EXECUTION COPY
LOAN AND SECURITY AGREEMENT
dated as of December 18, 1996
between
FIRSTPLUS FINANCIAL, INC.,
as Borrower
and
▇▇▇▇▇ ▇▇▇▇▇▇ REAL ESTATE
SECURITIES INC., as Lender
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms...................................... 1
1.2 Accounting Terms........................................... 9
1.3 Other Definitional Provisions.............................. 10
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 Representations and Warranties Relating to Borrower........ 11
A. Formation, Powers and Good Standing.................... 11
B. Authorization of Borrowing, etc........................ 11
C. Financial Condition.................................... 12
D. Changes, etc........................................... 12
E. Title to Properties; Liens............................. 12
F. Litigation; Adverse Facts.............................. 13
G. Payment of Taxes....................................... 13
H. Other Agreements; Performance.......................... 13
I. Governmental Regulation................................ 13
J. Employee Benefit Plans................................. 14
K. Disclosure............................................. 14
L. Compliance with State Law.............................. 14
2.2 Representations and Warranties Relating to Pledged Loans... 14
2.3 Representations and Warranties Relating to Pledged MBS..... 15
ARTICLE III
BORROWING AND REPAYMENTS; NOTE
3.1 Certifications; Advances................................... 17
A. Certifications......................................... 17
B. Advances............................................... 17
C. Netting of Payments.................................... 18
D. Usage of Uncommitted Facility.......................... 18
E. Advances Optional...................................... 18
3.2 Market Value; Margin Maintenance........................... 18
A. Market Value........................................... 18
B. Margin Maintenance..................................... 19
3.3 Note; Interest............................................. 19
A. Note................................................... 19
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B. Rate of Interest....................................... 19
C. Interest Payments...................................... 20
D. Post-Maturity Interest................................. ▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇ of Interest................................ 20
3.4 Repayments and Payments.................................... 20
A. Repayment.............................................. 20
B. Manner and Time of Payment............................. 20
C. Payments on Non-Business Days.......................... 20
3.5 Advisory Fee............................................... 20
ARTICLE IV
CONDITIONS TO THE ADVANCES
4.1 Conditions to the Effective Date........................... 22
4.2 Conditions to All Advances................................. 23
ARTICLE V
SECURITY
5.1 Grant of Security Interest................................. 25
5.2 Release and Substitution of Collateral..................... 26
5.3 Receipt of Pledged Loan Income and Pledged MBS Income...... 26
5.4 Lender as Attorney-in-Fact................................. 27
5.5 Security for Obligations................................... 27
ARTICLE VI
COVENANTS OF BORROWER
6.1 Financial Statements and Other Reports..................... 28
6.2 Existence; Franchises...................................... 29
6.3 Payment of Taxes and Claims................................ 29
6.4 Inspection................................................. 30
6.5 Compliance with Laws, etc.................................. 30
6.6 Restriction on Fundamental Changes......................... 30
6.7 Financial Covenants........................................ 30
A. Net Worth.............................................. 30
B. Indebtedness Ratio..................................... 30
6.8 Notice of Change in Articles, Bylaws or Seller's Guide..... 30
6.9 Further Assurances......................................... 31
6.10 Reports Regarding Collateral............................... 31
6.11 Borrower's Securities Activities........................... 31
6.12 Corporate Separation and Indebtedness...................... 31
6.13 FHA Insurance.............................................. 31
6.14 Limitation on Advances Secured by Pledged MBS.............. 31
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6.15 Other Agreements........................................... 32
6.16 Independence of Covenants.................................. 32
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default.......................................... 33
A. Failure to Make Payments When Due...................... 33
B. Default in Other Agreements............................ 33
C. Breach of Covenants.................................... 33
D. Breach of Warranty..................................... 33
E. Involuntary Bankruptcy: Appointment of Receiver, etc... 33
F. Voluntary Bankruptcy; Appointment of Receiver;
Material Adverse Change................................ 34
G. Judgments and Attachments.............................. 34
H. Dissolution............................................ 34
I. Status as FHA-Approved Mortgagee....................... 34
J. Default by Guarantor................................... 34
7.2 Application of Proceeds.................................... 37
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses................................................... 38
8.2 Indemnity by Borrower...................................... 38
A. Indemnification by Borrower............................ 38
B. Claims................................................. 39
8.3 Set-Off.................................................... 39
8.4 Lender's Designee as Underwriter or Placement Agent........ 39
8.5 Amendments and Waivers..................................... 40
8.6 Confidentiality; Non-Disclosure of Information............. 40
8.7 Notices.................................................... 40
8.8 Attorneys' Fees............................................ 41
8.9 Survival of Warranties and Certain Agreements.............. 41
A. Agreement.............................................. 41
B. Termination............................................ 41
8.10 Failure or Indulgence Not Waiver; Remedies Cumulative...... 41
8.11 Limitation of Liability.................................... 41
8.12 WAIVER OF TRIAL BY JURY.................................... 41
8.13 No Joint Venture........................................... 41
8.14 Lender's Discretion........................................ 42
8.15 Severability............................................... 42
8.16 Headings................................................... 42
8.17 Applicable Law............................................. 42
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8.18 Transfers by Lender; Subsequent Holders of Note............ 42
8.19 No Assignment by Borrower.................................. 42
8.20 Counterparts; Effectiveness................................ 42
8.21 Entire Agreement........................................... 43
EXHIBITS
Exhibit A Form of Compliance Certificate
Exhibit B Form of Promissory Note
Exhibit C Form of Borrower's Incumbency Certificate
Exhibit D Form of Borrower's Officer's Certificates
Exhibit E-1 Form of Request for Advance
Exhibit E-2 Form of Advance Request Confirmation
Exhibit F Form of Lender's Wire Transfer Instructions
Exhibit G Borrower's Valuation Model
Exhibit H List of Borrower's Affiliates
Schedule 1 Supplemental Schedule
Schedule 2 Representations and Warranties Relating to Pledged Loans
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (the "Agreement") is dated as of
December 18, 1996 by and between FIRSTPLUS FINANCIAL, INC., a Texas
corporation ("Borrower"), and ▇▇▇▇▇ ▇▇▇▇▇▇ REAL ESTATE SECURITIES INC., a
Delaware corporation ("Lender").
RECITALS
A. Borrower desires to finance certain Eligible Assets (as defined
below). Lender may from time to time agree to provide financing to Borrower
to enable Borrower to finance certain Eligible Assets.
B. The Eligible Assets pledged by Borrower to Lender shall be held
by Custodian (as defined below) in accordance with the Custodial Agreement
(as defined below).
NOW, THEREFORE, in consideration of the above Recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
The following terms used in this Agreement shall have the following
meanings:
"ADVANCE" means any advance made by Lender pursuant to subsection B
of Section 3.1 and which is evidenced by the Advance Schedule attached to the
Note.
"ADVANCE DATE" means any date on which an Advance is made by Lender
to Borrower, which date shall be set forth in the related Advance Request
Confirmation.
"ADVANCE MATURITY DATE" means, with respect to any Advance, the
date on which Borrower shall repay the entire outstanding amount of the
related Advance, which date shall be set forth in the related Advance Request
Confirmation.
"ADVANCE RATE" means the percentage rate to be applied to the
Market Value of any Eligible Asset, at which rate Lender may make an Advance
to Borrower. The Advance Rate for any Advance shall be as set forth in
Schedule 1 hereto.
"ADVANCE REQUEST CONFIRMATION" means a confirmation from Lender
relating to a Request for Advance, substantially in the form of Exhibit E-2
hereto, setting forth the terms and conditions of the related Advance.
"ADVANCE SCHEDULE" means any of the advance schedules attached to
the Note.
"ADVISORY FEE" shall have the meaning set forth in Section 3.5.
"AFFILIATE" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, Borrower; or (ii) five percent or more of the voting stock or
equity interest of which is beneficially owned or held by Borrower. Attached
hereto as Exhibit H is a list of all Affiliates of Borrower.
"AGREEMENT" means this Loan and Security Agreement dated as of
December 18, 1996, as it may from time to time be supplemented, modified or
amended.
"ASSIGNEE" means The Chase Manhattan Bank, N.A., as agent for
certain beneficiaries pursuant to certain repurchase transaction tri-party
custody agreements.
"BORROWER'S VALUATION MODEL" means, with respect to any Pledged
MBS, the valuation model of Borrower set forth on Exhibit G hereto, the
results of which may be modified by Lender in its discretion using reasonable
business judgment.
"BREAKAGE FEE" means a fee paid by Borrower to Lender on each
Interest Payment Date equal to the imputed accrued interest on that portion
of any Advance requested by Borrower pursuant to a Request for Advance which
has been accepted by Lender pursuant to an Advance Request Confirmation but
has not been fully utilized by Borrower. Such imputed accrued interest shall
accrue at the related Interest Rate less the then prevailing LIBOR for the
term set forth in the related Advance Request Confirmation.
"BUSINESS DAY" means any day other than (a) a Saturday, Sunday or
other day on which banks located in the City of New York, New York or Dallas,
Texas are authorized or obligated by law or executive order to be closed, or
(b) any other day on which Lender is closed for business.
"CAPITAL LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which
would, in conformity with GAAP, be required to be accounted for as a capital
lease on a balance sheet of that Person.
"COLLATERAL" means (i) any Eligible Asset pledged by Borrower and
accepted by Lender in connection with either an Advance or a Margin Deficit;
(ii) the contractual right to receive payments, including the right to
payments of principal and interest and the right to enforce such payments,
arising from or under any of the Eligible Assets; (iii) the contractual right
to service each Pledged Loan; and (iv) and any and all proceeds, payments,
income, profits
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and products thereof, and all files and records relating thereto.
"COLLATERAL VALUE" means, with respect to any Eligible Asset
pledged by Borrower to Lender, the product of the related Market Value and
the related Advance Rate.
"COMBINATION LOAN" means a loan, the proceeds of which were used by
the Mortgagor in combination to finance property improvements on single
family residential property and for debt consolidation or other purposes, and
which are marketed by Borrower as "BusterPlus Loans."
"COMPLIANCE CERTIFICATE" means a certificate substantially in the
form of Exhibit A hereto delivered to Lender by Borrower pursuant to
subsection (iv) of Section 6.1.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business), co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise liable, including, without
limitation, any such obligation for which that Person is in effect liable
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or
lease regardless of the non-delivery or nonfurnishing thereof, in any such
case if the purpose or intent of such agreement is to provide assurance that
such obligation will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. The amount
of any Contingent Obligation shall be equal to the amount of the obligation
so guaranteed or otherwise supported.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, a
provision of any security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument
to which that Person is a party or by which it is or any of its properties is
bound or to which it or any of its properties is subject.
"CONVENTIONAL PLEDGED LOAN" means a Pledged Loan which is not
covered by FHA Insurance.
