I`IOLMAN HMYSEN COINILLE gc COi#kTES, P C.
ATTORNEYS AT L.~\W
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Kate B. !»|<;!
Mr. L. Gregory Brown
4742 North 24th Street, Suite 180
Phoenix, AZ 85016
Re: McAfee/Brown Asset Purchase
Dear Mr. Brown:
Pursuant to your request, we have researched whether the purchase from and re—sale of
certain assets now owned by Home Mortgage, Inc., an Arizona corporation, would be
void or voidable under the laws applicable to fraudulent transfers or conveyances.
In conducting that research, we have relied on the following information provided to us
by you or your attorney, Jeffrey D. Zimmerman, Esq.
1. Horn Mortgage, Inc. ("I-IMl") is engaged in the residential mortgage lending
business with its headquarters offices in Phoenix, Arizona and with branch ofiices in
Arizona, Utah, Oklahoma, Kansas, Iowa, Ohio, Florida and Missouri.
2. You were a minority shareholder in HMI and entered into a Stock Redemption
Agreement with HMI on July 29, 2002. In addition to the redemption of your stock
shares, HMI also granted you an option to purchase all fixtures, furniture and equipment
("FFSLE") used in and upon the leased premises constituting I-IMI's branch offices
contingent upon your assumption of the subject leases.
3. The exercise price for the option granted to purchase the FF&E shall be the actual
value as reflected upon the books of HMI as of the date of purchase (i.e., book value). In
no event, however, shall the purchase price be less than $700,000.
4. You were also granted the right to assume any equipment leases, supply
contracts, service contracts or any other obligations of HMI which you determined
necessary to the operation of the branch offices of HMI.
5. You also intend to enter into an Asset Purchase Agreement with McAfee Mortgage
& Investment Company ("MMIC"), a Texas corporation sometime in September, 2002.
0060
Case 2:03-cv-00100-ROS-IVIEA Document 104-7 Filed 11/O9/2006 Page 1 of 3
Mr. L. Gregory Brown
Phoenix, Arizona 850 l 6
September I3, 2002 - Page 2
P:\d2LA\l\¤lCAl·€!f*1lEg\BmWT\-@9· L3-02.wpd
Under this agreement you have agreed to sell the branch offices and related assets to
MMIC that you have the option to purchase from HMI.
6. It is your intent to close simultaneously on the asset purchase from HMI and the
asset sale to MMIC.
7. For purposes of this opinion letter, it is assumed that I-IMI will have creditors and
may be insolvent at the time of the simultaneous closing of the asset purchase and sale.
The Uniform Fraudulent Transfer Act ("UP IA") provides that a transfer made or
obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim
arose before or after the transfer was made or the obligation was incurred, if the debtor
made the transfer or incurred the obligation without receiving a reasonably equivalent
value in exchange for the transfer or obligation and the debtor was engaged or was i
about to engage in a business for which the remaining assets of the debtor were
unreasonably small iu relation to the business or transaction.
The UT·TA further provides that a transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditors claim arose before or after the transfer
was made or the obligation was incurred, if the debtor made the transfer or incurred the
obligation without receiving a reasonably equivalent value in exchange for the transfer
or obligation, and the debtor intended to incur, or believed or reasonably should have
believed that he would incur debts beyond his ability to pay as they became due.
A fraudulent conveyance is void or voidable , and will be set aside in a ptoper
proceeding. However, a creditor cannot, without legal process, appropriate fraudulently
transferred property to the payment of his debt.
The key issue for purposes of the subject asset purchase and sale is whether HMI will
receive "a reasonably equivalent value" in exchange for the assets transferred. A
determination of "reasonably equivalent value" is fact sensitive, but will hinge on
whether a fair equivalent for the property was received in a good faith transfer.
The UFTA has been adopted in Arizona, Utah, Oldahoma, Kansas, Ohio, Florida, Missouri
and Texas. It has not been adopted in Iowa. With the exception of Iowa, therefore, the
UI~'I`A is controlling in the home state of HMI and in all of the states where it has branch
offices. There is little reason to believe that the same kind of analysis would not be
applied by the Iowa courts to set aside an alleged fraudulent conveyance.
lf the book value of the subject assets or $700,00C represents fair market value or better,
then such a value, if paid by yourself to HMI, should constitute fair consideration or
"reasonably equivalent value." Based on such an assumption, your purchase would not
Case 2:03-cv-00100-ROS-IVIEA Document 104-7 Filed 11/O9/2006 Pageugibl 3
iwlr. L. Gregory Brownl
Phoenix, Arizona 85016
September l3, ZOO.? · Page 3
i=wa.m~.»1a·trCaM¤;smm.ms.is.o2.wpa
be voidable under the UF IA unless it was made in bad faith. Likewise, your subsequent
transfer of such assets to MZMIC would not be voidable under the UFTA even if the
separate transactions were viewed as one.
There should also be no concern with complying with the Bulk Sales laws of the states in
quesnon These laws were set out in Article 6 of the Uniform Commercial Code which
was adopted by all of the states in question. In 1989, however, the National Conference
of Commissioners on Uniform States Laws recommended that Article 6 be repealed.
Most states repealed it., All the states in question repealed the original Article 6. A
revised Article 6 was promulgated for those states which still wanted to afford protection
to creditors while minimizing impediments to good-faith transactions. Revised Article 6
only applies to a bulk sale if: (1) the sellers principal business is the sale of inventory
from stock; and (2) on the date of the bulk-sale agreement, the seller is located in the
state or, if the seller is located in ajurisdiction that is not part of the United States, the
Sellers major executive oflice in the United States is in the state.
Only Arizona and Utah have adopted revised Article 6. However, it should have no
effect on this transaction because HMl's principal business in not the sale of inventory
from stock.
in summary, the asset purchase and sale in question should not be at risk to claims of
HMI's creditors provided the assets are sold for fair consideration and in good faith.
This opinion is provided solely to you as our client and is not intended to be provided for
the beneiit of any other party. ·
If you have any questions, please contact me.
Very truly yours,
HOLMAN HANSEN COLVILLE 8: COATES
Thomas S. Busch
â€I`SB:lgh
cc: Jeffrey D. Zirnrnerman, lisq.
0062
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