
a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any Plan. No notice of intent to terminate
a Plan has been filed, nor has any Plan been terminated. No
circumstances exist which constitute grounds entitling the PBGC to
institute proceedings to terminate, or appoint a trustee to administer,
a Plan, nor has the PBGC instituted any such proceedings. Neither
Borrower nor any ERISA Affiliate has completely or partially withdrawn
from a Multiemployer Plan. Borrower and each ERISA Affiliate have met
their minimum funding requirements under ERISA with respect to all of
their Plans, and the present value of all vested benefits under each
Plan do not exceed the fair market value of all Plan assets allocable
to such benefits, as determined on the most recent valuation date of
the Plan and in accordance with ERISA. Neither Borrower nor any ERISA
Affiliate has incurred any liability to the PBGC under ERISA.
SECTION 6.13 DISCLOSURE. No statement, information, report,
representation, or warranty made by Borrower in this Agreement or in
any other Loan Document or furnished to Lender in connection with this
Agreement or any of the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading.
There is no fact known to Borrower which has a material adverse effect,
or which might in the future have a material adverse effect, on the
business, condition (financial or otherwise), operations, prospects, or
properties of Borrower or any Subsidiary that has not been disclosed in
writing to Lender.
SECTION 6.14 SUBSIDIARIES, VENTURES, ETC.. Borrower has no
Subsidiaries, Affiliates or joint ventures or partnerships other than
those listed in Schedule 6.14 hereto and such Schedule sets forth the
jurisdiction of incorporation or organization of each such Person and
the percentage of Borrower's ownership interest in such Person. All of
the outstanding capital stock or other ownership interest of Person
described in Schedule 6.14 hereto has been validly issued, is fully
paid, and is nonassessable.
SECTION 6.15 AGREEMENTS. Neither Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or
other agreement or instrument, or subject to any charter or corporate
or other organizational restriction which could have a material adverse
effect on the business, condition (financial or otherwise), operations,
prospects, or properties of Borrower or any Subsidiary, or the ability
of Borrower to pay and perform its obligations under the Loan Documents
to which it is a party. Neither Borrower nor any Subsidiary is in
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default in any respect in the performance, observance, or fulfillment
of any of the obligations, covenants, or conditions contained in any
agreement or instrument material to its business to which it is a
party.
SECTION 6.16 COMPLIANCE WITH LAWS. Neither Borrower nor any Subsidiary
is in violation in any material respect of any law, rule, regulation,
order, or decree of any Governmental Authority or arbitrator.
SECTION 6.17 INVENTORY. All inventory of Borrower has been and will
hereafter be produced in compliance with all applicable laws, rules,
regulations, and governmental standards, including, without limitation,
the minimum wage and overtime provisions of the Fair Labor Standards
Act, as amended (29 U.S.C. '' 201-219), and the regulations promulgated
thereunder.
SECTION 6.18 INVESTMENT COMPANY ACT. Neither Borrower nor any
Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 6.19 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
SECTION 6.20 ENVIRONMENTAL MATTERS.
(a) To the best of Borrower's knowledge, Borrower, each Subsidiary, and
all of their respective properties, assets, and operations are in full
compliance with all Environmental Laws. Borrower is not aware of, nor
has Borrower received notice of, any past, present, or future
conditions, events, activities, practices, or incidents which may
interfere with or prevent the compliance or continued compliance of
Borrower and the Subsidiaries with all Environmental Laws;
(b) Borrower and each Subsidiary have obtained all permits, licenses,
and authorizations that are required under applicable Environmental
Laws, and all such permits are in good standing and Borrower and its
Subsidiaries are in compliance with all of the terms and conditions of
such permits;
(c) To the best of Borrower's knowledge, no Hazardous Materials exist
on, about, or within or have been used, generated, stored, transported,
disposed of on, or Released from any of the properties or assets of
Borrower or any Subsidiary. The use which Borrower and the
Subsidiaries make and intend to make of their respective properties and
assets will not result in the use, generation, storage, transportation,
accumulation, disposal, or Release of any Hazardous Material on, in, or
from any of their properties or assets;
(d) Neither Borrower nor any of its Subsidiaries nor any of their
respective currently or previously owned or leased properties or
operations is subject to any outstanding or threatened order from or
agreement with any Governmental Authority or other Person or subject to
any judicial or docketed administrative proceeding with respect to (i)
failure to comply with Environmental Laws, (ii) Remedial Action, or
(iii) any Environmental Liabilities arising from a Release or
threatened Release;
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(e) To the best of Borrower's knowledge, there are no conditions or
circumstances associated with the currently or previously owned or
leased properties or operations of Borrower or any of its Subsidiaries
that could reasonably be expected to give rise to any Environmental
Liabilities;
(f) Neither Borrower nor any of its Subsidiaries owns a treatment,
storage, or disposal facility requiring a permit under the Resource
Conservation and Recovery Act, 42 U.S.C. ' 6901 et seq., regulations
thereunder or any comparable provision of state law. Borrower and its
Subsidiaries are in compliance with all applicable financial
responsibility requirements of all Environmental Laws;
(g) Neither Borrower nor any of its Subsidiaries has filed or failed to
file any notice required under applicable Environmental Law reporting a
Release; and
(h) No Lien arising under any Environmental Law has attached to any
property or revenues of Borrower or its Subsidiaries.
SECTION 6.21 INTELLECTUAL PROPERTY. All material Intellectual Property
owned or used by Borrower or any Subsidiary is listed, together with
application or registration numbers, where applicable, in Schedule
6.21. Each Person identified in Schedule 6.21 owns, or is licensed to
use, all Intellectual Property necessary to conduct its business as
currently conducted except for such Intellectual Property the failure
of which to own or license could not reasonably be expected to have a
Material Adverse Effect. Each Person identified in Schedule 6.21 will
maintain the patenting and registration of all Intellectual Property
with the United States Patent and Trademark Office, the United States
Copyright Office, or other appropriate Governmental Authority and each
Person identified in Schedule 6.21 will promptly patent or register,
as the case may be, all new Intellectual Property and notify Lender in
writing five (5) Business Days prior to filing any such new patent or
registration.
SECTION 6.22 DEPOSITORY RELATIONSHIP. To induce Lender to establish
the interest rates provided for in the Notes, Borrower will use Lender
as its principal depository bank and Borrower covenants and agrees to
maintain Lender as its principal depository bank, including for the
maintenance of business, cash management, operating and administrative
deposit accounts.
SECTION 6.23 SOLVENCY. Neither Borrower nor any Subsidiary (a) is
insolvent on the date of this Agreement nor will become insolvent as a
result of entering into this Agreement and the other Loan Documents,
(b) is engaged in a business or transaction nor is about to engage in a
business or transaction, for which any Property remaining with Borrower
or any Subsidiary constitutes an unreasonably small amount of capital,
and (c) intends to incur Debt that will be beyond the ability of
Borrower or any Subsidiary to pay as such Debt matures.
SECTION 6.24 INVESTMENTS AND GUARANTIES. Neither Borrower nor any
Subsidiary has made investments in, advances to, or guaranties of the
Debt of, any Person, except as disclosed in the financial statements
previously delivered to Lender.
SECTION 6.25 INDIVIDUAL MORTGAGE LOANS. Borrower hereby represents
with respect to each Mortgage Note and Mortgage Loan that is part of
the Collateral:
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(a) Borrower has good and marketable title to each Mortgage Note and
Mortgage, was the sole owner thereof and had full right to pledge the
Mortgage Loan to Lender free and clear of any other Lien except any
such Lien which has been disclosed to Lender in writing and which is
permitted hereunder;
(b) To the best knowledge of Borrower, other than the permitted thirty
(30) day delinquency period for payments permitted by the definition of
Eligible Mortgage Loan, there is no default, breach, violation or event
of acceleration existing under any Eligible Mortgage Paper and there is
no event which, with the passage of time or with notice and/or the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration and no such default, breach,
violation or event of acceleration has been waived;
(c) To the best of the knowledge of Borrower, the physical condition of
the Property subject to the Mortgage has not deteriorated since the
date of origination of the related secured Mortgage Loan (normal wear
and tear excepted) and there is no proceeding pending for the total or
partial condemnation of any of the related mortgaged property;
(d) Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for
the realization against the related Property subject to the Mortgage of
the benefits of the security provided thereby, including, (i) in the
case of a Mortgage designated as a deed of trust, by trustee's sale,
and (ii) otherwise, by judicial foreclosure;
(e) Each Mortgage Loan is a first lien site-built single-family
residence loan, has been underwritten by the originator, investor or
mortgage insurer thereof in accordance with such originator's,
investor's or mortgage insurer's then current underwriting guidelines;
(f) Each Mortgage Note is payable in monthly installments of interest
and one payment of all outstanding principal at maturity, with interest
payable in arrears, and no Mortgage Note provides for any extension of
the original term in excess of 6 months;
(g) No Mortgage Loan is a loan in respect of the purchase of a
manufactured home or mobile home or the land on which a manufactured
home or mobile home will be placed; no Mortgage securing a Mortgage
Loan secures commercial property;
(h) The origination practices used by the originator of the Mortgage
Loans and the collection practices used by Borrower with respect to
each Mortgage Loan have been in all material respects legal, proper,
prudent and customary in the loan origination and servicing business;
and
(i) To the best knowledge of Borrower, each Mortgage Loan was
originated in compliance with all applicable laws and no fraud or
misrepresentation was committed by any Person in connection therewith.