"CUSTODIAL AGREEMENT" means the Custodial Agreement dated as of
December __, 1996, by and among Custodian Borrower and Lender, as the same
may from time to time be supplemented, modified or amended.
"CUSTODIAN" means Bank One, Texas, N.A., and its permitted
successors under
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the Custodial Agreement.
"DEBT CONSOLIDATION LOAN" means a loan, the proceeds of which were
primarily used by the related Mortgagor for debt consolidation purposes or
purposes other than to finance property improvements and which are marketed
by Borrower as "DebtBuster Loans".
"DOLLAR" means lawful currency of the United States of America.
"EFFECTIVE DATE" means December 18, 1996.
"ELIGIBLE ASSET" means any Pledged MBS or Pledged Loan.
"EMPLOYEE BENEFIT PLAN" means any pension plan, any employee
welfare benefit plan, or any other employee benefit plan which is described
in Section 3(3) of ERISA and is maintained for employees of Borrower or any
ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA AFFILIATE" means, as applied to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and is under common control within the meaning of the
regulations promulgated under Section 414 of the Internal Revenue Code of
1986.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1.
"FHA" means the Federal Housing Administration and any successor
thereto.
"FHA-APPROVED MORTGAGEE" means a lender or other mortgagee approved
by the FHA as a mortgagee for FHA-Insured Loans under Title I of the National
Housing Act.
"FHA INSURANCE" means the credit insurance provided by FHA pursuant
to Title I of the National Housing Act.
"FHA-INSURED LOAN" means any loan that is insured by FHA Insurance,
including without limitation any Unsecured Home Improvements Loan.
"FNMA" means the Federal National Mortgage Association and any
successor thereto.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant
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segment of the accounting profession, which are applicable to the
circumstances as of the date of determination. In the event of a change in
GAAP, Borrower and Lender shall negotiate in good faith to revise any
covenants of this Agreement affected thereby in order to make such covenants
consistent with GAAP then in effect.
"GUARANTEE" means, with respect to the Obligations of Borrower, the
unconditional guarantee executed by Guarantor in favor of Lender.
"GUARANTOR" means RAC Financial Group, Inc., a Nevada corporation
and the owner of 100% of the shares of stock of Borrower.
"HOME IMPROVEMENT LOAN" means a loan, the net proceeds of which
were or will be used by the Mortgagor to finance property improvements on
single family residential property.
"INCREMENTAL INTEREST RATE" means 200 basis points, which is the
amount by which the Interest Rate shall increase if Borrower fails to cure a
Margin Deficit after receipt by Borrower of notice from Lender in accordance
with Section 3.2 hereof.
"INDEBTEDNESS" means, as applied to any Person, (i) all
indebtedness for borrowed money, (ii) that portion of obligations with
respect to Capital Leases which is capitalized on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed
money, (iv) any obligation owed for all or any part of the deferred purchase
price of property or services which purchase price is (a) due more than six
months from the date of incurrence of the obligation in respect thereof or
(b) evidenced by a note or similar written instrument, and (v) all
indebtedness secured by any Lien existing on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of
that Person.
"INTEREST DETERMINATION DATE" means, with respect to any Advance,
initially the related Advance Date and thereafter each successive Reset Date.
"INTEREST PAYMENT DATE" means, with respect to any Advance, the
applicable date(s) set forth in the related Advance Request Confirmation;
PROVIDED, HOWEVER, that the final Interest Payment Date shall be on the
related Advance Maturity Date.
"INTEREST PERIOD" means, with respect to any Advance, the period
from (and including) an Interest Payment Date to (but excluding) the
immediately succeeding Interest Payment Date; PROVIDED, HOWEVER, that the
first Interest Period of any Advance shall commence on (and include) the
related Advance Date and continue until (but exclude) the first Interest
Payment Date.
"INTEREST RATE" means, with respect to any Advance, the rate at
which such
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Advance shall bear interest on the unpaid principal thereof. The Interest
Rate for any Advance shall be as set forth in Schedule 1 hereto.
"LIBOR" means, unless otherwise agreed to by the parties hereto
pursuant to an Advance Request Confirmation, the London interbank offered
rate for one-month U.S. Dollar deposits as it appears on page five of the
Telerate screen at or about 9:00 a.m. (New York City time) on the related
Interest Determination Date.
"LIEN" means any lien, mortgage, pledge, security interest, charge
or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest).
"MANDATORY REPAYMENT INTEREST RATE" means 100 basis points, which
is the amount by which the Incremental Interest Rate shall increase if such
Incremental Interest Rate has been in effect for 1 Business Day in accordance
with Section 3.2 hereof.
"MARGIN CALL" has the meaning set forth in Section 3.2.
"MARGIN DEFICIT" has the meaning set forth in Section 3.2.
"MARKET VALUE" means the value of any Eligible Asset as determined
in accordance with subsection A of Section 3.2.
"MATERIAL ADVERSE EFFECT" shall mean any event, act or condition,
or any series of events, acts or conditions, which has, or could reasonably
be expected to have, a material adverse effect upon (i) the business,
operations, properties, assets or condition (financial or otherwise) of
Borrower or (ii) the ability of Borrower to perform, or of Lender to enforce,
any of the Obligations.
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first or subordinate lien on an estate in fee simple in real
property securing a Pledged Note.
"MORTGAGE FILE" has the meaning set forth in the Custodial
Agreement.
"MORTGAGED PROPERTY" means (i) with respect to any Pledged Loan
other than a Type 4 (Unsecured FHA) Loan, the property subject to the lien of
the Mortgage securing a Pledged Note; and (ii) with respect to any Type 4
(Unsecured FHA) Loan, the related residential property of the Mortgagor more
particularly referenced on an exhibit to the related Trust Receipt.
"MORTGAGOR" means the obligor on a Pledged Note.
"NET WORTH" means, as of any date of determination, the sum of the
capital stock and additional paid-in capital of Borrower plus retained
earnings (or minus accumulated deficits),
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as determined in accordance with GAAP.
"NOTE" means the promissory note executed by Borrower in favor of
Lender pursuant to Section 3.3 and substantially in the form of Exhibit B.
"OBLIGATIONS" means all obligations of every nature of Borrower
from time to time owed to Lender under this Agreement.
"OFFICER'S CERTIFICATE" means a certificate executed on behalf of
Borrower by the Chairman of the Board (if an officer) or President of
Borrower or one of its Vice Presidents or by its Chief Financial Officer or
its Treasurer or Controller.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or
not legal entities, and governments and agencies and political subdivisions
thereof.
"PLEDGED LOAN" means any Type 1 (LESS THAN 125%) Loan, Type 2 (Wet)
Loan, Type 3 (GREATER THAN 125%) Loan or Type 4 (Unsecured FHA) Loan that is
pledged by Borrower and accepted by Lender in connection with an Advance,
which loans may consist of a Combination Loan, a Debt Consolidation Loan, a
Home Improvement Loan, a Purchase or Refinance Loan or (subject to the prior
approval of the Lender to the inclusion within this definition of Pledged
Loan) another type of mortgage or consumer loan.
"PLEDGED LOAN SCHEDULE" means, with respect to any Advance that
will be secured by Collateral that consists of Pledged Loans, a detailed
listing to be provided by Borrower to Lender and attached to the related
Request for Advance, which schedule shall be in a form acceptable to Lender
and shall set forth the following: a schedule of Pledged Loans identifying
each Pledged Loan by Borrower's loan number, Mortgagor's name and address
(including the state and zip code) of the Mortgaged Property, whether such
Pledged Loan is secured by a first or junior lien (specifying the priority of
such junior lien) on the related Mortgaged Property, the combined
loan-to-value ratio, the appraised value of the Mortgaged Property, the
outstanding principal amount as of a specified date, the initial interest
rate borne by such Pledged Loan, the original principal balance thereof, the
current scheduled monthly payment of principal and interest, the maturity of
the related Pledged Note, the property type, the occupancy status, the
original term to maturity, whether the Pledged Loan is a Type 1 (LESS THAN OR
EQUAL TO 125%) Loan, Type 2 (Wet) Loan, Type 3 (GREATER THAN 125%) Loan or
Type 4 (Unsecured FHA) Loan, whether the Pledged Loan is a Conventional
Pledged Loan or an FHA Insured Loan, and whether or not the Pledged Loan
(including the related Pledged Note) has been modified; PROVIDED, HOWEVER,
that the items of information set forth on the Pledged Loan Schedule may be
expanded or contracted by mutual agreement of Lender and Borrower.
"PLEDGED MBS" means any residual, subordinated or interest strip
class of asset-
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backed security (i) issued in connection with a securitization in which
Lender or its designee acted as lead or co-lead underwriter or placement
agent and (ii) pledged by Borrower and accepted by Lender in connection with
an Advance.
"PLEDGED MBS FILE" has the meaning set forth in Section 5.1.E.
"PLEDGED MBS SCHEDULE" means, with respect to any Advance that will
be secured by Collateral that consists of any Pledged MBS, a detailed listing
to be provided by Borrower to Lender and attached to the related Request for
Advance, which schedule shall be in a form acceptable to Lender and shall set
forth a description of the Pledged MBS that will secure the related Advance,
including without limitation, if applicable, the CUSIP number, the coupon
rate, the maturity date and the original face amount and the current face
amount.
"PLEDGED NOTE" means the note or other evidence of indebtedness of
a Mortgagor and, with respect to any Pledged Loan other than a Type 4
(Unsecured FHA) Loan, secured by a Mortgage.
"POTENTIAL EVENT OF DEFAULT" means a condition or event which,
after notice or lapse of time or both, would constitute an Event of Default
if that condition or event were not cured or removed within any applicable
grace or cure period.
"PURCHASE OR REFINANCE LOAN" means a loan, the net proceeds of
which were used by the related Mortgagor to purchase or refinance single
family residential property.
"REQUEST FOR ADVANCE" means a request by Borrower for an Advance,
substantially in the form of Exhibit E-1 hereto, setting forth the requested
terms of a proposed Advance.
"REQUEST FOR RELEASE" shall have the meaning set forth in the
Custodial Agreement.
"REQUIRED DOCUMENTS" means, with respect to any Advance secured by
Pledged Loans, those documents that Borrower shall deliver to Custodian as
part of the related Mortgage File in accordance with the Custodial Agreement.
"RESET DATE" means each date on which the Interest Rate is to be
recalculated by Lender as set forth in the related Advance Request
Confirmation.
"SELLER'S GUIDE" means (i) the "Seller/Servicer Guide" of Borrower,
a true and correct copy of which was previously provided to Lender by
Borrower, and (ii) with respect to any FHA-Insured Loan, the applicable
guidelines of FHA.
"SUBSIDIARY" means any corporation, association, partnership, trust
or other business entity in which more than 50% of the total voting power or
shares of stock entitled to
8
vote in the election of directors, managers or trustees thereof, or more than
50% of the total equity interests (including partnership interests) therein,
is at the time owned or controlled, directly or indirectly, by any Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"TRUST RECEIPT" means a trust receipt and certification issued by
the Custodian to Lender in accordance with the Custodial Agreement,
indicating that with respect to any Eligible Asset listed on the schedule
attached thereto, the Custodian (i) has performed the applicable
certification procedures set forth in the Custodial Agreement and (ii) is
holding such Eligible Asset as bailee and custodian of Lender.