(j) Each Mortgage Loan matures within one year after the date of
origination thereof.
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ARTICLE VII
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder,
Borrower will perform and observe the following positive covenants,
unless Lender shall otherwise consent in writing:
SECTION 7.1 REPORTING REQUIREMENTS. Borrower will furnish to Lender:
(a) Annual Financial Statements. As soon as available, and in any
event within 120 days after the end of each fiscal year of Borrower,
beginning with the fiscal year ending December 31, 2004, a copy of the
annual audit report of Borrower and the Subsidiaries for such fiscal
year containing, on a consolidated and consolidating balance sheets and
statements of income, retained earnings, and cash flow as at the end of
such fiscal year and for the 12-month period then ended, in each case
setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and audited and certified by Whitley
Penn, or other independent certified public accountants of recognized
standing acceptable to Lender, to the effect that such report has been
prepared in accordance with GAAP and containing no material
qualifications or limitations on scope;
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the end of each of the quarters of each
fiscal year of Borrower, a copy of an unaudited financial report of
Borrower and its Subsidiaries as of the end of such fiscal quarter and
for the portion of the fiscal year then ended, containing, on a
consolidated and consolidating basis, balance sheets and statements of
income, retained earnings, and cash flow, in each case setting forth in
comparative form the figures for the corresponding period of the
preceding fiscal year, all in reasonable detail certified by the chief
financial officer of Borrower to have been prepared in accordance with
GAAP and to fairly and accurately present (subject to year-end audit
adjustments) the financial condition and results of operations of
Borrower and its Subsidiaries, on a consolidated and consolidating
basis, at the date and for the periods indicated therein;
(c) Borrowing Base Report. As soon as available, and in any event
within 30 days after the end of each calendar month, a Borrowing Base
Report, in a form acceptable to Lender, certified by the chief
financial officer of the Borrower;
(d) Guarantor Financial Statement. Borrower shall cause the Guarantor
to provide an annual financial statement, in such form and detail as
Lender shall reasonably require, within one hundred twenty (120) days
after the end of each calendar year and a copy of the Guarantor's filed
tax return, within thirty (30) days of the day it is filed with the
Internal Revenue Service.
(e) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in subsections 7.1(a) and 7.1(b),
a certificate of the chief financial officer of Borrower (i) stating
that to the best of such officer's knowledge, no Default has occurred
and is continuing, or if a Default has occurred and is continuing, a
statement as to the nature thereof and the action which is proposed to
be taken with respect thereto, and (ii) showing in reasonable detail
the calculations demonstrating compliance with Article IX;
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(f) Management Letters. Promptly upon receipt thereof, a copy of any
management letter or written report submitted to Borrower or any
Subsidiary by independent certified public accountants with respect to
the business, condition (financial or otherwise), operations,
prospects, or properties of Borrower or any Subsidiary;
(g) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any Governmental
Authority or arbitrator affecting Borrower or any Subsidiary which, if
determined adversely to Borrower or such Subsidiary, could have a
material adverse effect on the business, condition (financial or
otherwise), operations, prospects, or properties of Borrower or such
Subsidiary;
(h) Notice of Default. As soon as possible and in any event within
five (5) days after the occurrence of each Default, a written notice
setting forth the details of such Default and the action that Borrower
has taken and proposes to take with respect thereto;
(i) ERISA Reports. Promptly after the filing or receipt thereof,
copies of all reports, including annual reports, and notices which
Borrower or any Subsidiary files with or receives from the PBGC or the
U.S. Department of Labor under ERISA; and as soon as possible and in
any event within five (5) days after Borrower or any Subsidiary knows
or has reason to know that any Reportable Event or Prohibited
Transaction has occurred with respect to any Plan or that the PBGC or
Borrower or any Subsidiary has instituted or will institute proceedings
under Title IV of ERISA to terminate any Plan, a certificate of the
chief financial officer of Borrower setting forth the details as to
such Reportable Event or Prohibited Transaction or Plan termination and
the action that Borrower proposes to take with respect thereto;
(j) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other party pursuant
to the terms of any indenture, loan, or credit or similar agreement and
not otherwise required to be furnished to Lender pursuant to any other
clause of this Section;
(k) Notice of Material Adverse Change. As soon as possible and in any
event within five (5) days after the occurrence thereof, written notice
of any matter that could have a material adverse effect on the
business, condition (financial or otherwise), operations, prospects, or
properties of Borrower or any Subsidiary;
(l) Proxy Statements, Etc. As soon as available, one copy of each
financial statement, report, notice or proxy statement sent by Borrower
or any Subsidiary to its stockholders generally and one copy of each
regular, periodic or special report, registration statement, or
prospectus filed by Borrower or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency; and
(m) General Information. Promptly, such other information concerning
Borrower or any Subsidiary as Lender may from time to time request.
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SECTION 7.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Borrower
will preserve and maintain, and will cause each Subsidiary to preserve
and maintain, its existence and all of its leases, privileges,
licenses, permits, franchises, qualifications, and rights that are
necessary or desirable in the ordinary conduct of its business.
Borrower will conduct, and will cause each Subsidiary to conduct, its
business in an orderly and efficient manner in accordance with good
business practices. Without limitation, Borrower will not make (and
will not permit any of its Subsidiaries to make) any material change in
its credit collection policies if such change would materially impair
the collectibility of any Account, nor will it rescind, cancel or
modify any Account except in the ordinary course of business.
SECTION 7.3 MAINTENANCE OF PROPERTIES. Borrower will maintain, keep,
and preserve, and cause each Subsidiary to maintain, keep, and
preserve, all of its Properties (tangible and intangible) necessary or
useful in the proper conduct of its business in good working order and
condition.
SECTION 7.4 TAXES AND CLAIMS. Borrower will pay or discharge, and will
cause each Subsidiary to pay or discharge, at or before maturity or
before becoming delinquent (a) all taxes, levies, assessments, and
governmental charges imposed on it or its income or profits or any of
its property, and (b) all lawful claims for labor, material, and
supplies, which, if unpaid, might become a Lien upon any of its
property; provided, however, that neither Borrower nor any Subsidiary
shall be required to pay or discharge any tax, levy, assessment, or
governmental charge, or claim for labor, material, and supplies which
is being contested in good faith by appropriate proceedings diligently
pursued, and for which adequate reserves have been established.
SECTION 7.5 INSURANCE. Borrower will maintain, and will cause each of
the Subsidiaries to maintain, insurance with financially sound and
reputable insurance companies in such amounts and covering such risks
as is usually carried by corporations engaged in similar businesses and
owning similar properties in the same general areas in which Borrower
and the Subsidiaries operate, provided that in any event Borrower will
maintain and cause each Subsidiary to maintain workmen's compensation
insurance, property insurance, and comprehensive general liability
insurance, reasonably satisfactory to Lender. Each insurance policy
covering Collateral shall name Lender as loss payee and shall provide
that such policy will not be cancelled or reduced without thirty (30)
days prior written notice to Lender.
SECTION 7.6 INSPECTION RIGHTS. At any reasonable time and from time to
time, Borrower will permit, and will cause each Subsidiary to permit,
representatives of Lender to examine the Collateral and conduct
Collateral audits, to examine, copy, and make extracts from its books
and records, to visit and inspect its properties, and to discuss its
business, operations, and financial condition with its officers,
employees, and independent certified public accountants.
SECTION 7.7 ELIGIBLE MORTGAGE PAPER TRACKING. Borrower will promptly
furnish Lender with all information needed/requested by Lender from
time to time to track each item of Eligible Mortgage Paper ("Item"),
including, without, limitation, providing Lender access to all Eligible
Mortgage Paper pledged to Lender. In addition, Borrower will furnish
any certification of Eligible Mortgage Paper currency under oath that
Lender may request from time to time during the term hereof.
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SECTION 7.8 KEEPING BOOKS AND RECORDS. Borrower will maintain, and
will cause each Subsidiary to maintain, proper books of record and
account in which full, true, and correct entries in conformity with
GAAP shall be made of all dealings and transactions in relation to its
business and activities.
SECTION 7.9 COMPLIANCE WITH LAWS. Borrower will comply, and will cause
each Subsidiary to comply, in all material respects with all applicable
laws, rules, regulations, orders, and decrees of any Governmental
Authority or arbitrator.
SECTION 7.10 COMPLIANCE WITH AGREEMENTS. Borrower will comply, and
will cause each Subsidiary to comply, in all material respects with all
agreements, contracts, and instruments binding on it or affecting its
properties or business.
SECTION 7.11 FURTHER ASSURANCES. Borrower will, and will cause each
Subsidiary to, execute and deliver such further agreements and
instruments and take such further action as may be requested by Lender
to carry out the provisions and purposes of this Agreement and the
other Loan Documents and to create, preserve, and perfect the Liens of
Lender in the Collateral.
SECTION 7.12 ERISA. Borrower will comply, and will cause each
Subsidiary to comply, with all minimum funding requirements, and all
other material requirements, of ERISA, if applicable, so as not to give
rise to any liability thereunder.
SECTION 7.13 TITLE INSURANCE. Borrower shall maintain in its
possession for the benefit of Lender the original mortgage title
insurance policies together with such endorsements as Lender may deem
necessary for each Eligible Mortgage Paper, which evidence that the
Eligible Mortgage Paper is an insured first lien.
SECTION 7.14 INSURANCE. Borrower shall maintain in its possession for
the benefit of Lender all insurance policies and certificates of
insurance necessary to evidence that each of the real properties
described in the Mortgages has been insured against loss by fire and
other casualty in the full amount of the Mortgage Loan secured by such
Mortgages and Lender is shown as a loss payee in such policies, as its
interests may appear.
SECTION 7.15 APPRAISALS. Borrower shall maintain in its possession for
the benefit of Lender all appraisals relating to the properties
described in the Eligible Mortgage Paper, and, if Lender rejects any
such appraisals for any reason, in its sole discretion, Borrower shall
obtain a current appraisal of any such property, which is deemed
satisfactory by Lender.
SECTION 7.16 ENVIRONMENTAL. Borrower shall maintain in its possession
for the benefit of Lender any and all documents Borrower has received
that evidence the environmental safety and soundness of the real
property relating to an Eligible Mortgage Loan.
SECTION 7.17 WELLS FARGO DEBT. Borrower shall cause the Wells Fargo
Debt to be paid in full, and all Liens securing the same to be
released, on or before December 10, 2004.
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ARTICLE VIII
NEGATIVE COVENANTS
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder,
Borrower will perform and observe the following negative covenants,
unless Lender shall otherwise consent in writing:
SECTION 8.1 DEBT. Borrower will not incur, create, assume, or permit
to exist, and will not permit any Subsidiary to incur, create, assume,
or permit to exist, any Debt, except:
(a) Debt to Lender;
(b) Debt existing on the date of this Agreement which is reflected in
Schedule 6.9 hereto, but not any renewals, extensions, amendments,
modifications and/or rearrangements thereof;
(c) Subordinated Debt;
(d) Purchase money and other Debt; provided that (i) any Liens securing
such purchase money Debt shall attach only to the property or assets
acquired by the incurrence of such purchase money Debt, (ii) the
aggregate amount of such purchase money and other Debt outstanding does
not exceed $1,000,000 at any time; and (iii) such other Debt (i.e. non-
purchase money Debt) shall be unsecured.
SECTION 8.2 LIMITATION ON LIENS. Borrower will not incur, create,
assume, or permit to exist, and will not permit any Subsidiary to
incur, create, assume, or permit to exist, any Lien upon any of its
property, assets, or revenues, whether now owned or hereafter acquired,
except:
(a) Liens disclosed on Schedule 6.6 hereto;
(b) Liens in favor of Lender;
(c) Encumbrances consisting of minor easements, zoning restrictions, or
other restrictions on the use of real property that do not
(individually or in the aggregate) materially affect the value of the
assets encumbered thereby or materially impair the ability of Borrower
or the Subsidiaries to use such assets in their respective businesses,
and none of which is violated in any material respect by existing or
proposed structures or land use;
(d) Liens for taxes, assessments, or other governmental charges which
are not delinquent or which are being contested in good faith and for
which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers, or other
similar statutory Liens securing obligations that are not yet due and
are incurred in the ordinary course of business;
(f) Liens resulting from good faith deposits to secure payments of
workmen's compensation or other social security programs or to
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secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, or contracts (other than for payment of Debt), or
leases made in the ordinary course of business; and
(g) Purchase money Liens on specific property to secure Debt used to
acquire such property to the extent permitted in Section 8.1;
(h) Liens securing Subordinated Debt, provided such Liens are
subordinated to the Liens securing the Obligations in form and
substance satisfactory to Lender.
SECTION 8.3 MERGERS, ETC. Without Lender's consent, Borrower will not,
and will not permit any Subsidiary to, become a party to a merger or
consolidation, or purchase or otherwise acquire all or any part of the
assets of any Person or any shares or other evidence of beneficial
ownership of any Person, or wind-up, dissolve, or liquidate.
Notwithstanding the foregoing, Lender acknowledges Borrower's intention
to merge (the "Merger") with and into UMTH Holdings, LP ("Holdings").
Lender's consent to the Merger, which shall not be unreasonably
withheld, shall be subject to (a) no Event of Default shall have
occurred or be continuing or shall result from the Merger, (b) Lender's
review and approval of all documents, instruments and agreements
relating to the Merger, (c) Holdings' assumption of all Obligations of
Borrower to Lender concurrently with the Merger pursuant to such
documentation Lender may require, including, without limitation, the
amendment and restatement of this Agreement and the other Loan
Documents, (d) Lender shall be satisfied that Holdings shall comply
with the financial covenants for Borrower set forth in Article IX
hereof as of the end of the first fiscal quarter following the Merger,
and (e) Lender's satisfaction that none of the Liens securing the
Collateral shall be harmed as a result of such Merger.
SECTION 8.4 LOANS AND INVESTMENTS. Borrower will not make, and will
not permit any Subsidiary to make, any advance, loan, extension of
credit, or capital contribution to or investment in, or purchase, or
permit any Subsidiary to purchase, any stock, bonds, notes, debentures,
or other securities of, any Person, except:
(a) Loans to the Second Tier Lenders for the purpose of making Second
Tier Loans, provided the Eligible Mortgage Paper evidencing and
securing each Second Tier Loans has been collaterally assigned to
Borrower and, subsequently, to Lender, in form and substance
satisfactory to Lender;
(b) Loans to partnerships and joint ventures of Borrower, provided,
that, the aggregate amount of such Loans do not exceed five percent
(5%) of the Borrower's Tangible Net Worth at any time;
(c) readily marketable direct obligations of the United States of
America or any agency thereof with maturities of one year or less from
the date of acquisition;
(d) fully insured certificates of deposit with maturities of one year
or less from the date of acquisition issued by any commercial bank
operating in the United States of America having capital and surplus in
excess of $50,000,000.00; and
(e) commercial paper of a domestic issuer if at the time of purchase
such paper is rated in one of the two highest rating categories of
Standard and Poor's Corporation or Moody's Investors Service.
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SECTION 8.5 TRANSACTIONS WITH AFFILIATES. Borrower will not enter
into, and will not permit any Subsidiary to enter into, any
transaction, including, without limitation, the purchase, sale, or
exchange of property or the rendering of any service, with any
Affiliate of Borrower, or such Subsidiary, except in the ordinary
course of and pursuant to the reasonable requirements of Borrower's or
such Subsidiary's business and upon fair and reasonable terms no less
favorable to Borrower or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of
Borrower or such Subsidiary.
SECTION 8.6 RESTRICTED PAYMENTS. Upon the occurrence and during the
continuance of an Event of Default, Borrower will not declare or pay
any dividends or make any other payment or distribution (in cash,
property, or obligations) on account of its equity interests, or
redeem, purchase, retire, or otherwise acquire any of its equity
interests, or permit any of its Subsidiaries to purchase or otherwise
acquire any equity interest of Borrower or another Subsidiary, or set
apart any money for a sinking or other analogous fund for any dividend
or other distribution on its equity interests or for any redemption,
purchase, retirement, or other acquisition of any of its equity
interests. Prior to the occurrence of an Event of Default, Borrower
shall not redeem, purchase, retire, or otherwise acquire any of its
equity interests for a price in excess of $5,000,000 in the aggregate
during the term of this Agreement.