"TYPE 1 (LESS THAN OR EQUAL TO 125%) Loan" means any residential
mortgage loan originated and serviced by Borrower in accordance with the
Seller's Guide, which mortgage loan has a combined loan-to-value ratio of not
more than 125%. Type 1 (LESS THAN OR EQUAL TO 125%) Loans will be designated
as such on the related Pledged Loan Schedule.
"TYPE 2 (WET) LOAN" means any Type 1 (LESS THAN OR EQUAL TO 125%)
Loan, Type 3 (GREATER THAN 125%) Loan or Type 4 (Unsecured FHA) Loan with
respect to which all of the related Required Documents have not been
deposited with the Custodian on or prior to the related Advance Date. Type 2
(Wet) Loans will be designated as such on the related Pledged Loan Schedule.
"TYPE 3 (GREATER THAN 125%) LOAN", means any residential mortgage
loan originated and serviced by Borrower in accordance with the Seller's
Guide, which mortgage loan has a combined loan-to-value ratio greater than
125% but less than 135%. Type 3 (GREATER THAN 125%) Loans will be designated
as such on the related Pledged Loan Schedule.
"TYPE 4 (UNSECURED FHA) LOAN" means any Unsecured Home Improvement
Loan that is an FHA-Insured Loan with an original principal balance of not
more than the maximum amount permitted by Seller's Guide and the applicable
FHA guidelines. Type 4 (Unsecured FHA) Loans will be designated as such on
the related Pledged Loan Schedule.
"UNSECURED HOME IMPROVEMENT LOAN" means those certain residential
home improvement loans that are not secured by a lien on the related
residential property of the Mortgagor more particularly referenced on an
exhibit to the related Trust Receipt, which loans shall conform to the
related requirements and standards set forth in Seller's Guide.
"WET LOAN LIST" shall have the meaning set forth in the Custodial
Agreement.
1.2 ACCOUNTING TERMS.
For purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to them in conformity with
GAAP.
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1.3 OTHER DEFINITIONAL PROVISIONS.
References to "Sections", "subsections" and "Articles" shall be to
Sections, subsections, and Articles respectively, of this Agreement unless
otherwise specifically provided. Any of the terms defined in Section 1.1 may,
unless the context otherwise requires, be used in the singular or the plural
depending on the reference.
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ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 REPRESENTATIONS AND WARRANTIES RELATING TO BORROWER. Borrower
represents, warrants to and covenants with Lender at the date of execution of
this Agreement and at the time any Advance is made to Borrower from Lender
that:
A. FORMATION, POWERS AND GOOD STANDING.
(i) FORMATION AND POWERS. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas. Borrower has all requisite corporate power and
authority to own and operate its properties, to carry on its business as
now conducted and proposed to be conducted, to enter into this
Agreement, to issue the Note and to carry out the transactions
contemplated hereby and thereby.
(ii) GOOD STANDING. Borrower is in good standing wherever
necessary to carry on its business and operations, except in
jurisdictions in which the failure to be in good standing has and will
have no material adverse effect on the financial condition or results of
operation of Borrower.
(iii) FHA STATUS. Borrower is an FHA-Approved Mortgagee.
B. AUTHORIZATION OF BORROWING, ETC.
(i) AUTHORIZATION OF BORROWING. The execution, delivery
and performance of this Agreement, and the issuance, delivery and
payment of the Note, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all
necessary corporate action by Borrower.
(ii) NO CONFLICT. The execution, delivery and performance
by Borrower of this Agreement and the issuance, delivery and payment of
the Note, and the consummation of the transactions contemplated hereby
and thereby, do not and will not (a) violate any provision of law
applicable to Borrower, the Articles of Incorporation or Bylaws of
Borrower, or any order, judgment or decree of any court or other agency
of government binding on Borrower, (b) conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of Borrower, (c) result in or require
the creation or imposition of any Lien, charge or encumbrance of any
nature whatsoever upon any of its properties or assets except the Lien
in favor of Lender pursuant to Section 5.1, or (d) require any approval
of shareholders or any approval or consent of any Person under any
Contractual Obligation of Borrower other than approvals or consents
which have been obtained and disclosed in writing to Lender.
11
(iii) GOVERNMENTAL CONSENTS. The execution, delivery and
performance by Borrower of this Agreement and the issuance, delivery and
payment of the Note, and the consummation of the transactions
contemplated hereby and thereby, do not and will not require any
registration with, consent or approval of, or notice to, or other action
to, with or by, any Federal, state or other governmental authority or
regulatory body or other Person by Borrower except those that have been
obtained and disclosed in writing to Lender.
(iv) BINDING OBLIGATION. This Agreement is, and the Note
when executed and delivered hereunder will be, the legally valid and
binding obligations of Borrower, enforceable against it in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally.
C. FINANCIAL CONDITION. Borrower has heretofore delivered to
Lender a balance sheet of Borrower as of June 30, 1996, and the related
statements of income, shareholders' equity and statement of cash flows
for the fiscal period then ended. All such statements were prepared in
accordance with GAAP and fairly present the financial position of
Borrower, as at the date thereof, and the results of operations and
statement of cash flows of Borrower, for the period then ended. In
addition, Borrower has provided Lender with consolidating financial
statements as of September 30, 1996, prepared in accordance with GAAP.
As of the Effective Date, Borrower will not have any material Contingent
Obligation or liability for taxes, long-term lease or unusual forward or
long-term commitment, which in accordance with GAAP is not reflected in
the foregoing statements, or in the notes thereto.
D. CHANGES, ETC. Since the date of the most recent balance
sheet of Borrower that has been delivered to Lender and the related
statements of income, shareholders' equity and statement of cash flow
for the period then ended, there has not been, and no event has occurred
that would or could reasonably be expected to result in, a Material
Adverse Change, other than changes expressly contemplated by or
disclosed in this Agreement or otherwise disclosed by Borrower to Lender
prior to the date hereof.
E. TITLE TO PROPERTIES; LIENS. Borrower has good, sufficient,
marketable and legal title to all Collateral pledged pursuant to this
Agreement by Borrower. The pledge and assignment of the Collateral
pursuant to this Agreement create a valid security interest in the
Collateral and the Lien on the Collateral created by this Agreement will
be a first priority Lien thereon, superior to all other Liens. Except
for the making of an Advance, the due filing of any financing statement
and any applicable continuation statement with respect to the Collateral
(and except for (i) delivery to Lender or its designee of any Collateral
as to which possession is the only method of perfecting a security
interest in such Collateral or (ii) transfer of any book-entry security
in accordance with Section 313 of Article 8 of the UCC), no further
action need be taken in order to create and perfect the security
interest of Lender in all the Collateral.
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F. LITIGATION; ADVERSE FACTS. There is no action, suit,
proceeding or arbitration (whether or not purportedly on behalf of
Borrower) at law or in equity or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, pending or, to the
knowledge of Borrower, threatened against or affecting Borrower, or any
of its properties, or any proposed tax assessment and there is no basis
known to Borrower for any action, suit or proceeding which would, in
either case if adversely determined, have a Material Adverse Effect.
Borrower is not (i) in violation of any applicable law which violation
causes or could reasonably be expected to cause a Material Adverse
Change, or (ii) subject to or in default with respect to any final
judgment, writ, injunction, decree, rule or regulation of any court or
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which
would or could reasonably be expected to cause a Material Adverse
Change. There is no action, suit, proceeding or investigation pending
or, to the knowledge of Borrower, threatened against or affecting
Borrower which questions the validity or the enforceability of this
Agreement or the Note.
G. PAYMENT OF TAXES. Borrower has filed all tax returns that
are required to be filed by Borrower (subject to any permissible
extension obtained pursuant to an extension request), and all taxes,
assessments, fees and other governmental charges upon Borrower as set
forth in such returns and upon its properties and assets which are due
and payable have been paid when due and payable, except to the extent
permitted by Section 6.3.
H. OTHER AGREEMENTS; PERFORMANCE.
(i) AGREEMENTS. Borrower is not, and on any Advance Date
will not be, a party to or subject to any Contractual Obligation or
charter or other internal restriction that has or could reasonably be
expected to have a Material Adverse Effect.
(ii) PERFORMANCE. Borrower is not, and on any Advance Date
will not be, in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any
Contractual Obligation of Borrower, and no condition exists which, with
the giving of notice or the lapse of time or both, would constitute such
a default, except where the consequences of such default or defaults, if
any, would not have a Material Adverse Effect. To the best knowledge of
Borrower, the other parties to each Contractual Obligation of Borrower
are not in default thereunder, except where the consequences of such
default or defaults, if any, would not or could not reasonably be
expected to have a Material Adverse Effect.
I. GOVERNMENTAL REGULATION. Borrower is not, and at the
Effective Date will not be, an "investment company" or a company
"controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended, or subject to any Federal or
state statute or regulation limiting its ability to incur Indebtedness
for
13
money borrowed.
J. EMPLOYEE BENEFIT PLANS. Borrower is in compliance in all
material respects with all applicable provisions of ERISA and the
Internal Revenue Code of 1986 and the regulations and published
interpretations thereunder with respect to all Employee Benefit Plans.
Neither Borrower nor any of Borrower's ERISA Affiliates has engaged in
any transaction prohibited by Section 408 of ERISA or Section 4975 of
the Code.
K. DISCLOSURE. No representation or warranty of Borrower
contained in this Agreement (other than any representation or warranty
contained in Section 2.2 or 2.3 hereof) or any other document,
certificate or written statement furnished to Lender by or on behalf of
Borrower for use in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits
to state a material fact (known to Borrower in the case of any document
not furnished by it) necessary in order to make the statements contained
herein or therein not misleading. As of the date of delivery by
Borrower to Lender of any report, statement or other certificate
pursuant to this Agreement, Borrower shall be deemed to certify that any
such report, statement or other certificate is accurate and complete in
all material respects. There is no fact known to Borrower (other than
matters of a general economic nature) which would have a Material
Adverse Effect and which has not been disclosed herein or in such other
documents, certificates and statements furnished to Lender for use in
connection with the transactions contemplated hereby.
L. COMPLIANCE WITH STATE LAW. Borrower is in compliance with
the laws, regulations and rules of each State of the United States of
America, and with any other jurisdiction which may be applicable to
Borrower, to the extent necessary to ensure the enforceability of
Lender's security interest in the Collateral. Borrower has obtained all
permits and licenses necessary to carry on its business and operations
except in jurisdictions in which the failure to obtain a permit or
license has and will have no Material Adverse Effect.
Section 2.2 REPRESENTATIONS AND WARRANTIES RELATING TO PLEDGED
LOANS. With respect to any Advance secured by Eligible Assets that consist
of Pledged Loans, Borrower represents and warrants to Lender that, as to each
Pledged Loan and the related Mortgage (if applicable) and Pledged Note:
A. The information set forth in the related Pledged Loan
Schedule and all other information or data furnished by, or on behalf
of, Borrower to Lender (i) is complete, true and correct in all
material respects, and Borrower acknowledges that Lender has not
verified the accuracy of such information or data and (ii) is identical
in all material respects to any related statement transmitted to
Custodian for the purpose of Custodian issuing the related Trust Receipt.
B. As of the date of delivery by Borrower to Lender of any
report,
14
statement or other certificate pursuant to this Agreement, Borrower shall
be deemed to certify that any such report, statement or other certificate
(including without limitation any collateral tapes or reports delivered
pursuant to Section 6.10) is complete, true and correct in all material
respects.
C. The representations and warranties set forth in Schedule 2
hereto with respect to each Pledged Loan are true, correct and complete
as of the related Advance Date. Borrower and Lender may, by mutual
agreement, from time to time modify and supplement the representations
and warranties set forth in Schedule 2.
D. The Required Documents and any other documents required to
be delivered under this Agreement have been delivered to Custodian;
PROVIDED, HOWEVER, with respect to any Type 2 (Wet) Loan, the related
Required Documents shall be delivered in accordance with the Custodial
Agreement.
E. Each FHA Insured Loan (i) was underwritten in accordance
with the written underwriting standards of FHA in place at the time of
origination of such loan and (ii) is insured under FHA's Title I Program.
F. The Pledged Loan is a Type 1 (LESS THAN OR EQUAL TO 125%)
Loan, Type 2 (Wet) Loan, Type 3 (GREATER THAN 125%) Loan or Type 4
(Unsecured FHA) Loan and has been properly identified on the related
Pledged Loan Schedule.
G. The aggregate principal Dollar amount of outstanding
Advances (i) secured by Type 2 (Wet) Loans does not exceed $50 million
and (ii) secured by Type 3 (GREATER THAN 125%) Loans and Type 4
(Unsecured FHA) Loans, in the aggregate, does not exceed $10 million.
Section 2.3 REPRESENTATIONS AND WARRANTIES RELATING TO PLEDGED MBS.
In the case of any Advance secured by Collateral that consists of Pledged
MBS, Borrower represents and warrants to Lender that, as to each Pledged MBS:
A. The information set forth in the related Pledged MBS
Schedule and all other information or data furnished by, or on behalf
of, Borrower to Lender (i) is complete, true and correct in all material
respects, and Borrower acknowledges that Lender has not verified the
accuracy of such information or data; and (ii) is identical in all
material respects to any related statement transmitted to Custodian for
the purpose of Custodian issuing the related Trust Receipt.
15
B. Borrower is the sole owner of record and holder of the
Pledged MBS. The Pledged MBS is not assigned or pledged, and Borrower
has good and marketable title thereto, and has full right and authority
to pledge or assign the Pledged MBS to Lender pursuant to this Agreement
free and clear of any encumbrance, equity, participation interest, lien,
pledge, charge, claim or security interest, and subject to no interest
or participation of, or agreement with, any other party, except with
respect to any restrictions or limitations relating to the pledge or
assignment of the Pledged MBS set forth in the documents providing for
the issuance of the Pledged MBS.
C. The documents contained in the Pledged MBS File and any
other documents required to be delivered under this Agreement have been
delivered to Lender or its designee.
D. The aggregate principal Dollar amount of outstanding
Advances secured by Pledged MBS does not exceed $100 million.
16
ARTICLE III
BORROWING AND REPAYMENTS; NOTE
Section 3.1 CERTIFICATIONS; ADVANCES.
A. CERTIFICATIONS. On each Advance Date, Borrower shall be
deemed to certify that (i) the representations and warranties of
Borrower contained herein are accurate and complete in all material
respects to the same extent as though made on and as of the date of such
Advance; (ii) no Event of Default or Potential Event of Default has
occurred and is continuing hereunder or will result from the proposed
borrowing; (iii) Borrower has delivered or will cause to be delivered to
Lender all documents required to be delivered to Lender pursuant to this
Agreement; and (iv) Borrower has performed in all material respects all
agreements and satisfied all conditions hereunder provided to be
performed or satisfied by it on or before the date of such Advance.
B. ADVANCES.
(i) With respect to any Advance to be secured by Pledged MBS,
not later than 3:00 P.M. New York City time on the date that is
five Business Days prior to the related Advance Date, Borrower
may request that Lender, by notice in the form of a Request for
Advance, make an Advance to or for the account of Borrower.
With respect to any Advance to be secured by Pledged Loans
other than Type 2 (Wet) Loans, not later than 3:00 P.M. New
York City time on the date that is one Business Day prior to
the related Advance Date, Borrower may request that Lender, by
notice in the form of a Request for Advance, make an Advance to
or for the account of Borrower. In connection with any such
Requests for Advance, Lender shall have received the related
Trust Receipt not later than 2:00 P.M. New York City time on
the related Advance Date.
(ii) With respect to any Advance to be secured by Type 2 (Wet)
Loans, not later than 6:00 P.M. New York City time on the date
that is one Business Day prior to the related Advance Date,
Borrower may request that Lender (by notice in the form of a
Request for Advance which specifies the anticipated amount of
Type 2 (Wet) Loans to be pledged by Borrower) make an Advance
to or for the account of Borrower. In connection with any
Advance Request Confirmation relating to Type 2 (Wet) Loans,
not later than 10:00 A.M. New York City time on the related
Advance Date, Lender shall have received (A) from Borrower, a
final Request for Advance, and (B) from Custodian, the related
Wet Loan List.
(iii) Lender may, in its sole discretion, by confirmation in
the form of an Advance Request Confirmation, agree to make
Advances to or for the
17
account of Borrower in amounts not to exceed in the aggregate
the aggregate Collateral Value of the related Eligible Assets.
If all conditions set forth in Section 4.1 and 4.2 of this
Agreement have been satisfied, Lender may make an Advance to
Borrower by causing an amount of immediately available funds
equal to the amount of the proposed Advance to be paid in
accordance with Borrower's wire instructions. Lender will
send, via facsimile transmission, a copy of the Advance Request
Confirmation updated to reflect any such Advance, the
applicable Interest Rate, the Advance Date, the Interest
Payment Date(s), the Interest Determination Date(s) and the
Advance Maturity Date.
C. NETTING OF PAYMENTS. To the extent that an Advance is made
by Lender to Borrower on an Interest Payment Date or an Advance Maturity
Date, Lender shall calculate the net amount payable and shall send
Borrower a confirmation detailing Lender's calculation and setting forth
the net amount to be received or paid by Borrower, including, without
limitation, amounts payable under the Note.
D. USAGE OF UNCOMMITTED FACILITY. During each 12 month period
that this Agreement is in effect, Borrower shall offer to pledge to
Lender (pursuant to one or more Requests for Advance) Pledged Loans in
an aggregate amount sufficient to permit Lender to make Advances
(pursuant to one or more Advance Request Confirmations) in an aggregate
amount equal to not less than $100 million. During the period beginning
on the date hereof and continuing for a period of forty-five days
thereafter, Borrower covenants and agrees to pledge to Lender (pursuant
to one or more Requests for Advance) Type 1 (LESS THAN OR EQUAL TO 125%)
Loans in an aggregate amount equal to not less than $200 million.
E. ADVANCES OPTIONAL. Notwithstanding any other provision of
this Agreement to the contrary, the determination to make any Advance to
or for the account of Borrower is subject to the approval of Lender in
its sole discretion. Lender may, in its sole discretion, reject any
Eligible Asset from inclusion as Collateral for an Advance for any
reason.
3.2 MARKET VALUE; MARGIN MAINTENANCE.
A. MARKET VALUE. Notwithstanding any provision in this
Agreement to the contrary, the Market Value of any Eligible Asset shall
be as determined, from time to time, by Lender in its sole discretion
using reasonable business judgment taking into consideration the level
of prevailing interest rates, the characteristics of the related
Collateral and general market conditions; PROVIDED, HOWEVER, that (i)
the Market Value of any Pledged MBS shall be determined in accordance
with Borrower's Pledged MBS Valuation Model, the results of which may be
modified by Lender in its discretion using reasonable business judgment;
(ii) any Type 2 (Wet) Loan with respect to which the related Required
Documents have not been certified by the Custodian within the time
18
limitations set forth in the Custodial Agreement) shall have a Market
Value of $0; (iii) any Pledged Loan with respect to which the related
Mortgagor has been delinquent in payment of principal or interest for
more than 60 days shall have a Market Value of not more than 50% of the
then-outstanding principal balance of such Pledged Loan; (iv) any
Pledged Loan with respect to which the related Mortgagor has been
delinquent in payment of principal or interest for more than 90 days
shall have a Market Value of $0; (v) any Pledged Loan that has been
pledged by Borrower to Lender as Collateral for more than 180 days shall
have a Market Value of $0; (vi) any Pledged Loan or Pledged MBS that
does not conform in any material respect to the representations,
warranties and covenants set forth in Sections 2.2 or 2.3, respectively,
shall have a Market Value of $0; and (vii) any Eligible Asset with
respect to which Lender's security interest therein shall become
impaired or unenforceable shall have a Market Value of $0.
B. MARGIN MAINTENANCE. If at any time the aggregate Collateral
Value of all Eligible Assets subject to Advances is less than the total
outstanding amount of such Advances (a "Margin Deficit"), then Lender
may by notice to Borrower delivered not later than 11:00 a.m. (New York
City time) on a Business Day (a "Margin Call") require Borrower to
transfer to Lender cash or additional Collateral in an amount which is
not less than the amount of the Margin Deficit. Any Margin Call made by
Lender to Borrower after 11:00 a.m. (New York City time) shall be deemed
to have been made on the next succeeding Business Day. In the event
that Borrower fails to transfer the requisite amount of additional
Collateral to Lender on the day of any such Margin Call from Lender as
provided herein, the Interest Rate applicable to the Advances shall
increase by the Incremental Interest Rate. If Borrower thereafter fails
to transfer the requisite additional Collateral to Lender within 1
Business Day after application of the Incremental Interest Rate as
provided herein, the Interest Rate applicable to the Advances shall
increase by the Mandatory Repayment Interest Rate.
3.3 NOTE; INTEREST.
A. NOTE.
(i) Borrower shall execute and deliver to Lender, not later
than the Effective Date, the Note.
(ii) Upon repayment in full of all amounts due and payable under
the Note, Lender shall promptly cancel the Note and return the cancelled
Note to Borrower.
B. RATE OF INTEREST. Subject to subsection E of this Section
3.3, each Advance shall bear interest on the unpaid principal amount
thereof from the related Advance Date through maturity (whether by
acceleration or otherwise) at a rate per annum equal to the applicable
Interest Rate. The Interest Rate shall be adjusted on each Interest
Determination Date to account for any changes in LIBOR.