SECTION 8.7 LIMITATION ON ISSUANCE OF EQUITY. Borrower will not, and
will not permit any of its Subsidiaries to, at any time issue, sell,
assign, or otherwise dispose of (a) any of its equity interests, (b)
any securities exchangeable for or convertible into or carrying any
rights to acquire any of its equity interests, or (c) any option,
warrant, or other right to acquire any of its equity interests;
provided, however, existing equity interest holders of Borrower may
reinvest any dividends they receive from Borrower in additional equity
interests of Borrower, and Borrower may issue such equity interests,
pursuant to a Dividend Reinvestment Program approved by Lender.
SECTION 8.8 DISPOSITION OF ASSETS. Borrower will not sell, lease,
assign, transfer, or otherwise dispose of any of its assets, or permit
any Subsidiary to do so with any of its assets, except (a) dispositions
of inventory in the ordinary course of business or (b) dispositions,
for fair value, of worn-out and obsolete equipment not necessary or
useful to the conduct of business.
SECTION 8.9 SALE AND LEASEBACK. Without the prior consent of Lender,
Borrower will not enter into, and will not permit any Subsidiary to
enter into, any arrangement with any Person pursuant to which it leases
from such Person real or personal property that has been or is to be
sold or transferred, directly or indirectly, by it to such Person.
SECTION 8.10 NATURE OF BUSINESS. Borrower will not, and will not
permit any Subsidiary to, engage in any business other than the
business of real estate finance.
SECTION 8.11 ENVIRONMENTAL PROTECTION. Borrower will not, and will not
permit any of its Subsidiaries to, (a) use (or permit any tenant to
use) any of their respective properties or assets for the handling,
processing, storage, transportation, or disposal of any Hazardous
Material, (b) generate any Hazardous Material, (c) conduct any activity
that is likely to cause a Release or threatened Release of any
Hazardous Material, or (d) otherwise conduct any activity or use any of
their respective properties or assets in any manner that is likely to
violate any Environmental Law or create any Environmental Liabilities
for which Borrower or any of its Subsidiaries would be responsible.
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SECTION 8.12 ACCOUNTING. Borrower will not, and will not permit any of
its Subsidiaries to, change its fiscal year or make any change (a) in
accounting treatment or reporting practices, except as required by GAAP
and disclosed to Lender, or (b) in tax reporting treatment, except as
required by law and disclosed to Lender.
SECTION 8.13 SERVICING RIGHTS. Borrower will not sell or assign its
servicing rights to the Eligible Mortgage Paper.
SECTION 8.14 ACTIONS WITH RESPECT TO MORTGAGE COLLATERAL. Borrower
shall not:
(a) Outside of the ordinary course of business, compromise, extend,
release, or adjust payments on any Mortgage Collateral, accept a
conveyance of mortgaged property in full or partial satisfaction of any
Mortgage Collateral, or release any Mortgage securing or underlying any
Mortgage Collateral;
(b) Outside of the ordinary course of business, transfer, sell, assign,
or deliver any Mortgage Collateral pledged to Lender to any Person
other than Lender.
SECTION 8.15 NO NEGATIVE PLEDGE. Borrower will not, and will not
permit any Subsidiary to, enter into or permit to exist any arrangement
or agreement, other than pursuant to this Agreement or any Loan
Document, which directly or indirectly prohibits Borrower from creating
or incurring a Lien on any of its assets.
SECTION 8.16 PAYMENT ON SUBORDINATED DEBT. Borrower will not make any
payment on the Subordinated Debt of Borrower, except as provided in any
Subordination Agreement executed in connection therewith, provided no
Default or Event of Default has occurred and is continuing.
SECTION 8.17 PROCEEDS OF LOAN. Borrower will not permit the proceeds
of the Loans to be used for any purpose other than those stated in this
Agreement.
ARTICLE IX
FINANCIAL COVENANTS
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder,
Borrower will, at all times, observe and perform the following
financial covenants, unless Lender shall otherwise consent in writing.
SECTION 9.1 TANGIBLE NET WORTH. Borrower will at all times maintain a
minimum Tangible Net Worth of $100,000,000.
SECTION 9.2 LEVERAGE RATIO. Borrower will at all times maintain a
ratio of Consolidated Liabilities minus Subordinated Debt to
consolidated Tangible Net Worth plus Subordinated Debt of not greater
than .30 to 1.0.
SECTION 9.3 NET PROFIT. Borrower shall earn a minimum net profit of
$1,000,000 during each and every fiscal quarter of Borrower during the
term hereof, as determined in accordance with GAAP and after taking
into account of any prior period adjustments or adverse adjustments to
capital booked during the fiscal quarter being measured.
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ARTICLE X
DEFAULT
SECTION 10.1 EVENTS OF DEFAULT. Each of the following shall be deemed
an "Event of Default":
(a) Borrower shall fail to pay the Obligations or any part thereof
shall not be paid when due or declared due.
(b) Borrower shall fail to provide to Lender timely any notice of
Default as required by Section 7.1(i) of this Agreement or Borrower
shall breach any provision of Article VIII or Article IX of this
Agreement.
(c) Any representation or warranty made or deemed made by Borrower or
any Obligated Party (or any of their respective officers) in any Loan
Document or in any certificate, report, notice, or financial statement
furnished at any time in connection with this Agreement shall be false,
misleading, or erroneous in any material respect when made or deemed to
have been made.
(d) Borrower or any Obligated Party shall fail to perform, observe, or
comply with any covenant, agreement, or term contained in this
Agreement or any other Loan Document (other than as covered by Section
10.1(a) and (b) above), and such failure continues for more than 15
days following the date such failure first began.
(e) Borrower, any Subsidiary, or any Obligated Party shall commence a
voluntary proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian, or other
similar official of it or a substantial part of its property or shall
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall generally fail to pay its debts as
they become due or shall take any corporate action to authorize any of
the foregoing.
(f) Borrower, any Subsidiary, or any Obligated Party shall fail to pay
when due any principal of or interest on any Debt (other than the
Obligations), or the maturity of any such Debt shall have been
accelerated, or any such Debt shall have been required to be prepaid
prior to the stated maturity thereof, or any event shall have occurred
that permits (or, with the giving of notice or lapse of time or both,
would permit) any holder or holders of such Debt or any Person acting
on behalf of such holder or holders to accelerate the maturity thereof
or require any such prepayment.
(g) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower,
any Subsidiary, any Obligated Party or any of their respective
shareholders, or Borrower or any Obligated Party shall deny that it has
any further liability or obligation under any of the Loan Documents, or
any lien or security interest created by the Loan Documents shall for
any reason cease to be a valid, first priority perfected security
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interest in and lien upon any of the Collateral purported to be covered
thereby.
(h) Any of the following events shall occur or exist with respect to
Borrower or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event with respect to any Plan;
(iii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan; (iv) any event or
circumstance that might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination
of, or for the appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; or (v) complete or
partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination of
any Multiemployer Plan; and in each case above, such event or
condition, together with all other events or conditions, if any, have
subjected or could in the reasonable opinion of Lender subject Borrower
to any tax, penalty, or other liability to a Plan, a Multiemployer
Plan, the PBGC, or otherwise (or any combination thereof) which in the
aggregate exceed or could reasonably be expected to exceed Two Million
Dollars ($2,000,000).
(i) If the Guarantor or any other Obligated Party is a corporation,
partnership or other entity, such Person shall be the subject of a
bankruptcy or receivership proceeding or shall have dissolved,
liquidated or otherwise ceased doing business.
(j) Borrower, any of its Subsidiaries, or any Obligated Party, or any
of their properties, revenues, or assets, shall become subject to an
order of forfeiture, seizure, or divestiture (whether under RICO or
otherwise) and the same shall not have been discharged within thirty
(30) days from the date of entry thereof.
(k) An involuntary proceeding shall be commenced against Borrower, any
Subsidiary, or any Obligated Party seeking liquidation, reorganization,
or other relief with respect to it or its debts under any bankruptcy,
insolvency, or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian, or other
similar official for it or a substantial part of its property, and such
involuntary proceeding shall remain undismissed and unstayed for a
period of thirty (30) days.
(l) Borrower, any Subsidiary, or any Obligated Party shall fail to
discharge within a period of thirty (30) days after the commencement
thereof any attachment, sequestration, or similar proceeding or
proceedings involving an aggregate amount in excess of Two Million
Dollars ($2,000,000) against any of its assets or properties.
(m) A final judgment or judgments for the payment of money in excess of
Two Million Dollars ($2,000,000) in the aggregate shall be rendered by
a court or courts against Borrower, any of its Subsidiaries, or any
Obligated Party and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within thirty (30) days from the date of entry
thereof and Borrower or the relevant Subsidiary or Obligated Party
shall not, within said period of thirty (30) days, or such longer
period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal.
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SECTION 10.2 REMEDIES UPON DEFAULT. If any Event of Default shall
occur and be continuing, Lender may without notice terminate the
Commitment and declare the Obligations or any part thereof to be
immediately due and payable, and the same shall thereupon become
immediately due and payable, without notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, protest, or other formalities
of any kind, all of which are hereby expressly waived by Borrower;
provided, however, that upon the occurrence of an Event of Default
under Section 10.1(e) or Section 10.1(m), the Commitment shall
automatically terminate, and the Obligations shall become immediately
due and payable without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, protest, or other formalities of any kind,
all of which are hereby expressly waived by Borrower. If any Event of
Default shall occur and be continuing, Lender may exercise all rights
and remedies available to it in law or in equity, under the Loan
Documents, or otherwise.
SECTION 10.3 PERFORMANCE BY LENDER. If Borrower shall fail to perform
any covenant or agreement contained in any of the Loan Documents,
Lender may perform or attempt to perform such covenant or agreement on
behalf of Borrower. In such event, Borrower shall, at the request of
Lender, promptly pay any amount expended by Lender in connection with
such performance or attempted performance to Lender, together with
interest thereon at the Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in
full. Notwithstanding the foregoing, it is expressly agreed that
Lender shall not have any liability or responsibility for the
performance of any obligation of Borrower under this Agreement or any
other Loan Document.
SECTION 10.4 SERVICING RIGHTS. Upon the occurrence of an Event of
Default, Lender will have the ability to take over and control all
servicing rights for the Eligible Mortgage Paper.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 EXPENSES. Borrower hereby agrees to pay on demand: (a)
all costs and expenses of Lender in connection with the preparation,
negotiation, execution, and delivery of this Agreement and the other
Loan Documents and any and all amendments, modifications, renewals,
extensions, and supplements thereof and thereto, including, without
limitation, the reasonable fees and expenses of legal counsel,
advisors, consultants, and auditors for Lender, (b) all costs and
expenses of Lender in connection with any Default and the enforcement
of this Agreement or any other Loan Document, including, without
limitation, the fees and expenses of legal counsel, advisors,
consultants, and auditors for Lender, (c) all transfer, stamp,
documentary, or other similar taxes, assessments, or charges levied by
any Governmental Authority in respect of this Agreement or any of the
other Loan Documents, (d) all costs, expenses, assessments, and other
charges incurred in connection with any filing, registration,
recording, or perfection of any security interest or Lien contemplated
by this Agreement or any other Loan Document, and (e) all other costs
and expenses incurred by Lender in connection with this Agreement or
any other Loan Document, any litigation, dispute, suit, proceeding or
action; the enforcement of its rights and remedies, protection of its
interests in bankruptcy, insolvency or other legal proceedings,
including, without limitation, all costs, expenses, and other charges
(including Lender's internal charges) incurred in connection with
evaluating, observing, collecting, examining, auditing, appraising,
selling, liquidating, or otherwise disposing of the Collateral or other
assets of Borrower.
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SECTION 11.2 INDEMNIFICATION. BORROWER SHALL INDEMNIFY LENDER AND EACH
AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY
AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) TO WHICH
ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM
OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE,
ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF
THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY
BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE,
THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS
MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES
OR ASSETS OF BORROWER OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF
ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND
CHARGES IMPOSED ON LENDER OR ANY OF LENDER'S CORRESPONDENTS IN RESPECT
OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE
FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY
OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO
THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES,
LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR
RESULTING FROM THE SOLE CONTRIBUTORY OR ORDINARY NEGLIGENCE OF SUCH
PERSON.
SECTION 11.3 LIMITATION OF LIABILITY. Neither Lender nor any
Affiliate, officer, director, employee, attorney, or agent of Lender
shall have any liability with respect to, and Borrower hereby waives,
releases, and agrees not to sue any of them upon, any claim for any
special, indirect, incidental, or consequential damages suffered or
incurred by Borrower in connection with, arising out of, or in any way
related to, this Agreement or any of the other Loan Documents, or any
of the transactions contemplated by this Agreement or any of the other
Loan Documents. Borrower hereby waives, releases, and agrees not to
sue Lender or any of Lender's Affiliates, officers, directors,
employees, attorneys, or agents for punitive damages in respect of any
claim in connection with, arising out of, or in any way related to,
this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan
Documents.
SECTION 11.4 NO DUTY. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by Lender shall
have the right to act exclusively in the interest of Lender and shall
have no duty of disclosure, duty of loyalty, duty of care, or other
duty or obligation of any type or nature whatsoever to Borrower or any
of Borrower's shareholders or any other Person.
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SECTION 11.5 LENDER NOT FIDUCIARY. The relationship between Borrower
and Lender is solely that of debtor and creditor, and Lender has no
fiduciary or other special relationship with Borrower, and no term or
condition of any of the Loan Documents shall be construed so as to deem
the relationship between Borrower and Lender to be other than that of
debtor and creditor.
SECTION 11.6 EQUITABLE RELIEF. Borrower recognizes that in the event
Borrower fails to pay, perform, observe, or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to
Lender. Borrower therefore agrees that Lender, if Lender so requests,
shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
SECTION 11.7 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under this Agreement
preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies provided for
in this Agreement and the other Loan Documents are cumulative and not
exclusive of any rights and remedies provided by law.
SECTION 11.8 SUCCESSORS AND ASSIGNS. This Agreement is binding upon
and shall inure to the benefit of Lender and Borrower and their
respective successors and assigns, except that Borrower may not assign
or transfer any of its rights or obligations under this Agreement
without the prior written consent of Lender.
SECTION 11.9 SURVIVAL. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive
the execution and delivery of this Agreement and the other Loan
Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon
them. Without prejudice to the survival of any other obligation of
Borrower hereunder, the obligations of Borrower under Sections 11.1 and
11.2 shall survive repayment of the Note and termination of the
Commitment and the Letters of Credit.
SECTION 11.10 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, THE NOTE,
AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY
NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE
ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of
this Agreement and the other Loan Documents to which Borrower is a
party may be amended or waived only by an instrument in writing signed
by the parties hereto.
SECTION 11.11 NOTICES. Unless otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in
writing (including by facsimile transmission) and mailed, faxed or
delivered, to the address, facsimile number or subject to the last
sentence hereof electronic mail address specified for notices below the
signatures hereon or to such other address as shall be designated by
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such party in a notice to the other parties. All such other notices
and other communications shall be deemed to have been given or made
upon the earliest to occur of (i) actual receipt by the intended
recipient or (ii) (A) if delivered by hand or courier, (B) if delivered
by mail, four business days after deposit in the mail, postage prepaid;
(C) if delivered by facsimile when sent and receipt has been confirmed
by telephone; and (D) if delivered by electronic mail (which form of
delivery is subject to the provisions of the last sentence below) when
delivered; provided, however, that notices and other communications
pursuant to Article II shall not be effective until actually received
by Lender. Electronic mail and intranet websites may be used only to
distribute only routine communications, such as financial statements
and other information, and to distribute Loan Documents for execution
by the parties thereto, and may not be used for any other purpose.
SECTION 11.12 GOVERNING LAW; VENUE; SERVICE OF PROCESS. This
Agreement shall be governed by and construed in accordance with the
laws of the State of Texas and the applicable laws of the United States
of America. This Agreement has been entered into in Dallas County,
Texas, and it shall be performable for all purposes in Dallas County,
Texas. Any action or proceeding against Borrower under or in
connection with any of the Loan Documents may be brought in any state
or federal court in Dallas County, Texas. Borrower hereby irrevocably
(a) submits to the nonexclusive jurisdiction of such courts, and (b)
waives any objection it may now or hereafter have as to the venue of
any such action or proceeding brought in any such court or that any
such court is an inconvenient forum. Borrower agrees that service of
process upon it may be made by certified or registered mail, return
receipt requested, at its address specified or determined in accordance
with the provisions of Section 11.12. Nothing herein or in any of the
other Loan Documents shall affect the right of Lender to serve process
in any other manner permitted by law or shall limit the right of Lender
to bring any action or proceeding against Borrower or with respect to
any of its property in courts in other jurisdictions. Any action or
proceeding by Borrower against Lender shall be brought only in a court
located in Dallas County, Texas.