19
C. INTEREST PAYMENTS. Subject to subsection E of this Section 3.3,
the interest accrued on all Advances during any Interest Period shall be
payable on the Interest Payment Date immediately following the end of such
Interest Period.
D. POST-MATURITY INTEREST. Any principal amount of any Advance not
repaid by Borrower when due and, to the extent permitted by applicable law,
any interest payments on such Advance or any Breakage Fee not paid when due
or within any applicable grace period, in each case whether at stated maturity,
by notice of prepayment, by acceleration or otherwise, shall thereafter bear
interest payable on demand, at Lender's sole discretion, at a default interest
rate equal to 300 basis points above the applicable Interest Rate.
E. COMPUTATION OF INTEREST. Interest on each Advance shall be
computed on the basis of a 360-day year and the actual number of days elapsed
in the period during which it accrues. In computing interest on each Advance,
the Advance Date shall be included and the Advance Maturity Date shall be
excluded.
F. BREAKAGE FEE. With respect to any Advance Request Confirmation, in
the event that (i) Borrower declines to accept payment of the related Advance
or (ii) Lender does not receive the related Trust Receipt prior to 2:00 P.M.
New York City time on the related Advance Date, then, notwithstanding that no
Advance may have been made to Borrower, Borrower shall pay to Lender a Breakage
Fee. Any such Breakage Fee shall be payable to Lender on the Interest Payment
Date immediately following the accrual of any such Breakage Fee.
3.4 REPAYMENTS AND PAYMENTS.
A. REPAYMENT. Borrower shall repay the entire amount outstanding of each
Advance on the related Advance Maturity Date.
B. MANNER AND TIME OF PAYMENT. All payments of principal, interest and
fees hereunder and under the Note shall be made in immediately available funds
and delivered to Lender in accordance with its wire transfer instructions as set
forth in the form of Exhibit F hereto, not later than 3:00 p.m. (New York City
time) on a Business Day; funds received by Lender after that time shall be
deemed to have been paid by Borrower on the next succeeding Business Day.
C. PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in the computation of the
payment of interest hereunder or under the Note.
3.5 ADVISORY FEE. In consideration of Lender assisting Borrower in
20
establishing and administering this Agreement, Borrower shall pay to Lender a
fee in an amount equal to $250,000 (the "Advisory Fee") on or before the
Effective Date. The Advisory Fee shall be non-refundable.
21
ARTICLE IV
CONDITIONS TO THE ADVANCES
4.1 CONDITIONS TO THE EFFECTIVE DATE. The obligation of Lender to
make or maintain any Advance on or after the Effective Date is, in addition
to the conditions precedent specified in Section 4.2, subject to prior or
concurrent satisfaction of the following conditions:
A. On or before the Effective Date (unless otherwise specified
herein), Borrower shall deliver to Lender:
(i) certified copies of the Articles of Incorporation of
Borrower, with all amendments thereto, together with a good standing
certificate from the Secretary of State of the State of Delaware, each
to be dated within 16 days of the Effective Date;
(ii) copies of the Bylaws of Borrower with all amendments
thereto, certified as of the Effective Date or as soon as practicable
thereafter by the corporate secretary or an assistant secretary;
(iii) resolutions of the Board of Directors of Borrower and
approving and authorizing the execution, delivery and performance of
this Agreement, and approving and authorizing the execution, delivery
and payment of the Note, certified as of the Effective Date by the
corporate secretary or an assistant secretary;
(iv) signature and incumbency certificates of the respective
officer of Borrower executing this Agreement and the Note and of the
representatives authorized to request the Advance, to transfer funds,
and to make any payments on the Obligations hereunder;
(v) executed copies of this Agreement and the executed Note
with appropriate insertions on any Advance Schedule;
(vi) such executed financing statements as Lender may require
for filing pursuant to the Uniform Commercial Code; and
(vii) the Guarantee, which Guarantee shall be in form and
substance satisfactory to Lender.
B. Lender and its counsel shall have received one or more
favorable written opinions of Borrower's counsel, in form and substance
satisfactory to Lender and its counsel, dated as of the Effective Date.
C. Borrower shall have paid to Lender in immediately available
funds an amount equal to the Advisory Fee.
22
D. Borrower shall have performed in all material respects all
agreements which this Agreement provides shall be performed on or before
the Effective Date.
E. All actions and documents required to create and perfect the
first priority security interest and Liens in the Collateral shall have
been duly authorized and executed and delivered or taken (all in a manner
satisfactory to Lender and its counsel) and all filings with governmental
agencies shall have been made or taken and completed.
F. Lender shall have received written instructions from Borrower
regarding the wire instructions for all Advances.
4.2 CONDITIONS TO ALL ADVANCES. At and as of each Advance Date, the
obligation of Lender to make any Advance is subject to the following further
conditions precedent:
(i) the representations and warranties of Borrower contained
herein shall be accurate and complete to the same extent as though made
on and as of that date;
(ii) no event shall have occurred and be continuing or would
result from the consummation of the proposed Advance which would
constitute an Event of Default or a Potential Event of Default;
(iii) Borrower shall have performed all agreements and satisfied
all conditions which this Agreement provides shall be performed by it on
or before the related Advance Date;
(iv) no order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain Lender from
making that Advance;
(v) there shall not be pending or, to the knowledge of
Borrower threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Borrower or any property
of Borrower, which has not been disclosed by such Borrower to Lender in
writing prior to the execution of this Agreement or prior to the making of
the last preceding Advance, and there shall have occurred no development
not disclosed by Borrower to Lender in writing prior to the execution of
this Agreement or prior to the making of the last preceding Advance in any
such action, suit, proceeding, governmental investigation or arbitration
so disclosed, which, in either event, in the opinion of Lender, would
reasonably be expected (a) to have a Material Adverse Effect or, (b) to
impair the ability of Borrower to perform the Obligations or of Lender to
enforce the Obligations;
(vi) (A) on or prior to the related Advance Date, Borrower shall
have delivered to Custodian, for its review and certification, any
Required Documents in
23
accordance with the Custodial Agreement; and (B) not later than 2:00 P.M.
New York City time on the related Advance Date, Lender shall have received
the Trust Receipt for any Eligible Assets other than Type 2 (Wet) Loans;
(vii) With respect to any Advance to be secured by a Type 2
(Wet) Loan, Lender shall have received by not later than 10:00 A.M. New
York City time on the related Advance Date, a final Wet Loan List from
Custodian.
(viii) all actions and documents required to create and perfect
the first priority security interest and Liens in the Collateral shall
have been duly authorized and executed and delivered (to Lender, if
applicable) or taken, in each case in a manner satisfactory to Lender and
its counsel; and
(ix) all filings with respect to the Collateral with
governmental agencies shall have been made or taken and completed.
24
ARTICLE V
SECURITY
5.1 GRANT OF SECURITY INTEREST.
A. SECURITY INTEREST. To secure the payment of the Advances and
the performance of the other Obligations, Borrower pledges and hypothecates
to Lender and grants a first priority security interest in favor of Lender,
in all of Borrower's right, title and interest in and to the Collateral.
B. PLEDGED LOANS AND PLEDGED LOAN SCHEDULES. With respect to any
Advance secured by Collateral that consists of Pledged Loans:
(i) the Pledged Loans shall be identified by Borrower on a
Pledged Loan Schedule attached to the related Request for Advance;
(ii) each Pledged Loan Schedule shall specify all required
information and shall identify the type of the related Pledged Loan as
either a Type 1 ( 125%) Loan, Type 2 (Wet) Loan, Type 3 (> 125%) Loan or
Type 4 (Unsecured FHA) Loan, as the case may be;
(iii) all Required Documents shall be delivered to the Custodian
and held by the Custodian pursuant to the terms of the Custodial Agreement;
and
(iv) the Pledged Loans shall be serviced for the benefit of
Lender by Borrower or Borrower's agent in accordance with Accepted
Servicing Practices. "Accepted Servicing Practices" shall mean those
servicing practices of prudent mortgage servicers, servicing mortgage loans
of the same type as the Pledged Loans in those jurisdictions in which the
related Mortgage Properties are located, but in no event shall such
standards or practices be lower than the standards and practices set forth
in the Seller's Guide.
C. DELIVERY TO CUSTODIAN OF REQUIRED DOCUMENTS. With respect to any
Advance secured by Collateral that consists of Pledged Loans, the transfer
of such Pledged Loans for the purposes of this Section 5.1 shall include
the delivery to Lender or its designee of the Required Documents with
respect to each Pledged Loan.
D. PLEDGED MBS AND PLEDGED MBS SCHEDULE. With respect to any
Advance secured by Collateral that consists of an Pledged MBS:
(i) the Pledged MBS shall be identified by Borrower on an
Pledged MBS Schedule attached to the related Request for Advance,
which Pledged MBS Schedule shall specify all information reasonably
required by Lender; and
25
(ii) the documents contained in the Pledged MBS File shall be
delivered by Borrower to Lender or its designee and held by Lender or
its designee.
E. DELIVERY TO LENDER OF PLEDGED MBS FILE. With respect to any
Advance secured by Collateral that consists of an Pledged MBS, the transfer
of such Pledged MBS of the purposes of this Section 5.1 shall include the
delivery to Lender or its designee of the following documents (the "Pledged
MBS File") with respect to each Pledged MBS:
(i) the Pledged MBS and, if applicable, the CUSIP number;
(ii) a duly executed bond or securities power in blank;
(iii) if applicable, transferor certificate; and
(iv) appropriate corporate resolutions.
Lender agrees to execute and deliver any documents that are required under
the agreements providing for the issuance of such Pledged MBS in connection
with the pledge thereof hereunder, including, if applicable, an investment
letter for such Pledged MBS.
5.2 RELEASE AND SUBSTITUTION OF COLLATERAL. Borrower may obtain
the release from Lender of the security interest in and lien on all or any
part of the Collateral at any time, and from time to time, either: (i) by
paying to Lender as a repayment in accordance with Section 3.4 on the Advance
Maturity Date the amount of the Advance outstanding with respect to such
Collateral to be so released, or (ii) by substituting new Collateral of an
equal or greater Collateral Value for existing Collateral pursuant to this
Section 5.2. Any such release of the security interest in and lien on all or
any part of the Collateral shall be evidenced by the execution and delivery
by Lender of appropriate documentation to evidence such release.
With respect to any Pledged Loans included as existing Collateral
hereunder, Borrower may, in its sole discretion, substitute loans that have
an equal or greater Collateral Value and that satisfy the requirements for
Pledged Loans hereunder by pledging such loans as new Collateral hereunder
(the "Substitute Collateral") in exchange for the release of existing
Collateral securing an Advance, provided that (i) Borrower complies with the
applicable procedures and requirements set forth in Section 3.1 hereof with
respect to any such Substituted Collateral; and (ii) such Substitute
Collateral is acceptable to Lender, in its reasonable business judgment.