SECTION 11.13 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 11.14 SEVERABILITY. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Agreement and the effect
thereof shall be confined to the provision held to be invalid or
illegal.
SECTION 11.15 HEADINGS. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
SECTION 11.16 PARTICIPATIONS; ETC. Lender shall have the right at any
time and from time to time to grant participations in, and sell and
transfer, the Obligations and any Loan Documents. Each actual or
proposed participant or assignee, as the case may be, shall be entitled
to receive all information received by Lender regarding Borrower and
its Subsidiaries, including, without limitation, information required
to be disclosed to a participant or assignee pursuant to Banking
Circular 181 (Rev., August 2, 1984), issued by the Comptroller of the
Currency (whether the actual or proposed participant or assignee is
subject to the circular or not).
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SECTION 11.17 CONSTRUCTION. Borrower and Lender acknowledge that each
of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement and the other
Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by
Borrower and Lender.
SECTION 11.18 INDEPENDENCE OF COVENANTS. All covenants hereunder shall
be given independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations
of, another covenant shall not avoid the occurrence of a Default if
such action is taken or such condition exists.
SECTION 11.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
SECTION 11.20 ARBITRATION.
(a) Upon the demand of any party, any dispute shall be resolved by
binding arbitration (except as set forth in Section 11.20(e) below) in
accordance with the terms of this Agreement or the other Loan
Documents. Any party may by summary proceedings bring an action in
court to compel arbitration of a Dispute. Any party who fails or
refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) Arbitration proceedings shall be administered by the American
Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be
resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law
provision in any of the foregoing documents. The arbitration shall be
conducted at a location in Texas selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof
and any such rules, the terms and procedures set forth herein shall
control.. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the Dispute being
arbitrated. Judgment upon any award rendered in an arbitration may be
entered in any court having jurisdiction; provided however, that
nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under Section 91 of
Title 12 of the United States Code or any similar applicable state law.
(c) No provision hereof shall limit the right of any party to exercise
self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain
provisional or ancillary remedies, including without limitation,
injunctive relief, sequestration, attachment, garnishment or the
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appointment of a receiver from a court of competent jurisdiction
before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
(d) Arbitrators must be active members of the Texas State Bar with
expertise in the substantive law applicable to the subject matter of
the Dispute. Arbitrators are empowered to resolve Disputes by summary
rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with
the substantive law of the State of Texas, (ii) may grant any remedy or
relief that a court of the State of Texas could order or grant within
the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery
of all costs and fees, to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the Texas Rules of
Civil Procedure or other applicable law. Any Dispute in which the
amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission
to a single arbitrator, each party expressly waives any right or claim
to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three
arbitrators must actively participate in all hearings and
deliberations.
(e) Notwithstanding anything herein to the contrary, in any arbitration
in which the amount in controversy exceeds $25,000,000, the arbitrators
shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under
the substantive law of the State of Texas, and (iii) the parties shall
have in addition to the grounds referred to in the Federal Arbitration
Act for vacating, modifying or correcting an award the right to
judicial review of (1) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the State
of Texas. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the substantive
law of the State of Texas.
(f) To the maximum extent practicable, the AAA, the arbitrators and the
parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the Dispute with the AAA.
No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business,
by applicable law or regulation, or to the extent necessary to exercise
any judicial review rights set forth herein. If more than one agreement
for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the
foregoing documents or the subject matter of the Dispute shall control.
If any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without invalidating
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the remainder of such provision or any remaining provisions of this
Agreement. This arbitration provision shall survive termination,
amendment or expiration of any of the foregoing documents or any
relationship between the parties.
(g) Lender and Borrower hereby agree to keep all Disputes and
arbitration proceedings strictly confidential, provided, however, that
Lender and Borrower may disclose such confidential information as is
necessary in any litigation between Lender and Borrower or as required
by applicable law and, on a confidential basis, to accountants,
attorneys and other consultants in the ordinary course of business.
SECTION 11.21 ADDITIONAL INTEREST PROVISION. It is expressly
stipulated and agreed to be the intent of Borrower and Lender at all
times to comply strictly with the applicable Texas law governing the
maximum rate or amount of interest payable on the indebtedness
evidenced by any Note, any Loan Document, and the Related Indebtedness
(or applicable United States federal law to the extent that it permits
Lender to contract for, charge, take, reserve or receive a greater
amount of interest than under Texas law). If the applicable law is
ever judicially interpreted so as to render usurious any amount (i)
contracted for, charged, taken, reserved or received pursuant to any
Note, any of the other Loan Documents or any other communication or
writing by or between Borrower and Lender related to the transaction or
transactions that are the subject matter of the Loan Documents, (ii)
contracted for, charged, taken, reserved or received by reason of
Lender's exercise of the option to accelerate the maturity of any Note
and/or any and all indebtedness paid or payable by Borrower to Lender
pursuant to any Loan Document other than any Note (such other
indebtedness being referred to in this Section as the "Related
Indebtedness"), or (iii) Borrower will have paid or Lender will have
received by reason of any voluntary prepayment by Borrower of any Note
and/or the Related Indebtedness, then it is Borrower's and Lender's
express intent that all amounts charged in excess of the Maximum Lawful
Rate shall be automatically canceled, ab initio, and all amounts in
excess of the Maximum Lawful Rate theretofore collected by Lender shall
be credited on the principal balance of any Note and/or the Related
Indebtedness (or, if any Note and all Related Indebtedness have been or
would thereby be paid in full, refunded to Borrower), and the
provisions of any Note and the other Loan Documents shall immediately
be deemed reformed and the amounts thereafter collectible hereunder and
thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder and
thereunder; provided, however, if any Note has been paid in full before
the end of the stated term of any such Note, then Borrower and Lender
agree that Lender shall, with reasonable promptness after Lender
discovers or is advised by Borrower that interest was received in an
amount in excess of the Maximum Lawful Rate, either refund such excess
interest to Borrower and/or credit such excess interest against such
Note and/or any Related Indebtedness then owing by Borrower to Lender.
Borrower hereby agrees that as a condition precedent to any claim
seeking usury penalties against Lender, Borrower will provide written
notice to Lender, advising Lender in reasonable detail of the nature
and amount of the violation, and Lender shall have sixty (60) days
after receipt of such notice in which to correct such usury violation,
if any, by either refunding such excess interest to Borrower or
crediting such excess interest against the Note to which the alleged
violation relates and/or the Related Indebtedness then owing by
Borrower to Lender. All sums contracted for, charged, taken, reserved
or received by Lender for the use, forbearance or detention of any debt
evidenced by any Note and/or the Related Indebtedness shall, to the
extent permitted by applicable law, be amortized or spread, using the
actuarial method, throughout the stated term of such Note and/or the
Related Indebtedness (including any and all renewal and extension
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periods) until payment in full so that the rate or amount of interest
on account of any Note and/or the Related Indebtedness does not exceed
the Maximum Lawful Rate from time to time in effect and applicable to
such Note and/or the Related Indebtedness for so long as debt is
outstanding. In no event shall the provisions of Chapter 346 of the
Texas Finance Code (which regulates certain revolving credit loan
accounts and revolving triparty accounts) apply to this Note and/or any
of the Related Indebtedness. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, it is not the
intention of Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
SECTION 11.22 CEILING ELECTION. To the extent that Lender is relying
on Chapter 303 of the Texas Finance Code to determine the Maximum
Lawful Rate payable on any such Note and/or any other portion of the
Indebtedness, Lender will utilize the weekly ceiling from time to time
in effect as provided in such Chapter 303, as amended. To the extent
United States federal law permits Lender to contract for, charge, take,
receive or reserve a greater amount of interest than under Texas law,
Lender will rely on United States federal law instead of such Chapter
303 for the purpose of determining the Maximum Lawful Rate.