5.3 RECEIPT OF PLEDGED LOAN INCOME AND PLEDGED MBS INCOME. So
long as no Potential Event of Default or an Event of Default shall have
occurred and be continuing, Borrower shall receive and retain for its own
account all principal and interest collected by Borrower from the Pledged
Loans (the "Pledged Loan Income") and all distributions received
26
by Borrower from the Pledged MBS (the "Pledged MBS Income"). Upon such
receipt by Borrower all such Pledged Loan Income and Pledged MBS Income shall
be released from the security interest and lien of Lender hereunder and shall
no longer constitute Collateral hereunder.
If a Potential Event of Default or an Event of Default shall have
occurred and be continuing, Lender may, in its sole discretion, (i) require
that Borrower establish one or more segregated trust accounts, that shall be
maintained for the benefit of Lender with a state or federally chartered
depository institution selected by Lender, into which all Pledged Loan Income
shall be deposited within two (2) Business Days of receipt by Borrower and
all Pledged MBS Income shall be deposited upon distribution, and (ii) terminate
Borrower as the servicer of the Pledged Loans, with or without cause, and in
either case without payment of any termination fee or compensation for such
servicing rights.
5.4 LENDER AS ATTORNEY-IN-FACT. Lender is hereby appointed the
attorney-in-fact of Borrower for the purpose of carrying out the provisions
of this Agreement and taking any action and executing any instruments with
respect to the Collateral hereunder that Lender may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, Lender shall have the right and
power during the occurrence and continuation of an Event to Default (i) to
receive, endorse and collect all checks made payable to the order of Borrower
representing any payment on account of the principal of or interest on any
Pledged Loans and any distribution on any Pledged MBS; and (ii) to execute,
in connection with any sale as provided for in Section 7.1 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
5.5 SECURITY FOR OBLIGATIONS. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until payment in full of all Obligations, (ii) be binding
upon Borrower, its successors and assigns, and (iii) inure to the benefit of
Lender and its successors, transferees and assigns. Upon the payment in full
of the Obligations, Borrower shall be entitled to the return, upon its
request and at its expense, of such of the Collateral as shall not have been
sold or otherwise applied in connection with an Event of Default pursuant to
the terms hereof.
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ARTICLE VI
COVENANTS OF BORROWER
Borrower covenants and agrees that until the payment in full of all
Obligations, unless Lender shall otherwise give express prior written consent
in this Article VI.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in
conformity with GAAP. Borrower will deliver, or cause to be delivered, to
Lender the following:
(i) as soon as practicable and in any event within 45 days
after the end of each calendar quarter, a balance sheet of Borrower as
at the end of such period and the related statements of income,
shareholders' equity and statement of cash flows of Borrower for such
quarter and for the period from the beginning of the current fiscal year
to the end of such quarter, setting forth in each case in comparative
form the figures for the corresponding periods of the previous fiscal
year, all in reasonable detail and certified by the chief financial
officer of Borrower that they fairly present the financial condition and
results of operations of Borrower, subject to changes resulting from
audit and normal year-end adjustments as at the end of and for the
period covered thereby. The delivery by Borrower to Lender of
Borrower's Form 10-Q for such period shall satisfy the requirements of
this subdivision (i);
(ii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, a balance sheet of Borrower as at the end
of such fiscal year and the related statements of income, shareholders'
equity and statement of cash flows of Borrower for such fiscal year,
setting forth in each case in comparative form the figures for the
previous year, all in reasonable detail and certified by the chief
accounting officer of Borrower and accompanied by a report thereon of
independent certified public accountants of recognized national standing
selected by Borrower and satisfactory to Lender which report shall state
that such financial statements present fairly the financial position of
Borrower as at the dates indicated and the results of its operations and
statement of cash flows for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years (except as otherwise
stated therein) and that the examination by such accountants in
connection with such financial statements has been made in accordance
with generally accepted auditing standards. The delivery by Borrower to
Lender of Borrower's Form 10-K for such period shall satisfy the
requirements of this subdivision (ii);
(iii) concurrent with the delivery of the applicable financial
statements specified in subdivision (i) and (ii) above, Borrower will
deliver to Lender a consolidated balance sheet as of the same dates as
the financial statements specified in subdivision (i) and (ii) above,
prepared in accordance with GAAP.
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(iv) together with each delivery of financial statements of
Borrower pursuant to subdivisions (i), (ii) and (iii) above, a
Compliance Certificate, (a) stating that the signers of the Compliance
Certificate have reviewed the terms of this Agreement and the Note and
have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of Borrower during
the accounting period covered by such financial statements and that such
review has not disclosed the existence during or at the end of such
accounting period, and that the signers do not have knowledge of the
existence as at the date of the Compliance Certificate, of any condition
or event which constitutes an Event of Default or, if any such condition
or event existed or exists, specifying the nature and period of
existence thereof and what action Borrower has taken, is taking and
proposes to take with respect thereto and (b) demonstrating in
reasonable detail compliance during and at the end of such accounting
periods with the restrictions contained in Section 6.7;
(v) promptly upon becoming available to Borrower, copies of any
press releases issued by Borrower; and
(vi) promptly upon any officer of Borrower obtaining knowledge (a)
of any condition or event which constitutes an Event of Default or
Potential Event of Default, (b) that any Person has given any notice to
Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in subsection B of Section
7.1, or (c) of the institution of any litigation involving an alleged
liability of Borrower equal to or greater than $10 million, or any
adverse determination in any litigation involving a potential liability
of Borrower equal to or greater than $1 million, or any adverse
determination in any litigation which would or could reasonably be
expected to have a Material Adverse Effect, or the validity or
enforceability of this Agreement or Borrower's ability to perform the
Obligations, an Officers' Certificate specifying the nature and period
of existence of any such condition or event, or specifying the notice
given or action taken by such holder or Person and the nature of such
claimed default, Event of Default, Potential Event of Default, event or
condition, and what action Borrower has taken, is taking and proposes to
take with respect thereto.
6.2 EXISTENCE; FRANCHISES. Borrower will at all times preserve and
keep in full force and effect its corporate existence and all rights,
licenses and franchises material to its business.
6.3 PAYMENT OF TAXES AND CLAIMS. Borrower will pay all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets before any penalty accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien upon any of its properties or assets, prior to the time
when any penalty or fine shall be incurred with respect thereto; PROVIDED
that no such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if
such reserve or other appropriate provision, if any, as shall be required in
29
conformity with GAAP shall have been made therefor.
6.4 INSPECTION. Borrower will permit any authorized representatives of
Lender to visit and inspect any of the properties of Borrower including its
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its affairs, finances and accounts with its
officers and, with the permission of Borrower (which may not be unreasonably
withheld), its independent public accountants, all upon reasonable notice and
at such reasonable times during normal business hours and as often as may be
reasonably requested; PROVIDED, HOWEVER, that no permission of Borrower shall
be required in order to discuss Borrower's affairs, finances and accounts
during an Event of Default or Potential Event of Default; provided, further,
that Lender shall use any non-public information obtained during such visit
or inspection only for the purposes contemplated by this Agreement and shall
not disclose any such non-public information to any person without Borrower's
prior consent.
6.5 COMPLIANCE WITH LAWS, ETC. Borrower will exercise all due
diligence in order to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, noncompliance
with which would have a Material Adverse Effect.
6.6 RESTRICTION ON FUNDAMENTAL CHANGES. Borrower will not, without the
prior written consent of Lender, enter into any transaction of merger or
consolidation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or, except in the ordinary course of business,
convey, sell, lease, transfer or otherwise dispose of, in one transaction or
a series of transactions, all or any substantial part of its business,
property or assets, whether now owned or hereafter acquired unless (A) any
successor entity (i) is a corporation organized under the laws of the United
States or any jurisdiction thereof, (ii) expressly assumes all Obligations of
Borrower under this Agreement and (iii) is solvent and (B) no Event of
Default existed immediately before or would exist after the consummation of
such transaction, merger or consolidation.
6.7 FINANCIAL COVENANTS.
A. NET WORTH. Borrower will not permit its Net Worth at any time
to be less than $130,000,000.00
B. INDEBTEDNESS RATIO. Borrower will not permit the ratio of its
total liabilities to its Net Worth to equal or exceed 12:1. For
purposes of the foregoing sentence, the liabilities of Borrower shall
exclude any indebtedness of Borrower subordinate to any and all
Obligations due and owing to Lender.
6.8 NOTICE OF CHANGE IN ARTICLES, BYLAWS OR SELLER'S GUIDE. Borrower
shall notify Lender not less than 30 days prior to the effective date thereof
of any proposed change or amendment in the provisions of Borrower's Articles
of Incorporation, Bylaws or Seller's Guide.
30
6.9 FURTHER ASSURANCES. Borrower shall, at Borrower's expense, do all
such further acts, and execute, acknowledge and deliver all such further
documents as Lender reasonably shall require to more fully or effectively
carry out the intention or facilitate the performance of this Agreement.
6.10 REPORTS REGARDING COLLATERAL. Borrower shall provide to Lender,
not later than the 15th day of each month following the month in which any
Advance is outstanding, Agreement, any statements, reports or other
information that Lender may require for the purpose of determining the Market
Value of any Eligible Assets, including, but not limited to, collateral tapes
and yield tables, servicing reports, trustee and remittance reports, and
aging reports.
6.11 BORROWER'S SECURITIES ACTIVITIES. No part of the proceeds of any
Advance made hereunder will be used for "purchasing" or "carrying" Margin
Stock or for any purpose which violates, or would be inconsistent with, the
provisions of the Regulations of the Board of Governors of the Federal
Reserve System.
6.12 CORPORATE SEPARATION AND INDEBTEDNESS.
So long as the Obligations are outstanding, Borrower covenants and
agrees, for the benefit of Lender, that:
A. It will maintain corporate records and books of account
separate from those of any Affiliate of Borrower.
B. Its Board of Directors will hold all appropriate meetings to
authorize and approve its corporate actions.
C. In all matters relating to the operation of Borrower and an
Affiliate of Borrower, neither Borrower nor any agent acting on behalf
of Borrower will hold out or represent that Borrower and any Affiliate
constitute a single entity or that either has the authority to act on
behalf of the other.
D. It will not commingle its funds or assets with those of any other
Person.
E. It shall not be liable for or issue, incur, or assume any other
indebtedness, or guaranty any indebtedness of any Person other than a
subsidiary or in connection with a securitization relating to Pledged
Loans.
6.13 FHA INSURANCE. Borrower shall take all actions necessary to
maintain (i) the FHA insurance on any FHA Insured Loans and (ii) its status
as an FHA-Approved Mortgagee.
6.14 LIMITATION ON ADVANCES SECURED BY PLEDGED MBS. Borrower shall not
31
request an Advance to be secured by any Pledged MBS on or before January 1,
1997.
6.15 OTHER AGREEMENTS:
A. Borrower will not request or permit any Person to take any
action which might adversely affect Lender's interest in the Collateral
or the value of the Collateral without obtaining the prior written
consent of Lender.
B. Borrower will not consent to any amendment to any documents
relating to Collateral which could adversely affect the Market Value of
such Collateral without obtaining the prior written consent of Lender.
6.16 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 an Event of Default or Potential Event of
Default if such action is taken or condition exists.
32
ARTICLE VII
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. If any of the following conditions or events
("Events of Default") shall occur:
A. FAILURE TO MAKE PAYMENTS WHEN DUE. Failure to pay the
principal of an Advance when due, whether at stated maturity, by
acceleration, by notice of prepayment or otherwise; or failure to pay
any installment of interest on any Advance or any other amount due under
this Agreement, including, but not limited to, any Breakage Fee, on the
due date thereof; or
B. DEFAULT IN OTHER AGREEMENTS. Failure of Borrower to pay or any
default in the payment of any amount of principal of or interest on any
other Indebtedness in the aggregate principal amount of $1 million or
more, or in the payment of any Contingent Obligation in the aggregate
principal amount of $1 million or more, beyond any period of grace
provided unless a bond or other provision for payment thereof reasonably
satisfactory to Lender has been made; or breach or default with respect
to any other material term of any evidence of any other Indebtedness or
of any loan agreement, mortgage, indenture or other agreement relating
thereto, or any Contingent Obligation, if the effect of such default or
breach is to cause Indebtedness of Borrower in the aggregate amount of
$1 million or more to be declared due prior to its stated maturity; or
C. BREACH OF COVENANTS. Failure of Borrower to perform or comply
with any material term or condition applicable to it contained in this
Agreement, including without limitation the obligations set forth in
Section 6.1(vi); provided, however, that with respect to the covenants
contained in subsections (i), (ii) or (iv) of Section 6.1 Lender shall
give such Borrower three Business Days' notice before such failure shall
become an Event of Default; or
D. BREACH OF WARRANTY. Any of Borrower's representations or
warranties made or deemed made herein (other than any representation or
warranty contained in Section 2.2 or 2.3 hereof) or in any statement,
notice or certificate at any time given by Borrower in writing pursuant
hereto or in connection herewith shall be incorrect, incomplete or
misleading in any respect on the date as of which made or deemed made;
provided, however, that a breach of any representation or warranty
contained in Section 2.2 or 2.3 hereof shall constitute an Event of
Default if any such breach of a representation or warranty was
previously known to any executive officer of Borrower or other officer
of Borrower involved in the performance of this Agreement, in either
case after due inquiry; or
E. INVOLUNTARY BANKRUPTCY: APPOINTMENT OF RECEIVER, ETC. (i) A
court having jurisdiction in the premises shall enter a decree or order
for relief in respect of
33
Borrower, in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree
or order is not stayed; or (ii) any other similar relief shall be
granted under any applicable Federal or state law; or (iii) a decree or
order of a court having jurisdiction in the premises for the appointment
of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over Borrower, or over all or a
substantial part of their respective property, shall have been entered;
or (iv) the involuntary appointment shall be made of an interim
receiver, trustee or other custodian of Borrower, for all or a
substantial part of their respective property (by petition, application,
answer, consent or otherwise); or (v) a warrant of attachment, execution
or similar process shall be issued against any substantial part of the
property of Borrower; or
F. VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER; MATERIAL ADVERSE
CHANGE. Borrower shall have an order for relief entered with respect to
it or commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or
to the conversion to an involuntary case, under any such law, or shall
consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its or his
property; the making by Borrower of any assignment for the benefit of
creditors; the inability or failure of Borrower, or the admission by
Borrower in writing of its or his inability, to pay its or his debts as
such debts become due or the Board of Directors of Borrower (or any
committee thereof) adopts any resolution or otherwise authorizes action
to approve any of the foregoing; or Lender determines in its sole
discretion using reasonable business judgment that there has been, or an
event or series of events have occurred that could reasonably be
expected to result in, a Material Adverse Effect; or
G. JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant
of attachment, or similar process involving in any case an amount in
excess of $1 million shall be entered or filed against Borrower or any
of its assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of fifteen days or in any event later than five
days prior to the date of any proposed sale thereunder; or
H. DISSOLUTION. Any order, judgment or decree shall be entered
against Borrower decreeing the dissolution or splitting up of Borrower;
or
I. STATUS AS FHA-APPROVED MORTGAGEE. The approval of the FHA with
respect to Borrower as an FHA-Approved Mortgagee shall be withdrawn or
terminated; or
J. DEFAULT BY GUARANTOR. Any of Guarantor's representations or
warranties made pursuant to the Guarantee shall be incorrect, incomplete
or misleading in any respect, or failure of Guarantor to perform or
comply with any material term or condition contained in the Guarantee,
including without limitation the financial covenants
34
set forth in Section 7(f) of the Guarantee; or
K. OTHER DEFAULTS. Borrower shall default in the performance of
or compliance with any term contained in this Agreement other than those
referred to above in this Section 7.1; provided, however, that Lender
shall give such Borrower five Business Days notice before any such
default shall become an Event of Default unless Borrower has failed to
promptly notify Lender in accordance with Section 6.1(vi) hereof;
THEN
(i) Upon the occurrence of any Event of Default described in
subsections E or F of Section 7.1 the unpaid principal amount of and
accrued interest on the Note and any fees due hereunder shall
automatically become due and payable, without presentment, demand,
notice or other requirements of any kind, all of which are hereby
expressly waived by Borrower, and the obligation (if any) of Lender to
make any further Advances shall thereupon terminate.
(ii) Upon the occurrence of any Event of Default (other than those
described in subsection E or F of Section 7.1) Lender may, by written
notice to Borrower, declare the unpaid principal amount of and accrued
interest on the Note and any fees or any other amounts due hereunder to
be due and payable whereupon the same shall forthwith become due and
payable, without presentment, demand, notice or other requirements of
any kind, all of which are hereby expressly waived by Borrower, and the
obligation of Lender to make any further Advances shall thereupon
terminate.
(iii) Upon the occurrence of any Event of Default Lender may do
any of the following:
(a) Collect by legal proceedings all interest, principal payments
and other sums payable with respect to any outstanding Advance.
(b) Foreclose upon or otherwise enforce its security interest in
and Lien on the Collateral pursuant to this Agreement.
(c) Sell the Collateral in one or more lots, at one or more times,
at public or private sales, in an established market therefor or
otherwise, as Lender may elect, at such prices and on such terms, as to
cash or credit, as Lender may deem proper. Any sale may be made at any
place designated by Lender, and Lender shall have the right to become
the purchaser at any such sale which is open to the public and, to the
extent permitted by law, private sales. If notice is given of the sale
of any Collateral, it is agreed that notice shall be satisfactorily
given for all purposes if Lender sends, via facsimile transmission, a
copy of such notice to Borrower not less than one day prior to such
sale. The foregoing notice provisions shall not preclude Lender's
rights to foreclose upon the Collateral in any other manner permitted
under the Uniform Commercial Code
35
of the State of New York; PROVIDED that a sale of the Collateral in
accordance with such notice requirements shall be deemed a disposal of
the Collateral in a commercially reasonable manner. Lender shall have
the right in connection with the Collateral either to sell the same as
above provided, or to foreclose, ▇▇▇ upon, or otherwise seek to enforce
the same in its own name or in the name of Borrower as provided herein.
Subject to the foregoing provisions of this paragraph, after an Event of
Default shall occur and be continuing, Lender shall have the right to
renew, extend the time of payment of, or otherwise amend, supplement,
settle or compromise, in any manner, any obligations for the payment of
money included in the Collateral, any security therefor and any other
agreements, instruments, claims or chooses in action of any kind which
may be included in the Collateral. Each purchaser at any sale or other
disposition shall hold the Collateral free from any claim or right of
whatever kind, including any equity or right of redemption of Borrower,
and Borrower specifically waives (to the extent permitted by law) all
rights of redemption, stay or appraisal which it has or may have under
any rule of law or statute now existing or hereafter adopted.
(d) Take possession of all or any portion of the Collateral that
is not already in the possession of Lender, and Borrower agrees to
assemble and make available, or cause to be made available, the
Collateral to Lender at a convenient location. Lender may manage and
protect the Collateral, do any acts which Lender deems proper to protect
the Collateral as security hereunder, and ▇▇▇ upon any contract or claim
relating to the Collateral and receive any payments due thereon or any
damages thereunder, and apply all sums received to the payment of the
Obligations secured hereby in accordance with Section 7.2.
(e) Be entitled, without regard to the adequacy of the security
for the Obligations secured hereby, to the appointment of a receiver by
any court having jurisdiction, and without notice, to take possession of
and protect, collect, manage, liquidate and sell the Collateral or any
portion thereof, collect the payments due with respect to the Collateral
or any portion thereof, and do anything that Lender is authorized with
respect thereto to do.
(f) Grant extensions of time, make any compromise or settlement it
deems desirable with respect to the Collateral, or waive or release any
security interest in Collateral.
(g) Exercise all rights and remedies of a secured creditor under
the Uniform Commercial Code.
(h) Require Borrower to pursue, to the extent applicable, in its
own name but for the benefit of Lender, any one or more of the remedies
described in (a) through (g) above.
(i) All remedies are cumulative. Any failure on the part of Lender to
36
exercise or any delay in exercising any right hereunder shall not
operate as a waiver thereof, nor shall any single or partial exercise by
Lender of any right hereunder preclude any other exercise thereof or the
exercise of any other right.
7.2 APPLICATION OF PROCEEDS. Any money collected by Lender pursuant to
this Article VII (whether upon voluntary payment, foreclosure or otherwise)
shall be promptly applied as follows unless otherwise required by provisions
of applicable law:
(i) first, to the payment of all reasonable expenses incurred by
Lender under this Agreement and in enforcing its rights and the rights
of Lender hereunder, including all costs and expenses of collection,
attorneys' fees, court costs, and foreclosure expenses;
(ii) next, to the payment of all principal and interest due and
unpaid on any Advance;
(iii) next, to the payment of any other Obligations owed by
Borrower to Lender; and
(iv) next, to Borrower or as a court of competent jurisdiction may
direct.
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ARTICLE VIII
MISCELLANEOUS
8.1 EXPENSES. Whether or not the transactions contemplated hereby
shall be consummated, Borrower agrees to pay on demand (i) all the costs of
furnishing all opinions by counsel for Borrower (including without limitation
any opinions requested by Lender as to any legal matters arising hereunder),
and of Borrower's performance of and compliance with all agreements and
conditions contained herein on its part to be performed or complied with;
(ii) the reasonable fees, expenses and disbursements of counsel to Lender in
connection with the establishment and administration of this Agreement in an
aggregate amount not to exceed $30,000; (iii) all the actual costs and
expenses of creating and perfecting Liens in favor of Lender, pursuant to
this Agreement, including filing and recording fees and expenses; and (iv)
after the occurrence of an Event of Default, all costs and expenses
(including reasonable attorneys' fees and costs of settlement) incurred by
Lender in enforcing any Obligations of or in collecting any payments due from
Borrower hereunder and under the Note by reason of such Event of Default.