Additionally, to the extent permitted by applicable law now or
hereafter in effect, Lender may, at its option and from time to time,
utilize any other method of establishing the Maximum Lawful Rate under
such Chapter 303 or under other applicable law by giving notice, if
required, to Borrower as provided by applicable law now or hereafter in
effect.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
UNITED MORTGAGE TRUST
By:/s/Christine Griffin
- ----------------------------
Christine Griffin
President
Address for Notices:
5740 Prospect Ave.
Dallas, Texas 75206
Fax No.: 214/237-9304
Telephone No.: 214/237-9305, ext. 120
Attention: Christine Griffin
e-mail:griffin@unitedmortgagetrust.com
LENDER:
TEXAS CAPITAL BANK,
NATIONAL ASSOCIATION
By:/s/Reed Allton
- -------------------------
Reed Allton
Executive Vice President
Address for Notices:
2100 McKinney Avenue
Suite 900
Dallas, Texas 75201
Fax No.: 214/932-6604
Telephone No.: 214/932-6670
Attention: Reed Allton
e-mail: reed.allton@texascapitalbank.com
-40-
Exhibit 10.2
MORTGAGE SERVICING AGREEMENT
STATE OF TEXAS
THIS AGREEMENT made and entered into this 1st day of
January, 2002, between UNITED MORTGAGE TRUST, a Maryland real estate
investment trust, whose address is 5740 Prospect Ave., Suite 1000,
Dallas TX 75206, hereinafter called "Investor" and PROSPECT SERVICE
CORPORATION, a corporation duly organized under the laws of Texas, and
having its principal place of business at 5740 Prospect Ave., Ste 1000
Dallas TX 75206, hereinafter called the "Servicer":
WITNESSETH:
WHEREAS, Investor has acquired or may acquire as holder and
owner, certain notes secured by deeds to secure debt, deeds of trust,
and mortgages on real property and the parties hereto contemplate
that Servicer shall, in the manner as herein provided, service
such notes, deeds to secure debt, deeds of trust, and mortgages
subject to the terms hereof, all of which instruments are hereinafter
sometimes referred to as "mortgages"; and
WHEREAS, Investor desires Servicer to service the mortgages in
the manner as herein provided and to manage the premises covered
thereby in the event that proceedings are instituted to foreclose any
of the mortgages in the manner as herein provided;
NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained, it is agreed by and between the
parties hereto as follows:
1. COLLECTIONS FROM MORTGAGOR
Effective from the date of delivery of the
mortgages to Servicer from Investor and continuously
thereafter until the principal and interest of the mortgages are
paid in full, or until any foreclosure sale or conveyance of the
property securing the mortgage by deed in lieu of foreclosure,
Servicer shall diligently proceed to collect all payments due
under the mortgages as and when they are due, and make remittance
of the same (less the servicing fee herein provided for) to Investor
in accordance with the terms hereof.
2. REMITTANCE AND HANDLING OF FUNDS
Servicer shall pay monthly to Investor or its order on or about
the 25th day of each month, but not later than the last day of each
month, all funds previously received by Servicer from mortgagors
which are applicable to the payment of principal and interest (less
the servicing fee herein provided for) on the mortgages. Each
such remittance shall be accompanied by a reconciliation for the
then current month of the total mortgage account of Investor being
serviced by Servicer. A trust account or accounts shall be maintained
by Servicer in a bank whose accounts are insured by the Federal
Deposit Insurance Corporation. Servicer's records shall clearly
show the respective interests of Investor and of each individual
mortgagor in all accounts maintained as aforesaid. Servicer shall
maintain appropriate bookkeeping records of each payment made by
each mortgagor, showing the amounts applicable to principal, interest,
taxes, hazard insurance and mortgage insurance. Servicer shall also
maintain appropriate records of all payments remitted to Investor
and of all funds returned by Investor to Servicer for the purpose
of discharging mortgagee's duties, rights or privileges hereunder
or under the mortgage documents and shall also maintain appropriate
records of the application of the funds returned by Investors to
Servicer for the purposes aforesaid.
3. COMPENSATION OF SERVICER
As full compensation for its services rendered as herein
provided, in connection with real estate lien notes with an annual
interest rate at 11.875% or lower, Servicer shall retain from each
monthly payment collected an amount equal to 1/12 of 1/2 of 1% of the
principal balance of the note upon which the monthly interest payment
is computed. For real estate notes with annual interest rate of 12%
or higher, Servicer shall retain from each monthly payment collected
an amount equal to 1/12 of 1% of the principal balance of the note
upon which the monthly interest payment is computed. If any late
charge on any past due payment or installment on any loan is
received by Servicer from any mortgagor pursuant to the terms of
any loan document, such late charge shall be retained by Servicer as
additional compensation to Servicer.
4. INSURANCE
At all times during the existence of such mortgage, Servicer
shall require each mortgagor to maintain insurance on all of the
buildings upon the premises covered by each mortgage for loss or
damage by fire, with extended coverage, and for such other
insurable hazards and risks as are customarily required by the
Servicer or other prudent lenders with respect to similar types of
loans in the locality and with insurance companies rated "B Plus" or
better by Alfred M. Best Company, Inc. Servicer shall hold for the
account of Investors all such polices which shall be endorsed in such
a manner as to indicate that losses payable thereunder are payable
to Servicer as agent for Investor as mortgagee. Servicer shall
attempt to collect the proceeds from such policies with respect to
all losses which may occur, and after obtaining the endorsement of
the mortgagor, if required and if possible. Servicer may endorse such
checks and require the mortgagor to apply such proceeds to the repair
of the property. In the cases where losses shall have occurred for
which the insuring company or companies shall, pursuant to its or
their policy or policies, pay an amount in excess of $2,500.00,
Servicer shall inspect all repairs so as to ascertain if the work is
done properly. As to each mortgage and insofar as applicable, where it
is determined that the mortgaged premises are within an area
identified by the Secretary of Housing and Urban Development as having
special flood hazards and flood insurance is available under the
National flood program, Servicer shall cause each mortgagor to
maintain insurance against loss due to flood at all times during the
existence of such mortgage.
5. DEFAULTS OF MORTGAGOR
In the event that principal, interest or any other charges with
respect to any mortgage are not paid on or before the first day of the
month following the month they become due and payable, or if any
mortgagor fails to perform any other covenant or obligation under
any mortgage, and such failure continues for a period of one month
from the time such default comes to the attention of Servicer,
Servicer shall act to enforce Investor's rights as mortgagee pursuant
to the mortgage documents.
6. LIMITATION OF SERVICER'S AUTHORITY
Servicer is authorized only to receive and to forward the
monthly payments as provided in the notes and mortgages for
interest, amortization of principal, and service or other charges where
called for herein, and shall not accept any additional sums in
reduction of the principal amount of the mortgage or for the
retirement thereof (unless permitted by the terms of the
mortgage) without the written consent and authority of Investor.
Servicer is not authorized or empowered to waive or vary the terms
of any note or mortgage, provided, however, Servicer may enter into
forbearance agreements with mortgagors when Servicer, in its
reasonable judgment deems it appropriate to do so. Servicer is
charged with complying with all terms of any Note or Mortgage and will
comply with all notice requirements in a timely manner and comply with
all provisions set forth in any Note or Mortgage. The Servicer will
comply with all applicable laws in carrying out its duties hereunder.
7. INSPECTIONS
Servicer shall make an inspection of the premises within 60 days
of the time any default comes to the attention of Servicer and shall
until any foreclosure sale or conveyance of the property
securing the mortgage by deed in lieu of foreclosure, make reasonable
additional inspections.
8. FORECLOSURE; SERVICER'S AUTHORITY
In case of default with respect to any mortgage, the
Servicer shall promptly institute foreclosure proceedings or
proceed to acquire the property by other means in accordance with
applicable law and the requirements of all applicable documents,
provided, however, that Investor shall indemnify the Servicer for all
costs and expenses necessary to complete foreclosure proceedings
and for preservation of the property, including reasonable attorney
fees. The Servicer shall have the authority and power to appoint
substitute trustees and attorneys for the purpose of foreclosure
and to negotiate with the mortgagor to acquire the secured property
by deed in lieu of foreclosure. The property may be acquired in the
name of Servicer as agent for Investor. To facilitate the
Servicer's duties, powers and authority under this Paragraph 8,
Investor is executing the attached Appointment of Substitute
Trustee and the attached Special Durable Power of Attorney,
simultaneously with Investor's execution of this agreement. The
Servicer is authorized by Investor to attach such exhibits to the
Appointment of Substitute Trustee and the Special Durable Power of
Attorney as may be appropriate, to record such Appointment of
Substitute Trustee and Special Durable Power of Attorney, or to
otherwise deal with such Appointment of Substitute Trustee and Special
Durable Power of Attorney as it deems necessary.
9. PROPERTY MANAGEMENT
In the event that foreclosure proceedings are instituted by
Servicer, or when authorized by the Court where such authority is
required, Servicer, from the date of commencement until the
termination thereof by foreclosure sale, or by acceptance of a deed
in lieu of foreclosure from mortgagor, shall (a) protect the mortgaged
premises under foreclosure in such manner and to such extent as are
customarily embraced in the proper protection of properties in the
locality involved, and (b) maintain insurance on the premises in the
manner provided in Paragraph 4. Servicer shall have no further
responsibility under the terms hereof with respect to the management,
inspection, protection or sale of such property after the foreclosure
sale or the acceptance of a deed in lieu of foreclosure from
mortgagor. Servicer shall segregate and hold for Investor until
paid over to it, in a special custodial account of the character
described in Paragraph 2 hereof, all monies in respect to said
premises which shall come into the hands of Servicer.