Attorneys' fees, expenses and disbursements incurred in enforcing, or on
appeal from, a judgment pursuant hereto shall be recoverable separately from
and in addition to any other amount included in such judgment, and this
clause is intended to be severable from the other provisions of this
Agreement and to survive and not be merged into such judgment.
8.2 INDEMNITY BY BORROWER.
A. INDEMNIFICATION BY BORROWER. In addition to the payment of
expenses pursuant to Section 8.1, whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to indemnify,
pay and hold harmless Lender and the officers, directors, employees and
agents of Lender (collectively called the "Indemnitees"), from and against
any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements
(including, without limitation, the reasonable fees and disbursements of
counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnitee
shall be designated a party thereto), which may be imposed on, incurred
by, or asserted against such Indemnitee, as a result of, or arising in any
manner out of, or in any way related to or by reason of, (i) any action or
failure to act by Borrower with respect to any Advance or on account of
any Collateral pledged hereunder, (ii) the breach of any of Borrower's
representations and warranties or covenants hereunder, or (iii) the
exercise by Lender of any of its rights and remedies (including, without
limitation, foreclosure); PROVIDED that Borrower shall have no obligation
hereunder with respect to indemnified liabilities arising from the
negligence or willful misconduct of any such Indemnitee. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it violates any law or
public policy, Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or
any of them.
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B. CLAIMS. If any claim is made, or any action, suit or
proceeding is brought against any Person indemnified pursuant to this
Section 8.2, the Indemnitee shall notify Borrower of such claim or of
the commencement of such action, suit or proceeding, and Borrower will
assume the defense of such action, suit or proceeding, employing
counsel selected by Borrower and reasonably satisfactory to such
Indemnitee and pay the fees and expenses of such counsel; PROVIDED,
HOWEVER, that if counsel to the Indemnitee shall reasonably determine
that, due to conflicts in the liabilities or defenses of Borrower and
Lender, Lender should retain its own counsel, Lender shall have the
right to retain counsel and the reasonable fees and expenses of such
counsel shall be for the account of Borrower.
8.3 SET-OFF. Borrower hereby grants to Lender a right of set-off
against the payment of any amounts that may be due and payable to Lender from
Borrower, such right to be upon any and all monies or other property of
Borrower held or received by Lender (or any Affiliate of Lender) or due and
owing from Lender to Borrower or any Affiliate.
8.4 LENDER'S DESIGNEE AS UNDERWRITER OR PLACEMENT AGENT.
(a) Borrower hereby covenants and agrees to offer to Lender or its
designated affiliates ("PW Affiliate") the option and right to act as
lead or co-lead managing underwriter or placement agent (such role as
determined by Borrower) with respect to not less than (i) the lesser
of (A) 75% of all, or (B) a total of three, securitizations conducted
by Borrower during the two-year period consisting of 1997 and 1998 and
(ii) one securitization having an issuance amount, on a best efforts
basis by Borrower solely as it relates to issuance amount, of not less
than $500 million during the two-year period consisting of 1997 and
1998. Such engagement shall be undertaken pursuant to an underwriting
agreement ("Underwriting Agreement") and/or placement agency agreement
(the "Placement Agreement"), each in form and substance satisfactory
to PW Affiliate and Borrower and in accordance with customary industry
practices for such underwriting or placement.
(b) Upon exercise of its option pursuant to subsection (a) above, PW
Affiliate's obligation to act as underwriter or placement agent in
connection with a securitization is subject to each of the following
conditions:
(i) the execution by all parties thereto of the Underwriting Agreement
or the Pacement Agreement;
(ii) the satisfaction of each of the conditions set forth in the
Underwriting Agreement or the Placement Agreement and the absence of
any events set forth therein which would permit PW's Affiliate to
terminate such agreement;
(iii) there not having occurred any material adverse change or
any development involving a prospective material adverse change in the
operations, condition
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(financial or otherwise) or prospects of the Eligible Assets or Borrower
from those that exist on the date of this Agreement, whether or not
arising in the ordinary course of business, which change, in the
reasonable judgment of PW Affiliate, would make it inadvisable or
impracticable to proceed with the securitization; and
(iv) there not having occurred any (A) suspension or material
limitation of trading in securities on the New York Stock Exchange;
(B) declaration by either Federal or New York State authorities of a
general moratorium on commercial banking activities in New York; or
(C) any outbreak or material escalation of hostilities or other
calamity or crises the effect of which on the financial markets of the
United States is such as to make it, in the reasonable judgment of PW
Affiliate, impracticable to proceed with the securitization.
(c) With respect to any securitization in which PW Affiliate acts
as underwriter or placement agent as set forth in clause (a) above, PW
Affiliate shall be allocated a reasonable and customary share of the
related securities.
(d) As compensation for PW Affiliate's services in connection with
the Underwriting Agreement or the Placement Agreement and for other
good and valuable consideration, Borrower shall pay PW Affiliate such
fees as are consistent with then-prevailing market rates.
(e) With respect to PW Affiliate's option pursuant to subsection
(a) above, PW Affiliate's option will be terminable by Borrower in the
event that PW Affiliate fails to perform its obligations under
subsection (a) above in a customary and reasonable manner, subject to
prevailing market conditions.
8.5 AMENDMENTS AND WAIVERS. No amendment, modification, termination
or waiver of any provision of this Agreement or of the Note, or consent to
any departure by Borrower therefrom, shall in any event be effective without
the written concurrence of Lender.
8.6 CONFIDENTIALITY; NON-DISCLOSURE OF INFORMATION. Each party
hereto shall treat this Agreement, the Custody Agreement and the transactions
contemplated hereby as confidential; provided, however, that such
confidential information may be disclosed (a) as required by law or pursuant
to generally accepted accounting procedures; (b) upon the written consent of
the party whose otherwise confidential information would be disclosed; or (c)
if such information was or becomes available to Lender from a third party on
a non-confidential basis.
8.7 NOTICES. Unless otherwise specifically provided herein, any
notice or other communication herein required or permitted to be given shall
be in writing and may be personally served, telecopied, telexed or sent by
overnight courier and shall be deemed to have been given when delivered in
person, upon receipt of telecopy or telex or two Business Days after deposit
with an overnight courier. For the purposes hereof, the addresses of the
parties hereto shall be as set forth under each party's name on the signature
pages hereof.
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8.8 ATTORNEYS' FEES. Subject to Sections 8.1, 8.2 and 8.3, if any
party hereto commences litigation for the interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in such action shall be entitled to its
reasonable attorneys' fees and court and other costs incurred, to be paid by
the losing party as fixed by the court or in a separate action brought for
that purpose.
8.9 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS.
A. AGREEMENT. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement, the making of the Advances hereunder and the execution and
delivery of the Note.
B. TERMINATION. Notwithstanding anything in this Agreement or
implied by law to the contrary, the agreements of Borrower set forth in
Sections 8.1, 8.2 and 8.3 shall survive the payment of the Advances and
the Note and the termination of this Agreement.
8.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of Lender in the exercise of any power, right or privilege
hereunder or under the Note shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing under this Agreement or the Note are
cumulative to and not exclusive of, any rights or remedies otherwise
available.
8.11 LIMITATION OF LIABILITY. No claim may be made by Borrower or any
other Person against Lender or the affiliates, directors, officers,
employees, attorneys or agent of any of such Persons for any special,
indirect, consequential or punitive damages in respect of any claim for
breach of contract or any other theory of liability arising out of or related
to the transactions contemplated by this Agreement or any other transactions,
or any act, omission or event occurring in connection therewith; and Borrower
hereby waives, releases and agrees not to ▇▇▇ upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to
exist in its favor.
8.12 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER AND LENDER EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING HEREUNDER.
8.13 NO JOINT VENTURE. Notwithstanding anything to the contrary herein
contained, Lender by entering into this Agreement or by taking any action
pursuant hereto, will not be deemed a partner or joint venturer with Borrower
and Borrower agrees to hold Lender harmless from any damages and expenses
resulting from such a construction of the relationship
41
of the parties hereto or any assertion thereof.
8.14 LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender
exercises any rights given to it to approve or disapprove, or any arrangement
or term is to be satisfactory to Lender, the decision of Lender to approval
or disapprove or to decide whether arrangements or terms are satisfactory or
not satisfactory shall (except as is otherwise specifically herein provided)
be in the sole discretion of Lender.
8.15 SEVERABILITY. In case any provision in or obligation under this
Agreement or the Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligations in any other
jurisdiction, shall not in any way be affected or impaired thereby.
8.16 HEADINGS. Article, section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
8.17 APPLICABLE LAW. This Agreement and the Note shall be governed by,
and shall be construed and enforced in accordance with, the laws of the State
of New York.
8.18 TRANSFERS BY LENDER; SUBSEQUENT HOLDERS OF NOTE. Lender may, in its
sole discretion, assign all of its right, title and interest in or grant a
security interest in any Pledged Loan or Pledged MBS pledged by Borrower
hereunder and all rights of Lender under this Agreement and the Custodial
Agreement in respect of such Pledged Loan or Pledged MBS to Assignee, subject
only to an obligation on the part of Assignee to deliver each such Pledged
Loan or Pledged MBS to Lender to permit Lender or its designee to make
delivery thereof to Borrower pursuant to Section 5.2. It is anticipated that
such assignment to Assignee will be made by Lender, and Borrower hereby
irrevocably consents to such assignment. No notice of such assignment shall
be given by Lender to Borrower. Assignment by Lender of Pledged Loans or
Pledged MBS as provided in this Section 8.18 shall not release Lender from
its obligations otherwise under this Agreement. Lender further acknowledges
that each Pledged Loan and Pledged MBS pledged hereunder is unique and
identifiable on the related Advance Date and that an award of money damages
would be insufficient to compensate Borrower for the losses and damages
incurred by Borrower in the event of Lender's failure to release and deliver
such Pledged Loan and Pledged MBS upon the repayment of the related Advance
by Borrower hereunder.
8.19 NO ASSIGNMENT BY BORROWER. Borrower's rights, obligations or any
interest therein hereunder may not be assigned without the express written
consent of Lender.
8.20 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the
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same instrument.
8.21 ENTIRE AGREEMENT. This Agreement the Advance Request Confirmations
and the Custodial Agreement contain the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements between them, oral or written, of any nature
whatsoever with respect to the subject matter hereof.
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WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
FIRSTPLUS FINANCIAL, INC.
By: /s/
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Name:
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Title:
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NOTICE ADDRESS:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile No:(▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ REAL ESTATE
SECURITIES INC.
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Title: First Vice President
NOTICE ADDRESS:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