10. RECORDS
Servicer shall keep satisfactory books and records pertaining
to the mortgages, and upon the termination of this agreement,
Investor shall be permitted at its own expense to make copies of such
of these records as it may desire. Such books and records may be
removed from Servicer's office for the purpose of copying, and shall
be returned within a reasonable time. Servicer shall maintain and
preserve all records with respect to each mortgage or loan serviced
hereunder for Investor until each mortgage or loan shall have been
paid in full and satisfied or foreclosed.
11. ASSIGNMENT AND SATISFACTION
This agreement may not be assigned by Servicer or its
successors without the consent of Investor. This agreement shall inure
to the benefit of the parties hereto and their respective permitted
successors and assigns. In the event any mortgagor shall satisfy,
pay and discharge any mortgage indebtedness, then the obligations
and rights hereunder of both parties shall continue in full force
and effect with respect to any remaining mortgages covered by this
agreement. In the event of either or both the sale or assignment of
any or all of the mortgages which may now or hereafter be serviced
by the Servicer for Investor hereunder, Servicer agrees to service,
upon all of the terms and conditions contained in this agreement, such
mortgages so sold or assigned, for the party or parties to whom
Investor shall have sold or assigned the same mortgages or any of the
same.
12. SERVICER-INDEPENDENT CONTRACTOR
Servicer is and shall be an independent contractor and is not
and shall not be subject to direction by Investor as to the manner
of the performance of the Servicer's obligations hereunder.
13. INFORMATION TO INVESTOR
In the event the Investor does not elect to accept the
Mortgage Replacement Provision set forth in Paragraph 22, then at all
times during the term of this Agreement, the terms of this paragraph
13 shall apply.
Servicer shall notify Investor of any mortgagor default which
continues for thirty (30) days or more and, following such notice,
Servicer shall provide Investor with reasonable additional
notices regarding foreclosure of the mortgage and other
enforcement actions, and regarding the condition of the property
securing the mortgage, until title to the property is transferred to
Investor or the mortgage obligation to Investor has been discharged.
Servicer shall provide such additional statements and reports as
Investor may reasonably request from time to time.
14. TERMINATION
Investor may terminate this agreement with or without cause upon
thirty (30) days written notice to Servicer and upon payment to
Servicer of a sum equal to 1% of the aggregate principal amount
then outstanding on all of the loans as to which servicing is being
terminated provided, however, that Investor shall pay no termination
fee when a mortgage is withdrawn from this agreement by reason of
foreclosure or satisfaction of such mortgage. Upon termination of
this agreement in any manner, Servicer shall forthwith deliver to
Investor a statement showing the payments collected and all monies
held by it for payment of taxes, insurance and other charges, and
shall immediately pay over to Investor all monies so collected and
held. Servicer shall further turn over to Investor at the main office
of Servicer all books, papers and records, or transcripts thereof,
pertaining to the mortgages for which the servicing is being
terminated.
15. TERM OF AGREEMENT
Unless sooner terminated as herein provided, this agreement
shall continue from the date hereof through the term of the
mortgage having the longest term until the principal and interest on
all of the mortgages are paid in full, or until completion of
proceedings instituted to foreclose all of the mortgages
remaining subject to the terms of this agreement or title to the
mortgaged premises is acquired by Investor in lieu of
foreclosure.
16. NO WAIVER
None of the provisions contained in this agreement shall be
deemed waived, altered, modified or changed except by an
agreement in writing signed by the parties hereto.
17. ADDRESSES
Notices required to be provided pursuant to this agreement shall
be mailed or hand-delivered to the parties at the following addresses
or at such other addresses as the parties may from time to time
designate in writing:
INVESTOR: UNITED MORTGAGE TRUST
5740 Prospect Ave., Suite 1000
Dallas, TX 75206
SERVICER: PROSPECT SERVICE CORPORATION
5740 Prospect Ave., Ste. 1000
Dallas, TX 75206
18. APPLICABLE LAW
This agreement shall be governed by and construed under the Laws
of the State of Texas.
19. DISCLAIMER
The parties acknowledge that Investor may purchase or may have
purchased loans from third parties pursuant to agreements containing
representations and warranties made by the sellers of said loans.
The parties hereto agree that Servicer does not warrant in any
respect the loans purchased or to be purchased by Investor from any
third parties and the parties expressly agree that Servicer is not
responsible for any acts or omissions of prior owners or servicers of
such loans.
20. PRESUMPTION OF OWNERSHIP
Upon assignment by Investor of any mortgage being serviced
hereunder, Investor shall mail written notice thereof to
Servicer, giving the name and address of the assignee of
Investor. Until Servicer receives such written notice, Investor shall
be presumed to be the owner of such mortgage and Servicer is hereby
authorized and directed to continue making payments hereunder to
Investor.
21. OBLIGATIONS OF PARTIES
The parties acknowledge that nothing contained herein shall
obligate Investor to engage the services of Servicer with respect to
any loan owned or hereafter acquired by Investor and nothing contained
herein shall obligate Servicer to undertake the servicing of any
such loan.
22. OPTIONAL MORTGAGE REPLACEMENT PROVISION
Investor elects to incorporate the following terms into this
agreement as indicated by Investor's initials in the space
provided:
In the event of Mortgagor default under any
mortgage purchased from or through Servicer or its affiliates,
during the first 30 months commencing on the date of Investor's
purchase of the mortgage (the "Defaulted Mortgage"), Servicer
shall replace the Defaulted Mortgage with a performing mortgage
of equal value (the "Replacement Mortgage"), and in
consideration thereof, Servicer shall take ownership and
control of the Defaulted Mortgage and shall have the right
to retain all late fees, reinstatement fees, cost
reimbursements relating to the enforcement of lien rights, and
any gain realized from the resale of the property securing the
Defaulted Mortgage, including down payment, earnest money
deposits, rental income or any other sums generated by the
property securing the Defaulted Mortgage. In addition, Servicer
shall bear the costs of enforcement of the Defaulted Mortgage.
Investor shall execute appropriate documents necessary to
facilitate such replacement. In the event of Mortgagor
default under the Replacement Mortgage during the first 30
months commencing on the date of transfer of the Replacement
Mortgage to the investor, the terms and conditions of this
paragraph shall apply to the Replacement Mortgage.
_____________________ __________________
INITIALS OF INITIALS OF
INVESTOR HERE INVESTOR HERE
INDICATE ACCEPTANCE INDICATE REJECTION
IN WITNESS WHEREOF, each party has caused this agreement to be
signed and executed by the parties duly authorized on the day and year
written above.
INVESTOR: UNITED MORTGAGE TRUST
BY:/s/ Christine Griffin
----------------------------
Christine Griffin, President
ATTEST:/s/Dana Williams
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Dana Williams
SERVICER: PROSPECT SERVICE CORPORATION BY:
/s/ Linda Lunger
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Linda Lunger, Vice President
ATTEST:/s/ Kandi S. Cook
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Kandi S Cook
Exhibit 31. Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Christine A. Griffin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United
Mortgage Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the consolidated financial statements,
and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in
this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5. I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of trustees:
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
August 8, 2005
/s/ Christine Griffin
------------------------------------
Christine Griffin
President and Chief Executive Officer
Exhibit 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
I, Christine A. Griffin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United
Mortgage Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the consolidated financial statements,
and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in
this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5. I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of trustees:
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
August 8, 2005 /s/ Christine Griffin
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Christine Griffin
Chief Financial Officer
Exhibit 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
I, Christine A. Griffin, Chief Executive Officer of United Mortgage
Trust (the "registrant"), have executed this certification for furnishing
to the Securities and Exchange Commission in connection with the filing
with the Commission of the registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 2005 (the "Report"). I hereby certify that:
(1) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the of the registrant as of and for the end of that
period.
August 8, 2005
/s/ Christine A Griffin
-----------------------
Christine A Griffin
Chief Executive Officer
Exhibit 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
I, Christine A. Griffin, Chief Financial Officer of United Mortgage
Trust (the "registrant"), have executed this certification for furnishing
to the Securities and Exchange Commission in connection with the filing
with the Commission of the registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 2005 (the "Report"). I hereby certify that:
(1) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the of the registrant as of and for the end of that
period.
August 8, 2005
/s/ Christine A Griffin
-----------------------
Christine A Griffin
Chief Financial Officer